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REAMP DiscussionSeptember 25, 2014
Global, National and Illinois Basin Coal Trends
Tom SanzilloDirector of Finance
Global Coal Production 2008-2013
2008 2009 2010 2011 2012 20136.5
7
7.5
8
8.5
9
Coal Production (billion tons)
Coal Production
World’s Largest Producers
China United States India Indonesia Russia Australia Germany Poland0
500
1000
1500
2000
2500
3000
3500
4000
2013 Production
2013 Production
Worlds Largest Consumers
China
United St
ates
India
Venezuela
Russia
German
y
South
Africa
Japan
Australi
a
Poland
0500
10001500200025003000350040004500
2012 Consumption
2012 Consumption
Global Imports/Exports: Global Trade 2012 1.4 billion
2013 Importers (million tons)
ChinaJap
an
South
KoreaIndia
Taiwan
German
y
United Kingd
om0
50100150200250300350
2013 Imports
2012 Exports (million tons)
Indonesia
Australi
aRussi
a
United St
ates
Colombia
South
Africa
050
100150200250300350400450
2012 Exports
2000 2005 2010 2015 2020 2025 2030 20350
1000
2000
3000
4000
5000
6000
New Policies
Current policies
450
ETA/IEEFA
Mill
ion
tonn
es o
f coa
l equ
ival
ent (
Mtc
e)
Major Drivers of Demand Curve• China: Thermal coal demand peaks early in the 2015-2020 period and
declines to below 2010 levels by 2035. China becomes an opportunistic exporter on any thermal coal price strength. This equates to rates of decline up to -0.9% CAGR in 2020-2035. This reflects:
• Continued energy efficiency gains reducing the ratio of electricity to GDP growth;
• Slower GDP growth and a transition towards less energy intensive sectors;• Increased thermal power plant efficiency;• Technology gains, particularly battery storage, solar, on and offshore wind; • Continued electricity supply diversification i.e. more gas, nuclear, wind, solar
and hydro; and• Beyond 2020 offshore wind will then step up as another area of diversification.
– India, Japan, U.S., Korea and Taiwan
UNITED STATES COAL MARKETS
11
Coal’s Share of U.S. Electricity LT Decline
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
Coal vs. Natural Gas Percentage of All U.S. Electricity Generation (2002-2013)
Coal Natural Gas
Electric Sector Coal Consumption
2008 2009 2010 2011 2012 2013 20140
200
400
600
800
1000
1200
Chart Title
Coal Consumption Estimate
An ILB Leader Sums Up• “We have the absolute destruction of the American coal industry. If
you think it's coming back, you don't understand the business,” Murray Energy CEO Bob Murray remarked to hundreds of coal industry executives at the Platts 37th Coal Marketing Days. “Or you're smoking dope.”
• Murray further claimed that publicly traded companies like Peabody are being dishonest with their investors for public relations purposes about the future of coal.
• “You got to be the low-cost producer every day, in every region. Everything else is public relations garbage by public companies that are worried about stock prices,” Murray said.
ILLINOIS BASIN
ILB: Growth Story
• Only major growth story in US Coal markets– Since 2009 – 25% growth, CAPP down 14%– 2012 – 127.5 mtpa; 2013 – 132 mtpa
• Why growth story? – High BTU, high sulfur coal– Scrubbers – more intense emissions goals seen
helping ILB producers, most retirements CAPP– Lower cost of production– Solid Margins
ILB: Fundamentals
• Basic Economics– Prices Received: 2012: $49.20– Costs of Production: $34.93– Margins in: $14.00 to $30.00 range
• Despite erosion in prices in 2013-2014: $44.00 per ton, Basin still growing.
• ILB cost of production rose by 6% per year since 2007, CAPP up over 8% per year.
Investment Taking Place
• Major Companies all expanding operations with new mines in construction and under permit
• Largest Producers– Peabody, Alliance, Foresight, Murray and
Armstrong– Strong cast of smaller players: Knight Hawk (Arch),
Vectren, Hallador
Exports and Potential
• Companies geared up for more exports– Foresight led in 2012 with 7.7 mtpa off based of
16 mtpa. – 2013 and current year price collapse globally,
lower exports – approximately 7 mtpa. • Port of New Orleans – 92% of ILB exports -
multiple terminals and Port of Mobile
Exports and Potential
• Where is market– Americas (Canada, Chile, Mexico)– Europe (France, Great Britain, Germany, Spain)– Asia (China, India and South Korea)
Risks
• Although margins are solid for Foresight and Alliance – Arch, Peabody hurt by price erosion.– How long can they handle low prices
• Soft global markets undermine larger efforts of combining domestic and export mix.
• Old Customers buying more – Duke, TVA, Southern, but in context of overall coal demand decrease.