NEW YORK — Despite environmental concerns and encroaching alternatives, burning coal produces more than half the power generated in the United States — an auspicious fact for companies that mine and transport coal, especially with electricity demand likely to rise next year.
But while miners and railroads will benefit from an improving economy this year, the industry recovery is tenuous and likely won’t be grand, according to the Associated Press.
“For the next 15 months, our prospects depend on the weather,” said Thomas Hoffman, spokesman with Consol Energy Inc., a Pittsburgh mining company. “We’re like farmers.”
And, while bullish on its own prospects, even Peabody Energy Corp., the world’s largest private-sector coal company, noted the tepid industry conditions when it released third-quarter results Oct. 16. Peabody said it sees “signs of market improvements, albeit at a slower pace than expected due to the soft U.S. economy.”
For all of 2002, total electricity demand is expected to grow a scant 0.4 percent over the previous year, according to the Energy Information Administration, part of the Energy Department. A particularly warm summer kept it from being worse.
This will result in a coal glut this year, the EIA said.
The agency expects total U.S. electricity demand to grow 2.2 percent next year, a forecast that assumes the economy recovers and the weather returns to normal.
With a more efficient supply-demand balance next year, producers should be able to pare their inventories as power producers finally get their stockpiles in check. At present, Peabody believes utilities have 13 percent to 15 percent more coal stockpiled than normal, spokesman Vic Svec said.
American coal production and demand, according to the EIA, will increase next year by 1.2 percent and 1.6 percent, respectively. Nearly all of that is directly linked to power generation: last year, 90 percent of coal consumed in the United States was for electricity.
Union Pacific Corp., the nation’s largest railroad, expects “modest” growth in its coal shipments next year, said Lance Fritz, general manager of the firm’s energy business. Its shipments in October were unchanged compared with last year.
Some growth in that segment would help as coal generates a large slice of Union Pacific’s business — 23 percent. Its rail network canvasses the western two-thirds of the United States, including the low-sulfur coal reserves in Wyoming’s Powder River Basin where 354 million tons of coal were produced in 2001, according to the U.S. Bureau of Land Management. That’s 32 percent of the 1.12 billion tons of coal produced in the United States last year.
Gains in Western coal helped prop Union Pacific’s bottom line. Last year, 544.7 million tons came from western states, just shy of half of all U.S. production, and the highest production of any U.S. region. Union Pacific had $12 billion in total 2001 revenue.
Rival CSX Corp., too, relies heavily on coal, receiving 20.6 percent, or $1.67 billion, of its $8.11 billion in total fiscal 2001 revenue from coal shipments. In terms of weight, coal accounted for 24 percent of products shipped.