In a November 2012 report that received significant attention in the media, the International Energy Agency (IEA) predicted that the United States will be nearly energy self-sufficient by the year 2035.1 Justifications for this claim include reports of declining oil consumption, the unlocking of natural gas resources through new technologies, and overall increases in U.S. energy production.2 As natural gas becomes more inexpensive and renewable energy sources continue to increase in usage, the energy mix in the United States (and other countries) is expected to change. The IEA estimates that 40 percent of world electricity generation was fueled by coal in 2011.3 Coal is the only major energy source for which the United States demonstrates a trade surplus.4 In 2011, the last calendar year for which data are available, the United States exported more than $16 billion worth of coal, while importing only slightly less than $3 billion in coal. Furthermore, coal is expected to remain one of the largest fuel sources in worldwide energy consumption for at least the next two decades. Second only to oil in meeting the energy needs of the world, coal generates more electricity for the United States and the world than any other single fuel.
With the key role that coal currently plays in the U.S. trade balance, and is expected to play in the future, it is interesting to look at recent volatile export price movements of this important U.S. resource.
The recent growth in U.S. coal exports
Although most of the coal produced in the United States is consumed domestically, export volumes of coal have increased in recent years. The proportion of coal production going toward exports has also increased, doubling from 5 percent in 2009 to 10 percent in 2011. The majority of coal production consists of thermal or steam coal that goes to electricity generation, but metallurgical or coking coal is primarily used in making iron and steel. In fact, nearly 70 percent of global steel production depends on this grade of coal.5 Consequently, in 2011, metallurgical coal exports accounted for 77 percent of U.S. coal exports in terms of trade dollars and 65 percent in terms of volume.6
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As seen in chart 1, export coal prices began to climb in early 2010. After rising only 5.9 percent over the previous 24 months, the BLS coal and related fuels export price index rose 51.8 percent during the first 6 months of 2010. The index for metallurgical coal increased 71.3 percent over this period. Prices for both coal and related fuels and metallurgical coal continued to advance at a more modest pace until December 2010. Overall for 2010, the indexes increased 51.6 and 68.2 percent, respectively.
U.S. coal producers were able to increase both export volumes and prices in 2010 because of growing energy needs in markets such as China and India and the reduced world coal supply caused by heavy rains and flooding in major coal exporting countries.7 In 2010, exports to Asian markets increased 176 percent from 2009 levels, primarily because of a surge in exports of metallurgical coal to China, Japan, and South Korea.8 Metallurgical coal exports accounted for 83 percent of the growth in 2010 export volumes.
Export prices for coal continued to increase until September 2011. In August 2011, the year-to-date increase in export prices stood at 23.7 percent. Prices then declined 7.0 percent over the remaining months of the year, ending with a 15.1-percent increase overall for 2011. Metallurgical coal prices recorded a similar trend, increasing 27.1 percent for the first 8 months in 2011, before declining 7.3 percent for the remainder of the year, and finishing with a 17.8-percent advance for the year.
The volume of U.S. coal exports was 31.3 percent higher in 2011 than in 2010.9 The expansion of coal-fired power plants in both China and India contributed to the increase in international demand for coal. However, U.S. domestic demand was limited by competition from natural gas. With higher sales prices in Asia and Europe in 2011, U.S. coal exporters diverted the highest proportion of coal production to exports since 1992.10
As seen in chart 2, the proportion of coal trade dollars coming from Asia experienced sizable increases in 2010 and 2011. The dollar value of U.S. exports to only China and India increased by more than $1.8 billion from 2002 to 2011.11 Overall, the export value of coal exports increased by almost $15 billion over this same period.12