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Coal’s top need? Higher gas prices

When might the coal industry rebound and put more miners back to work? A cold winter might speed things up, but what’s needed even more is a rise in the price of natural gas, the Wall Street Journal reports.

In a commentary published Sept. 27, analyst Liam Denning wrote that coal’s “real enemy is natural gas.”

Here is how Denning explained the situation the coal industry faces in The Journal’s “Heard on the Street” financial analysis and commentary feature:

“Gas competes with thermal coal as a fuel to produce electricity, and the shale drilling boom has led to very cheap gas. Department of Energy data released (Sept. 26) show that gas use by power companies jumped 32% in the first half of 2012, while their coal demand dropped 18%. And that was before the summer really got going, when gas likely took even more market share.

“Miners such as Alpha Natural Resources have tried to deal with falling domestic consumption by boosting exports and idling mines. But weakening economies in Europe and Asia limit the potential for exports, and production curbs to date aren’t enough. U.S. coal output outstripped consumption by 152 million tons in the 12 months ended in June — the biggest such surplus in about 30 years.

“What miners really need … is for gas prices to do better, making the fuel less competitive and helping coal win back market share. Tudor, Pickering, Holt & Co. estimates gas needs to rise above $4 per million British thermal units to really swing the needle back toward coal.

“ The current price is $3.023, and futures don’t rise above $4 sustainably until 2014. A freezing winter would help. Barring that, low prices might yet spur meaningful gas-production cuts. But with gas volumes actually running higher this year, miners shouldn’t expect much co-operation from the enemy.”

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