(Montel) The clean power plan unveiled by US president Barack Obama this week could potentially lead to greater thermal coal exports into Europe, deepening the global oversupply, market players said this week.
Coal producers forced to cope with a dwindling domestic market will either temporarily close production or turn their attentions overseas.
“News from the US on the [clean power plan] added further bearishness to the coal picture, since there could be more coal coming to Europe from the US in the next few years,” said Société Générale analysts Paolo Coghe and Thierry Bros in a note on Wednesday.
Obama unveiled the final version of his clean power plan (CPP) to dramatically cut power sectoremissions on Monday, calling it “the single most important step” America has ever taken to combat climate change.
The plan imposes bigger reductions in greenhouse gas emissions than Obama proposed last year, leading to the likely closure of more coal-fired plants and providing a boost for wind and solar power, potentially also at the expense of natural gas.
It sets out specific carbon reduction targets for each state and overall it demands the power sector cut emissions by 32% on 2005 levels by 2030, from the 30% mooted last year.
Right price
However, exports will only find a home if the price is right, Diana Bacila, an Oslo-based analyst for consultancy Nena, told Montel.
“Exports, will remain highly connected to coal prices on the international market. If the pricing works and miners have access to US ports, we may see higher exports as a result of the clean power plan implementation,” said Bacila.
“Those volumes will not necessarily come into Europe, they will look for the markets offering the best margins, which may be Europe, other major buyers in the Atlantic, India or buyers in the Pacific.”
Current calculations show that US coal at around USD 6/t is out of the money in Europe, she noted.
“Thus we need to see either lower freight costs, higher European or lower US coal prices, or a combination of these drivers to open up the arbitrage window.”
One Nordic-based trader agreed, saying US coal producers would be hard pressed to find a home in Europe under current market conditions.
“We just don’t have the demand for it, so good luck to them. There is still too much coal around and these plans to cut demand are not helping.”
Coal misery
Obama’s plan, assuming it survives an anticipated bombardment of legal and state government challenges, is expected to further accelerate the downturn in the domestic coal industry. Around a fifth of all US coal-fired plants are expected to shut between 2012 and 2020.
“The clean power plan has a negative effect on US CAPP [Central Appalachian] coal prices as its main objectives are to reduce CO2 emissions by expanding renewable power generation, increasing gas power generation and operating coal plants more efficiently,” said Bacila.
“Reduced coal power generation will likely close down more mines in eastern US, especially in the Appalachian region.”
In April, for the first month ever, gas was the single biggest source of generation, fuelling 31.5% of electric output compared to coal’s 30.2%.
Reporting by:
James Allen
james@montel.no
08:35, Friday, 7 August 2015
Editing by:
Snjólfur Richard Sverrisson
richard@montel.no
08:35, Friday, 7 August 2015