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IT MAY be a way off but the US could start to pose quite a threat to Australia’s coal exports to Asia. Supply Side by Noel Dyson
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Noel Dyson

For the past few months it seems the US coal sector has been belted around the head by various government and economic factors.

Forget about the war on terror. Barack Obama’s administration is running a fully-fledged war on coal. Environmental regulations threaten to close the coal-fired power stations that kept America’s coal mines mining.

Then there is the shale gas boom that has pushed the Henry Hub gas price down to about $US2 per million British thermal units. At that price gas becomes a handy substitute for coal in the electricity generating game – particularly with the environmental threats being fired at the coal generators.

This has obviously put a strain on the coal mining sector. Indeed, Patriot Coal has had the infamy of becoming the first US coal producer to seek Chapter 11 protection since coal prices plummeted.

A giant the size of the US coal industry did not just happen. It might have been feather-bedded by favourable terms in the past but it also grew out of the moxie of its founders.

That moxie lives on and those companies are not satisfied with trying to battle the US government.

They are pushing to develop export facilities on the US west coast with China and India being the key targets there.

Both countries are sitting atop energy-hungry economies. That reality was brought home to India recently when it managed to set a record for the largest blackout in history.

It seems these days that nothing is ever easy for the US coal sector. Environmental groups are lining up to oppose those plans.

Nevertheless, it appears that they may well go ahead.

If they do, Capesize shipments of coal could be sent steaming from the US to China – a journey not that much greater than that from Queensland and New South Wales.

Not that the industry is betting it all on the west coast hand. There are moves afoot to look at shipping out of the Gulf of Mexico.

This is not as attractive an option.

Going from the GoM means having to go through the Panama Canal.

While the canal is being widened, it will still limit the size of ships that can be used to carry US coal to the lucrative Asian markets.

Instead of Capesize, only Panamax ships can be used and these carry only a fraction of the cargo of their Capesize cousins.

The expansion of the Panama Canal locks has led to the creation of the New Panamax class, which will have a wider beam than its predecessors. All that means, though, is that they will be able to carry a larger fraction of what a Capesize can.

The journey would also be longer than from the west coast.

It is likely though that China and India will not mind too much and still happily accept US coal. If nothing else it offers competition and diversifies their coal supply options.

Something for Australian coal players to watch.

This article first appeared in ILN's sister publication MiningNews.net.