Coal Price In World Market and Trade Higher
May 1st, 2008
As consumers struggle to get used to $4-a-gallon gasoline, there’s another source of energy that is becoming more expensive: coal.
The price of a ton of Central Appalachian coal on the futures market was $42.65 a year ago and has risen to around $96, according to figures from the U.S. Energy Information Administration. That increase comes at a time when crude-oil prices have roughly doubled and natural-gas prices have risen more than 40 percent.
“Crude oil rises up and then natural gas rises up and when natural gas gets crazy, it’s coal,” said Tony Kolton, the president of Chicago-based Logical Information Machines Inc., which provides analysis of commodity trends. “It’s like dominoes.”
The rise in coal prices could eventually be bad news for residential and business electrical customers since coal is used to fire many of the electrical generating plants in the United States.
Consolidated Edison Inc., the giant Manhattan-based utility company, gets 11 percent of its electricity from plants fired by coal. Orange and Rockland Utilities Inc., the Con Edison subsidiary that serves Rockland County, said coal accounts for the biggest piece of its electricity portfolio, about 30 percent, followed by natural gas at 24 percent.
The Energy Information Administration said it would take some time for coal prices to push electrical bills up. In the suburbs north of New York City, electricity prices are likely to rise, probably because of natural gas, not because of coal.
Michael Donovan, a spokesman for Orange and Rockland, said his company – a subsidiary of Con Edison – buys a lot of its electricity in daily auctions. Most of the sellers in those auctions are electrical generators that use natural gas, he said.
“The rising tide lifts all boats and the energy markets are all going up,” he said.
Chris Olert, a spokesman for Con Edison, said the company predicts the average monthly electrical bill for a Westchester residence using 500 kilowatt hours in the summer will be $121.78, about 17.6 percent more than last year. About two-thirds of the increase is due to the higher cost of the electricity itself, while a third is due to higher rates for delivering the electricity, he said.
“Natural gas is much more of a driver” than coal, he said.
The Energy Information Administration predicts that residential electricity prices across the nation will rise 2.7 percent this year and an additional 3.1 percent next year.
But the coal prices will affect electrical rates across the nation in future years, the Energy Information Administration said.
Elias Johnson, an energy analyst with the Energy Information Administration, said companies that generate electricity have contracts, usually for between three and five years, to buy coal from coal producers.
“The next time these contracts are up, they’ll have to pass the prices through to the consumer,” he said. “The price of coal is going to have to play a part in rising electricity prices, but it will have a rather lagged effect.”
Johnson said prices were already rising in some parts of the country, though, such as in West Virginia and Kentucky, where up to 90 percent of the electrical power is generated with coal.
Johnson attributed the rise in coal prices to a confluence of global events.
Winter floods in coal-rich parts of eastern and northern Australia temporarily shut down mining, as did heavy snowstorms in China and electrical outages in South Africa, Johnson said. In addition, the building boom that has taken place in China as that nation prepares for the summer’s Olympic games in Beijing has spawned a need for more coal to make coke – which is used as a fuel in smelting iron ore in a blasting furnace, he said.
Some of that Chinese coal would have been sent to Europe and Latin America, he said. U.S.-produced coal has helped fill that void, he said.
U.S. coal production was down slightly last year, but the nation exported 59.16 million tons, 19.2 percent more than in 2006.
The booming economies in China, India and other Asian nations have also increased the need for various energy sources, including coal, Johnson said.
Meanwhile, many power plants in the eastern United States have shifted toward coal from the Powder River Basin in Wyoming and away from the Appalachian coal, Johnson said. The Power River Basin coal burns cleaner but does not produce as much heat and has to be shipped farther, he said.
Kolton, whose modeling is used by large energy and financial services companies, said history has shown repeatedly that when the cost of oil shoots up, the cost of other energy sources follows. He acknowledged that the increase in coal prices the past year has been extraordinary, even when taking into account the higher oil prices.
Kolton’s studies show that when the price of crude oil increases 15 percent in a 20-day period while the U.S. dollar is weakening, there’s a 75 percent chance that coal prices will rise 20 percent. There have been three instances in the past two months in which crude-oil prices rose 15 percent and the dollar continued to weaken.
Consumers rattled by high energy prices, the tanking housing market, inflation and the weak stock market might be pleased to hear Kolton’s prediction for coal and other energy prices.
“They always subside,” he said. “Commodities run up and run down. I think we’ve swung up and high on coal and natural gas and oil. All of this will calm down in the future.”
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