Coal Exports

Coal now generates about 39% of electric power in the U.S., off from 55% in 1990.

Low domestic demand has renewed the focus on U.S. exports, which are on track for a record-setting third straight year of more than 100 million tons.

The 28-nation EU imported 47.2 million tons of U.S. coal last year, up from 13.6 million tons in 2003.

Exports to the U.K. alone are up tenfold in the same period. The U.S. ranked second only to Russia in supplying Europe with coal last year, and the U.S. could further increase its market share if recent political tensions with Moscow disrupt Russian shipments.

Germany's decision to phase out of nuclear power after the 2011 Fukushima nuclear disaster in Japan has also made it a significant buyer of U.S. coal, mostly because the commodity is so inexpensive. Since 2003, German imports of U.S. coal have risen to more than 15 million tons from under a million tons.

The big gainer—accounting for roughly one-third of U.S. exports, up from almost nothing 10 years ago—has been high-sulfur coal taken from thick coal seams in Illinois and Indiana. It is loaded onto barges and shipped 800 miles down the Mississippi River to a terminal on the Gulf of Mexico. From there, it heads across the Atlantic.  Illinois and Indiana coal, shunned in some places in the U.S. because of its high sulfur content, offers a less-expensive alternative than coal from nearby European mines—even including transportation costs.                                     

The Illinois Basin—located in Illinois, Indiana and parts of Kentucky—possesses some of the world's richest coal seams, but high sulfur and ash content caused the coal to be shunned after the passage of the Clean Air Act in 1970. By 2002, mining in Illinois reached its lowest levels since the Great Depression. That is when a handful of companies, led largely by two private operators, Chris Cline and Robert Murray, snapped up mines on the cheap. The acquirers, bet—correctly, it turned out—on scrubbing technology that can remove almost all the sulfur. They also counted on the coal appetite of export markets such as the U.K.

Mr. Cline's Foresight Energy—Drax's top U.S. supplier—last year offered its coal for as little as $65 a ton in Europe, including freight, compared with $80 a ton from U.K. mines near the Drax power plant. Appalachian coal typically sells for 20% more than Illinois Basin coal.

EU officials are aware of the rise in high-sulfur Illinois Basin coal imports and are concerned. Many EU countries are in violation of the bloc's emissions rules, and 19 have been subject to formal complaints from the European Commission.  (WSJ, 5/5/2014)