Interesting Reading
BLOOMBERG NEWSWIRE
Europe Burns Coal Fastest Since 2006 in Boost for U.S.: Energy
By Rakteem Katakey, Rajesh Kumar Singh and Rachel Morison
July 02, 2012 7:01 PM EDT
Facebook Twitter Queue
Europe is burning coal at the fastest pace since 2006, as surging imports from U.S. producers such as Arch Coal Inc. (ACI) helped cut prices 27 percent in a year and benefited European utilities including EON AG.
Demand for coal, the dirtiest fuel for making electricity, grew 3.3 percent last year in Europe while sales of less- polluting natural gas fell 2.1 percent, the steepest drop since 2009, according to a BP Plc report. Germany’s EON and RWE AG (RWE), the biggest utilities in Europe’s largest power market, are considering shutting unprofitable gas-fired plants even as Chancellor Angela Merkel promotes gas to replace nuclear energy.
Europe’s higher coal use defies its policies to penalize carbon emissions and is based on profit margins climbing to a two-and-a-half year high for coal-burning power stations, data compiled by Bloomberg Industries show. Cheaper coal was made possible partly by a 49 percent jump in first-quarter imports from the U.S., Energy Information Administration data show.
“Coal will continue to remain on the money in Europe because it’s more competitive to burn than gas,” said Trevor Sikorski, an analyst at Barclays Plc in London. “More and more of the coal to Europe will come from the U.S. where just the opposite is happening.”
Thanks to the explosion of shale drilling, natural gas futures have fallen about 36 percent in 12 months in New York, pushing utilities to combust more gas and rely less on coal.
$530 Million Expansion
That decline has pushed U.S. producers such as Arch Coal to increasingly look to Europe as an export market. Peabody Energy Corp. (BTU), Alpha Natural Resources Inc. (ANR) and Arch stand to gain from Europe’s rising appetite for coal.
Arch, which opened a London sales office on March 1, ``expanded our reach with a dedicated sales team in Europe because we see increasing energy demand,'' Kim Link, a spokeswoman for the St. Louis-based company, said in an e-mail yesterday.
Companies in the world’s biggest economy are spending at least $530 million to expand coal-export capacity to meet overseas demand, David Host, chief executive officer of shipping agent T Parker Host Inc., said June 22 at the IHS McCloskey Coal USA Conference in New York. Capacity will grow 35 percent to 285 million tons annually by 2015, he said.
In Germany, as much as 6,400 megawatts, or 25 percent of the nation’s gas-plant capacity, will shut through 2015, Deutsche Bank AG predicts. EON, based in Dusseldorf, credited “improved market conditions for coal-fired assets” in Britain among drivers for first-quarter earnings. An EON spokesman yesterday didn’t respond to requests for comment.
Essen-based RWE, the best-performing European power utility stock this year, increased electricity from lignite coal by 20 percent in Germany in the first quarter. RWE spokeswoman Annett Urbaczka declined to comment on specific plants’ profitability.
Gazprom, BG Group
Gas suppliers whose sales may be undercut by the switch include Russia’s OAO Gazprom, the world’s biggest producer, BG Group Plc of the U.K. and Norway’s and Statoil ASA.
Gas-fired plants need about half the carbon permits of coal burners. Even so, the 17 percent drop in permit prices to about 8 euros a ton ($10) from their February high has reduced their competitive advantage.
“Even if they were twice the current level, utilities would prefer coal over gas for power generation,” said Paolo Coghe, senior analyst at Societe Generale SA in Paris.
European utilities burning coal had a profit of 16.3 euros per megawatt-hour in the second quarter this year, compared with 9 euros a year earlier, according to data compiled by Bloomberg Industries. Plants using gas as a fuel only broke even in the quarter.
