Plunging gas prices threaten coal pits  

The Australian reports on plunging global gas prices and the impact on the coal mining industry - Plunging gas prices threaten coal pits. While I'd hate to provide any comfort to coal miners, if the Japanese economy ever recovers, Asian gas demand should jump quickly again, and US gas prices seem destined to bounce in the not-too-distant future given the rapid depletion of shale-gas plays and the cessation of drilling that has resulted from the price plunge.

A PRICE war between liquefied natural gas and coal could lead to the temporary closure of coalmines, according to leading energy consultants, because of a surge in shipments of the gas from the Middle East into Europe and North America.
Plunging gas prices threaten coal pits

Gas prices, already tumbling as a result of the recession, are suffering a triple whammy, according to Cambridge Energy Research Associates (Cera): from recession in the Far East; a long-awaited build-up in new supplies of liquefied natural gas (LNG); and unexpected discoveries of new gas reserves in the United States.

The emerging gas glut could even displace coal in the supply of fuel to power stations in Europe, Michael Stoppard, managing director of Cera, said.

In the teeth of a recession, the LNG industry is about to take a big upward step, Mr Stoppard said. "Over the next 18 to 24 months, LNG capacity will increase by 30 per cent," he said. "Where is the stuff going to go? The answer will be in the Atlantic basin."

Spot prices for LNG - natural gas that has been super-chilled to -160C - have collapsed in the Far East, falling $US20 per million British thermal units (BTU) to only $US6 per million BTU. Power stations in Japan and South Korea account for almost half the world's LNG consumption, but last week Japan's ten big utilities revealed that their electricity output had plunged by 15.8 per cent in February, compared with a year earlier.

Meanwhile, the gas market is braced for a surge in LNG output from Indonesia, Russia, Yemen and Qatar. Britain will be a significant beneficiary of imports of frozen gas from Qatar when South Hook LNG, a regasification terminal at Milford Haven, Pembrokeshire, receives its first cargo, expected next month.

Natural gas prices have tumbled in recent months, falling in the United States from an average of $US12.61 ($19.18) in 2008 to $US4.54 in February. In Britain, the fall has also been precipitous, from $US13.46 to $US6.79.

According to Mr Stoppard, it was assumed that America's demand for power for air-conditioning in the summer would absorb any excess Asian LNG that found its way West. However, the unexpected discovery of new gas reserves in shale deposits has changed the equation.

The gas price could begin to test the marginal cost of coal production, Mr Stoppard believes. "It is a truly dramatic turnround. Below $US3 per million BTU, you would expect to see coalmines suspending production."

That could be happening in Russia soon, according to John Howland, of McCloskey Group, the coal pricing consultancy. He said: "Gas has been chasing down the coal price. There is an oversupply of coal in the system and as we move into (northern) summer, gas will fall beneath coal."

The price of coal has collapsed, peaking last year at $US220 per tonne for deliveries into Europe and presently trading at about $US60 per tonne. According to McCloskey Group, the price is dropping close to a level at which the economics of some Russian coalmines may come into question. "Prices for coal out of the Baltic are around the level of cash costs," Mr Howland said.