Washington (Platts)--4Dec2012/536 pm EST/2236 GMT

Rising US natural gas prices are translating into additional coal sales business for Alliance Resource Partners, a company official said Tuesday.

"We're seeing some of our customers coming back to us this year and asking for additional deliveries of coal," Brian Cantrell, the chief financial officer of the Tulsa, Oklahoma-based company, told the Wells Fargo Pipeline, MLP and Energy Symposium in New York.

In recent months, gas prices have been trending upward from historically low levels early this year, Cantrell said.

Analysts say that when gas hits about $3.50/MMBtu, coal becomes more competitive, encouraging electric utilities that moved to gas months ago to switch back to coal. NYMEX January gas futures settled at $3.539/MMBtu Tuesday.

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While Alliance, the third-largest coal producer in the eastern US, is feeling good these days about its prospects, Cantrell said the outlook for some coal producers may be more cloudy.

Utilities, he said, are still choked with huge inventories, totaling as much as 185 million st to 195 million st, thanks in part to the mild winter of 2011-12.

"We think it will work its way through the system while demand picks up" in 2013, he said. However, much of the increased demand will be filled by existing inventory.

"In our case, given our contract book, we should be just fine," he said. "But if you're open for the market, 2013 will continue to be a challenge."

Alliance's production is mostly booked for this year and 2013, and the company has already committed to selling 30 million st in 2014.

According to Cantrell, some 80-90% of Alliance's production is sold into the scrubbed US electric utility market. The company, in recent years, has exported about 1 million st of mostly Illinois Basin thermal coal overseas.

Assuming a normal winter this year and "reasonable" economic growth in the US, Cantrell said Alliance sees coal demand increasing by 3-4% in 2013. But no significant rise in prices is envisioned by the company until, perhaps, the latter half of 2013, he added.

Alliance expects to produce about 35 million st from its 11 underground mining complexes this year, moving to about 50 million st in 2016 once new deep mines under construction -- such as Gibson South in Indiana and White Oak No. 1 in southern Illinois -- are in full production, as well as the company's newest longwall mine, Tunnel Ridge, in Pennsylvania and West Virginia.

--Bob Matyi, newsdesk@platts.com
--Edited by Keiron Greenhalgh, keiron_greenhalgh@platts.com

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