According to a new report by consultants Hill & Associates, the Illinois Basin is on the verge of a major boost in demand due to the amount of new scrubbing that will occur to meet tighter SO2 emission limits. However, the benefits will only be felt after 2006 – when supply is expected to expand faster than demand.

Tighter nitrous oxide, sulphur dioxide, and mercury emissions are a result of the new Clean Air Interstate and Mercury Rules.

Hill predicted newly announced scrubbing at existing power plants between 2005-10 would create 209 million tons of new demand for higher sulphur coals in the US. The first wave of construction will occur in 2007-08.

“While this demand will be shared amongst all producing regions, it will place extreme pressure on the high-sulphur producing regions, namely the Northern Appalachian (NAPP) and Illinois Basin regions,” Hill said.

Hill put forward two scenarios, with the high price one suggesting Illinois Basin demand would increase from 96Mt in 2005 to 112Mt in 2010, with most of the growth occurring in 2008 and beyond. The low-price case laid out increases from 96Mt to 133Mt by 2010.

High-sulphur coal prices under the high price scenario range from $US27-33 per ton, and coal prices under the low-price case are between $US24-29/t or $US2-4/t lower.

Hill suggested that in 2006 supply would outpace demand with a number of new projects coming onto line. This means production will be delayed or abandoned, or producers will be forced to price the coal lower in order to capture market share.