Steam coal supply chain in the U.S.
In this section of the series we’ll focus on steam coal because it accounts for over 90% of the coal produced and consumed in the U.S.
While coal is available in abundance in the U.S., the reserves are unevenly distributed across states. Most of the coal in the U.S. can be found in four regions, the Powder River Basin in Wyoming and Montana, the Western Bituminous region in Colorado, Utah, and southern Wyoming, the Appalachian region in Maryland, Ohio, Pennsylvania, and West Virginia, and the Illinois Basin in Illinois, Indiana, and Kentucky. Major coal producers such as Peabody Energy (BTU), Arch Coal (ACI), Alpha Natural Resources (ANR), Cloud Peak Energy (CLD), and Consol Energy (CNX) have their presence primarily in Wyoming, Montana, and the Appalachians. As a result, electricity producers from other states often get coal from these coal surplus states.
For example, Texas, where coal production falls short of consumption, got 57 million tons of coal from Wyoming in 2012 to generate electricity according to a U.S. Energy Information Administration (or EIA) report. Missouri got 43 million tons of coal from Illinois, Kansas, Oklahoma, Wyoming, and Utah.
In 2012, Florida imported two million tons of steam coal, primarily from Columbia, due to favorable economies. Other importing states include Alabama and the Commonwealth of Puerto Rico. The excess steam coal is exported to European countries.
The dynamics of the coal industry have been changing since the onset of the shale gas revolution. The shale gas revolution has made cleaner natural gas available at much cheaper rates. The natural gas is used to run the power plants. While coal remains the most preferred fuel to run power plants, with a 39.1% share in 2013, the share has dropped substantially from around 51% a decade back, giving way to natural gas.
In the next section, we’ll analyze the coal industry in the U.S. using the established Porter’s five forces model. We’ll also discuss the threat from the shale gas revolution as well as regulatory issues haunting the industry.