Mon, February 12, 2018 8:49 am

John Lowell traveled to New Orleans last week to attend the 36th annual World Trade & Transport Conference, jointly sponsored for the second consecutive year by the Mississippi Valley Trade and Transport Council and The Coal Institute. The annual gathering draws attendees from a variety of industries utilizing the Mississippi River and its tributaries to export and import products. Here’s the recap:

  • The mood at the conference of those involved directly with U.S. coal exports was upbeat but tempered by the recent decline in the forward curves. John’s presentation, “Global Coal Markets Update – Opportunities for US Coal Exports,” is available by contacting Vicky Bray.
  • On the export front, one producer noted that it unexpectedly participated in the export market in Q4 (to the tune of 500K tons) due to one customer not having demand for its contracted tonnage and another encountering an unplanned plant outage. Another source revealed that Napp coal was making its way south into export shipments loading on the Lower Mississippi River. Big River Coalition’s executive director, Sean Duffy, discussed the effort to deepen the draft of the Lower Mississippi River from 47 feet to 50 feet so that bulk carriers loading on the river could lift coal (or other product) cargoes as large as those loaded presently at Hampton Roads. An economic assessment supportive of the project is expected this spring. Congressional approval of the project and appropriation of funding remain outstanding, with dredging in the areas most critical to project not likely until 2020/21.
  • The coal panel was moderated by Jim Thompson of IHS Market Coal and featured buyers from four utilities: Michael Shinn of South Carolina Electric & Gas (SGE), John Ohlson of Southern Company (SO), Frank Constanzo of Tennessee Valley Authority, and Bill McNally of Oklahoma Gas & Electric (OGE). The panel was very representative of the industry, collectively buying coal from every major US basin and imports and utilized transportation on BNSF, UP, CSX, and NS as well as the barge lines and transfer terminals. The panelists covered the following:
    • Severe Cold in January: John indicated that the previous month’s weather had not altered SO’s planned coal solicitations for 2018.  If necessary, tonnage solicited under a planned spot RFP would be adjusted. Michael indicated that the situation was similar at SGE. The month’s weather was a reminder to Michael’s organization of the value of coal assets with inventory on hand. For the first five days of 2018, SGE ran combustion turbines on fuel oil to meet load and was consuming up to a million gallons per day of fuel. Due to local shortages, one of SGE’s suppliers had to truck fuel in all the way from Idaho to meet demand. SGE also experienced during this period the very unusual situation in which purchased firm generation was recalled.
    • Economic Growth and Capacity Adequacy: With a favorable administration, tax reform, and less invasive regulations, several of the panelists commented on the prospects for load growth. Michael/SGE noted that net load growth is up 1%, despite efficiency programs. If demand growth were to bump up to 3% annually, gas-fired combined cycle generation would be his organization’s obvious choice. John/SO has seen load growth of below 1% satisfied by renewable capacity additions.  Gas plants and coal plants remain underutilized. The capacity value of renewables, especially solar, has not aligned well with his organization’s drift towards winter peaking. SO in winter is experiencing peak load in the morning before the sun comes up and again in the evening after the sun has set. Bill/OGE noted that his organization was converting 1,000 MW from coal to high-heat rate gas-capacity.  Capacity was therefore preserved if load growth materialized and provided adequate time to plan for additional capacity additions.
    • Pricing in Absence of Exports: Frank of TVA espoused his personal view that without exports in the presence of a normal or mild winter, coal pricing would have “gone off a cliff” due to ample natgas production.
    • Export Market, Friend or Foe? Michael/SGE views exports as beneficial in their preservation of suppliers, given his organization’s intention to preserve its coal generation. John/SO noted that at times exports may result in higher prices for domestic consumers but also saw exports as sustaining production.
    • Export of Natural Gas and Effect on Pricing: Bill noted that he was bearish on natgas and that OGE’s location in gas-rich Oklahoma gave him ample opportunities to interact with those knowledgeable about production. Continued technological advancement has lowered production costs below where they were three to four years ago. He is confident on the ability of natgas supply to ramp up to meet export demand.
    • Natgas Conversion: John/SO believes that conversion of plants on the company’s system are complete. Frank/TVA outlined the three instances in which coal units totaling ~1,000 MW—John Sevier, Paradise (Units 1 & 2), and Allen (expected online later this quarter) were replaced with gas. Michael/SGE noted company’s burn of ~3.5 mm tons per year and the presence of one unit on the system that can switch from coal to gas up to 50-70% of the year, depending upon pricing, resulting in a potential loss 600-700K tons of coal demand.
    • Fuel Flexibility: Michael/SGE noted that they have one plant burning a Napp blend, with the intention of increasing its share. At TVA, Frank mentioned that efforts were ongoing, although with less emphasis than in the past, to accommodate high-chlorine content ILB coals.  Bill/OGE mentioned the installation of scrubbers at one of the utility’s plants to enable it to take higher sulfur PRB coals (up to 1.0 lb. SO2/MMBtu).
    • Limitations on Burning Napp/ILB Coal: In John’s/SO’s experience, plants built to burn Capp converted to ILB have enjoyed significant fuel savings outweighing additional maintenance costs to handle more sulfur and chlorine. Bill of OGE noted from his past experience that chloride issues are well understood technically and do not limit its use.
    • Railcar Availability: John/SO sees a surplus of railcars with cars obtainable at fairly reasonable prices. Frank/TVA noted that that variability in coal burns due to gas has changed the way in which the optimal level of inventory is calculated (as opposed to previous focus on cash tied up by inventory) and placed a premium on the ability to flex storage to keep trainsets in service.