| NEW YORK, Sept 20
NEW YORK, Sept 20 Cheaper, dirtier Illinois coal
is giving cleaner burning natural gas a run for its money as a
fuel for electric power plants, helping the coal market slow the
rate at which utilities are switching to abundant,
Electric utilities are not switching from coal to gas as
quickly as they were last year, when natural gas prices hit a
10-year low. Gas prices have almost doubled since then.
Illinois coal gives power plants that choose to stick with
coal another option besides the benchmark Central Appalachian
grade. More utilities can burn Illinois coal because they have
retrofitted their plants to scrub the coal clean and meet
Illinois coal is 20 percent cheaper than its Appalachian
counterpart and production of it is on the rise.
With Illinois coal now in the mix, it could become more
difficult for gas producers to predict how many power plants
will switch from coal to gas, a factor in determining demand.
Utilities are still switching from coal to gas, but the rate
has slowed by 60 percent this year, according to internal data
provided by Reza Haidari, manager with Thomson Reuters Natural
Gas Analytics, as natural gas prices have risen.
Central Appalachian coal futures fell this month to
their lowest in more than three years, while natural gas has
rebounded from a six-month low.
Cheaper coal and more expensive gas generally prompts some
utilities to consider switching back to CAPP coal, but analysts
and traders said that lately, Illinois Basin coal has been
undercutting both CAPP coal and gas.
Some power generators, especially those in the U.S.
Southeast like Southern Company, are returning to coal
after shifting to more natural gas.
Utilities were surprised to see they could "aggressively run
coal plants with as much of an Illinois basin blend as they have
been," said Ted O'Brien, president of Doyle Trading Consultants,
an energy research firm specializing in the coal sector.
"It's a structural change that will accelerate over next
couple of years," he said.
ILLINOIS VS CAPP
The shift toward Illinois coal has been underway for several
years, and is increasingly evident among producers like Peabody
Energy Corp. Its Illinois Basin output rose 11 percent
last year even, while CAPP output pulled down total production.
Illinois coal has become so popular that CME Group
is considering launching an Illinois Basin coal futures
Plants burning both types of coal in 2008 had a mix of 87
percent CAPP coal and 13 percent Illinois Basin coal, according
to an SNL Energy analysis of government coal delivery data. In
2012, that mix dropped to 59 percent for CAPP and rose to 41
percent for Illinois Basin coal.
The U.S. Environmental Protection Agency (EPA) has set forth
guidelines for all coal plants to be in compliance with mercury
and air toxic standards (MATS) by 2015. Those coal plants which
have installed scrubbers can burn Illinois coal while remaining
within guidelines to reduce sulfur dioxide emissions, the U.S.
Energy Information Administration said.
Power generators have retrofitted coal plants to catch
pollutants so they can comply with environmental rules.
Southern Company, which has spent $9 billion retrofitting
plants and provides power to more than 4 million customers in
the U.S. Southeast, has said the share of Illinois Basin coal it
burns could rise five-fold in the coming years. Last year, it
accounted for about 7 percent of its coal burn.
"The addition of state-of-the-art environmental control
technologies affords us the flexibility to return to a variety
of coal types," the company said.
COAL'S TRICKY DANCE
The use of Illinois coal has allowed the coal market to hold
onto some of the power market. Ten years ago coal was used to
generate more than half of U.S. electric power. By 2011, gas
generated some 25 percent of power while coal's share dropped to
42 percent, according to government data.
At this time last year, CAPP coal and natural gas were
priced more competitively with gas prices below $3. Gas prices
would again have to fall to about $2.90 before Illinois coal
would start to be displaced, says Doyle Trading's O'Brien.
On the flip side, CAPP coal would become more competitive
once again if gas prices were to rise to $4.75 per mmBtu. It
remains a balancing act for power generators among all three,
"In some cases, by burning Illinois Basin coal, utilities
can maximize their coal burn," said Jim Thompson, director of
coal for the Americas at consultancy IHS in Knoxville,
Tennessee. "It's not necessarily a ticket to displacing gas in