Miami (Platts)--31Jan2013/501 pm EST/2201 GMT

A lack of global supply to meet projected overseas demand for thermal coal has US coal producers shifting their focus to exports, said executives Thursday at the Coaltrans USA conference in Miami, Florida.

"When you look at demand growth around the world, and try to match that with supply, they don't match up, so there is clearly a gap," said John Eaves, CEO of St. Louis-based Arch Coal.

"We have identified 300 GW of new plants coming online in the next few years, requiring 900 million tons of additional supply, which will essentially replicate the whole US production in the next few years," Eaves said. "So there are tremendous opportunities in the global market, with growth in Southeast Asia, some in Latin America and Eastern Europe."

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Exports present an opportunity for US coal producers to shift away from a declining domestic market that has been hindered by regulation as well as competition from natural gas.

Overseas prices are down currently and as a result, export margins are tight, said Kevin Crutchfield, CEO of Alpha Natural Resources.

But based on long-term projections made by the company and the US Energy Information Administration, which predicts coal will become the world's primary fuel for electricity generation within the next few years, Crutchfield said the company is changing its strategy.

"2012 was a year of restructuring for us," said Crutchfield. "Looking through our portfolio, from a thermal perspective, from what we could meet domestically long-term and then more globally, we have made some changes in our sales group, and as we shrink our footprint in the US to be able to serve markets here in the US more sustainably, but also position ourselves on the thermal side on a global basis."

Eaves said Arch is well-positioned to export coal from its mines in the Western US, the Powder River Basin and the Illinois Basin through existing terminals in Canada, California and the Gulf Coast. Eaves said the company is also "looking at options in Mexico" and remains optimistic about the proposed coal export terminals in the US Pacific Northwest.

WEST COAST TERMINALS WILL HAPPEN: ARCH

"We think we'll win this fight," said Eaves, commenting on the proposed terminals in Washington and Oregon. "It will take a while but -- I think port capacity on the West Coast is important, because over time we think more Western coals will be going into Asian markets."

Eaves said planned US port expansion could push the nation's export capacity to 250 million tons by 2017.

Five terminals have been proposed in Washington and Oregon. A sixth coal export terminal at Port of Grays Harbor's Terminal 3 in Hoquiam, Washington, was proposed by RailAmerica, but the short-line railroad decided to shelve plans for the 5.5 million st facility in August 2012.

Michael Beyer, the CEO of privately held Foresight Energy, which operates four thermal coal mines in the Illinois Basin, said his company is well-positioned to take advantage of overseas opportunities due to a $250 million investment in transportation infrastructure.

Beyer said the company, which is also based in St. Louis, built a river terminal on the Ohio River and expanded an existing terminal in New Orleans to lower its delivered costs. Foresight ships roughly 48% of its coal by barge, said Beyer.

Beyer said the company was also able to use the terminals to negotiate a favorable long-term contract with Canadian National, which hauls roughly 35% of the company's coal to the Gulf.

Thanks to the investments, Beyer said Foresight has positioned itself as a low-cost provider, and said exports from the company's New Orleans terminal doubled last year to 7 million st.

2013 EXPORT OUTLOOK

Exports were strong in 2012 but this year, it's "not quite competitive," said Beyer. "The netbacks today into China and India are not there, so we saw a drop-off in the fourth quarter," he said.

He added that Illinois Basin coal seems competitive into Europe, but that with the sulfur discount, the netback is actually not competitive. "But as those markets improve, [we] will see IB participate more in the market," he said.

US coal exports are likely to remain flat in 2013 compared with 2012 but are likely to grow in 2014 and beyond, said J. Christopher Haberlin, vice president of research for Davenport & Co.

Haberlin, like Eaves, said new export terminals in the Pacific Northwest would be a "game changer" that would likely boost US coal exports past 200 million tons annually.

--Andrew Moore, andrew_moore@platts.com
--Edited by Lisa Miller, lisa_miller@platts.com

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