I don’t think the US exporting thermal coal to Asia is likely. But it is one more Trump risk for Australian coal that I was reminded of when I saw the latest EIA coal charts:
Note – this post is about thermal coal (to run power plants) – coking coal economics are different.
The key line to focus on in the above chart is the Powder River Basin. Yes, it really does sell for about $10 per tonne. Powder River Basin coal been way cheaper than anywhere else for a long time and it supplies more than half of the thermal coal in the US.
Basically, they pick coal up off the ground in the Powder River Basin. The costs are so low that the coal companies still produce (albeit not profitably) at prices which would drive a coal mine bust in most other locations.
And volumes are down about a third over the last decade, largely pushed out by shale. Trump will likely cut the EPA regulations on pollution that Obama used to drive down coal usage. But it hard to see anyone committing to new coal-fired power that would have to run for 30-40 years. So, the decline in US coal demand might be paused, but it is unlikely that US coal demand will meaningfully increase.
However, there is spare capacity that US coal miners would love to get to the rest of the world. The problem is shown below:
What did the greenies do this time?
OK, the US has dragged its feet on climate change more than just about any other country. But, anyone who believes in climate change the world (especially Australian coal miners) owes a debt of gratitude to Oregon and Washington state governments/citizens. Over the last decade, there have been proposals to export hundreds of millions of tonnes per year of coal knocked back or delayed.
For some inexplicable reason, residents don’t want a huge coal export terminal in their state. If Australia is prepared to sacrifice part of the Barrier Reef to get coal out of Queensland, surely these US states could put up with a little coal dust (and associated global warming) for the sake of corporate profitability? Maybe the greenies should just lie back and think of the jobs that it will create building the terminals. Just try not to think that 90% of the jobs that will be long gone by the time the first coal trains arrive.
If Asia had access to cheap US coal over the last 10 years, who knows how many more coal-fired power plants would have been built? Coal prices globally would be affected if this cheap and large resource could get out of the US.
How cheap could this coal be?
Say $10-15 in mining costs, $15-20 in train costs, $5-10 in port costs, $10-15 in shipping to Asia would mean that Powder Basin coal could get to Asia for around $50 and still be profitable.
Note – if you are comparing this to Newcastle coal prices (below), you need to remember to add $5-10 to the quoted price to cover shipping – i.e. US coal would be profitable at Newcastle Coal prices of $40-45.
What will Trump do?
There are still two big export terminal proposals in progress, about 150m tonnes of coal. Both have been repeatedly delayed.
It would be difficult for Trump to intervene to get these through as its largely at a state level. But it is also seemingly illegal for a President to appoint his son-in-law to the administration… at that looks like it is happening.
So, its a low probability event, but for climate change and for Australian coal producers it is has the potential to be a major problem.