MetalMiner: Shale Gas Hitting Global Thermal Coal Market (and Prices)

We have heard a lot in the press – and indeed we have written ourselves – about the impact of shale gas and, more recently, shale or tight oil, on the energy market in the US.

Lower gas prices have stimulated a pronounced switch to natural gas-powered electricity generation, provided a huge boost to the petrochemicals industry and the early steps of a switch to natural gas for transportation, but like a pebble dropping in a pond, the ripples from the shale gas revolution continue to spread outwards with consequences far beyond America’s shores.

A recent note to investors by South Africa’s Standard Bank explores one such consequence for the global thermal coal market, and as a result, for consumers of thermal coal around the world.

The bank reports that cheap natural gas has seen it eat away at coal’s pre-eminence as a feedstock in US electricity generation, yet US coal production has not fallen off to the same extent. As a result, this displaced demand (more than 90% of US coal consumption is for electricity generation) has found its way onto international markets, particularly those of major importers Europe, China and Japan.

With demand down in the depressed European market, traditional suppliers such as Russia, Colombia and South Africa have had to look elsewhere for markets, particularly the still-expanding Asia region. For example, South Africa, long the swing supplier to Europe, has been all but displaced by cheap US imports to the region and now only ships thermal coal to Asia.  MORE