Consol rests future on scrubbers

CONSOL Energy continued to build on its healthy accounts’ fattening net profit by 65% in the 2006 first quarter compared to 2005 figures, with most of its mines reaching the high end of expectations.
Consol rests future on scrubbers Consol rests future on scrubbers Consol rests future on scrubbers Consol rests future on scrubbers Consol rests future on scrubbers

A Consol Energy longwall

Angie Tomlinson

Company president J Brett Harvey said he was particularly pleased with the period-to-period improvement in net income, given the strong first quarter results for 2005, when net income increased 129%, period-to-period, before the effects of an accounting change.

“Increasing net income 65 percent after a 129 percent increase in the two period-to-period comparisons, shows the type of earnings power the company's assets have," Harvey said.

Earnings for the quarter were $US124.4 million on coal production of 17.8 million tonnes and coal sales of 18.2Mt.

“Moreover, our long-term strategy to expand markets for our high-Btu, Northern Appalachia bituminous coal in concert with the completion of scrubber retrofits at numerous power generating units in the Eastern United States continues to be validated in the market."

Consol Energy’s long-term strategy took a big step forward during February this year when it entered a multi-year, multi-million tonne coal sales agreement with Duke Power for delivery of high-Btu bituminous coal to various coal-fired power stations in North Carolina beginning in 2007.

The coal will be delivered by rail from several northern West Virginia and Southwestern Pennsylvania mines in the Pittsburgh 8 Seam to Duke Power plants that have completed the installation of flue gas desulfurisation equipment (scrubbers).

“Because many of our Northern Appalachia mines are serviced by two railroads, we have the flexibility to penetrate markets that traditionally were not served in the past," Harvey said.

"In this instance, Duke Power locked up a secure source of high-Btu coal that fits neatly with the completion of their scrubber projects and makes pure economical sense."

He said the company has managed its portfolio of contracts for Northern Appalachia to coincide with the addition of scrubbed power plant capacity being added.

The forward price curves for Pittsburgh 8 Seam coal, from which about two-thirds of the company’s production is derived, are higher than current spot market prices.

“As scrubbers are installed and retrofitted, we believe that the price of Northern Appalachia coal will converge with Central Appalachia pricing," Harvey said, adding he expected prices for 2007 coal shipments that are yet to be priced will be at least 20% higher than business already booked in 2006 or 2007.

In less positive news, during the first quarter Consol decided to idle production at the Shoemaker Mine near Moundsville, WV, beginning mid-April 2006.

Previously, the company had announced the mine would produce coal until the fourth quarter of 2007 before production would be idled. Approximately 170 workers were part of the workforce reduction out of a total of 319 employees. The remaining employees will continue to work on the installation of the new belt haulage system.

“Shoemaker is at a near-term competitive disadvantage because of its older rail haulage and its high sulfur content," Harvey said.

Harvey said he expected markets for high sulfur coal to improve starting in 2007 as power plant operators complete planned scrubber installations on their existing plants. Plants equipped with scrubbers can burn high sulfur coal and still meet federal and state air quality standards.

He said if market pricing for Shoemaker coal improved sufficiently before the scheduled completion of the haulage project in early 2009, the company could resume production at the mine using the existing haulage system while continuing to install the upgraded belt haulage.

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