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Gulf Crisis Won’t Affect Coal Demand For A While Graphic

September 28, 1990

NEW YORK (AP) _ There aren’t many opportunities left to expand coal use, despite the increased demand placed on oil since Saddam Hussein’s invasion of Kuwait, analysts say.

Coal boomed in the 1970s partly because utilities used it to wean themselves from a dependence on foreign oil. Utilities spent millions to convert power plants from burning oil to coal.

Mansions and Mercedes appeared in Appalachian coalfields as mine owners profited from the rapid demand.

But the bonanza is over. The big conversion to coal has already taken place, and short-term growth prospects now look dim in both the domestic and export markets. While oil prices have soared since the Aug. 2 invasion, coal has been steady.

″Nothing’s going to happen here for a six- to nine-month period because of Iraq,″ said Joel Price, coal analyst for Donaldson, Lufkin and Jenrette.

He and other industry observers listed several reasons why coal hasn’t been affected by the Gulf crisis:

- Coal barely competes with oil as a domestic energy source. During the 1973 OPEC oil embargo, oil generated nearly 17 percent of the nation’s electricity. Now it provides only 4 percent to 5 percent. In the same period, coal’s share grew 10 percent to about 56 percent of the nation’s electric output, according to the U.S. Energy Information Administration.

- No sudden demand for coal is forecast at home. Utilities burn about 80 percent of all coal mined in America and there’s a surplus of coal on the market. Utilities aren’t expected to convert the few existing oil-fired plants to burn coal, said Price and others.

″There isn’t much room for oil to be backed out further,″ said John Grasser, spokesman for the National Coal Association in Washington. Utilities probably will switch to clean-burning natural gas to meet sudden demand.

- Sudden growth in exports has not occurred.

″There is not much movement at all in terms of requests for greater tonnages or a run-up in prices,″ said Thomas Hoffman, vice president of public relations for Consolidation Coal Co. Inc. in Pittsburgh. Consol is a large exporter.

United States coal companies hope to sell more coal to European utilities with universal boilers, which burn either coal, oil or natural gas. The U.S. exported about 10 percent of its coal production last year.

″Overseas, there is some chance if (war) breaks out, you might see coal take the place of some of the residual oil in Europe,″ said Chuck Linderman, manager of fossil fuels program for Edison Electric Institute in Washington.

Spot market prices for coal have stayed steady and in some cases declined since the Aug. 2 invasion. That reflects an oversupply in the market that’s existed for several years.

″We have had the capacity for years to produce more coal than what the market demanded,″ said Tom Duncan, Kentucky Coal Association president.

Price said rising oil prices, however, will affect the coal industry eventually. Mine owners will have to pay more for diesel and transportation costs will rise. Spot market prices will rise to reflect these costs, he predicted.

And coal will suffer, not profit, if the Gulf crisis brings on a recession, Price added. Plant closings or large layoffs among U.S. manufacturers will reduce demand for electricity, and a drop in power demand will cause a drop in the need for coal, said Price.

Coal’s promise lies in the long term.

Marc Cohen, coal analyst for Kidder, Peabody & Co. in New York, predicted that utilities looking for new power sources will seek coal over generating stations, oil, nuclear and hydroelectric power.

″When you have new baseload growth, coal once again will be the dominant kid on the block,″ he said.

The pending Clean Air Act legislation has placed low sulfur coal in high demand as utilities try to meet the tough new air pollution regulations. The Powder River Basin in Wyoming and portions of central Appalachia will see job growth as low sulfur production picks up.

Thousands of workers in high sulfur coal mines in the Illinois basin will be sent packing because of the new environmental rules, the Environmental Protection Agency says.

Others see coal fueling future modes of transportation, such as electric trolleys and electric cars.

″The only real area where coal could make the most inroads is the sector that uses the most oil, and that’s the transportation sector,″ said John Grasser, spokesman for the National Coal Association in Washington.