Coal: A dirty business

Some of the dirtiest U.S. coal deposits with the highest sulfur and ash content, which are the least desirable for domestic consumption, come from Illinois, Indiana and parts of Kentucky. 

These thick coal beds are easy to mine and are readily accessible to barge. However, this coal is not attractive to domestic utility markets where demand for much higher quality coal is declining in the face of stricter emissions standards and natural gas competition.

But this same dirty coal is reportedly being delivered to utility plants in Europe for about $65 a ton — much cheaper than the delivered price of European coal and cheaper than higher quality Appalachian coal. The growing success of U.S. coal exports can be traced to a combination of low cost production and transportation. A major component of the low delivered U.S. coal price in Europe is the use of domestic barges to New Orleans for export.

Annual U.S. coal exports are now at about 100 million tons, up sharply in the last several years. Europe has become a major customer and now takes about half of all U.S. coal exports. Moreover, Europe is regarded as a growth market for U.S. coal exports. Germany is phasing out nuclear power and is becoming a major U.S. coal importer.

The dirty coal model that has been successful in overseas markets has the potential to spread to other domestic coal sources. The continued demise of some Appalachian coal production may result in very cheap coal properties becoming available for post-bankruptcy or fire sale investors. The right combination of lower production costs and favorable domestic transport, typically via barge, could create a steady market for U.S. coal that otherwise would not move domestically.

Ultimately, it is a matter of grade and price. The fact that the dirtiest U.S. domestic coal can be competitive in a world market should be encouraging for other producers if they can use this model to keep costs down. That is where the barge sector becomes very important. 

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Workboat Staff

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