Utilities that already burn a blend of Central Appalachian and Illinois
Basin coal are only using more Illinois Basin coal in their burns than before,
despite predictions coal company executives and analysts made earlier this
year that IB would replace CAPP coal, a Genscape official said Thursday.
"There is no wholesale replacement" of CAPP by Illinois Basin coal, Abudi
Zein, Genscape's senior vice president for data resources, said in an
interview Thursday. Rather, "plants that take both [IB and CAPP] are taking
more IB ... they are changing the blend," Zein noted.
Kentucky-based Genscape measures real-time power flows, fuel and
In March, officials from Peabody Coal Sales and Armstrong Coal, as well
as analysts, predicted that Illinois Basin coal would boost its market share
and be a ready replacement for CAPP coal, the production of which is declining
because of heightened scrutiny of mining permits and safety practices.
As of the end of November, Zein said coal-shipment data shows that IB
coal has added "to the usual suspects" and has no new users, despite test
burns that a whole host of eastern utilities conducted this year.
To date, IB coal shipments to power plants total 35.1 million st, just
2.9% below 36.1 million st in 2009, and 13.45% below the pre-recession total
of 40.6 million st in 2008, Genscape data says.
According to Genscape, the greatest jump in IB shipments this year came
in the South Atlantic corner of the Illinois Basin region, which this year has
received 5.4 million st in shipments, which is nearly double or 45.7% greater
than 2009 shipments of 2.9 million st and almost 34% higher than 2008.
The increase in South Atlantic IB shipments is directly attributable to
TECO Energy's 1,800-MW Big Bend Power Station's four coal-fired units, which
started buying coal from Alliance Energy's Cardinal in 2010, thereby boosting
its IB usage this year, according to Zein.
Besides, more plants are increasing IB share's in coal blends because more
utilities are scrubbed to remove sulfur and technologies have been devised to
reduce fouling and slagging of boiler linings by the high chlorine levels
found in IB coals.
With upcoming US Environmental Protection Agency regulations for tightened
standards for nitrogen oxides, sulfur dioxides, and mercury and hydrochloric
acid, the market for scrubbers, which remove sulfur and chlorine from coal, is
expected to receive a huge boost. That, in turn, would prove to be a boon for
the high sulfur, IB coal market.
In November, Brian Cantrell -- the CFO for Illinois Basin producer
Alliance Energy -- told a group of investors and analysts that baseload
coal-fired capacity totals 122 million st, with incremental scrubbed capacity
of 200 million st expected in 2011, 238 million st in 2012, 248 million st in
2013, 272 million st in 2014 and 308 million st in 2015.
The additional boost to IB coal production would come from the declining
CAPP market share and increased export demand for IB coal, according to a
Kentucky-based coal trader. He expects China and India will eye IB coal as
CAPP coal supplies dry up, which will translate into higher demand and higher
prices for IB coal in 2011.
But Zein rejected the notion that the Illinois Basin market would eat into
the declining CAPP coal market share for 2011. He expects IB prices to remain
flat as new IB production comes online, with Peabody's Bear Run ramping
up production and White Oak Resources bringing their White Oak No.1 mine to
Hamilton County in Southern Illinois. Rhino Energy also has obtained a permit
to operate a mine.
The increase in production of IB coal would complement the flattening in
CAPP production declines. In Q3 2010, Genscape said CAPP shipments to power
plants slid 16%, compared with a 2.9% drop seen in IB shipments over
comparable 2009 figures.
CAPP production declines next year will not mirror 2010, because "what
the crisis has done is that it has shaken out all the weak producers ...
that's over ... that can't happen again next year," Zein said.
Besides, the third quarter of this year saw Powder River Basin producers
creeping into the Midwest and taking over what IB producers thought would be
their territory, according to Genscape's Q3 review of the power markets
--Amena Saiyid, email@example.com
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