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An SNL Energy analysis shows that 75% of coal deliveries to surviving plants come from the Powder River Basin (PRB), Illinois Basin (ILB) and Northern Appalachia (NAPP) combined. The breakdown was similar for total shipments to retiring and non-retiring plants in 2014 and up from 62% from the three markets in 2007. The analysis is based on 2014, deliveries to coal units not already closed or announced for retirement or conversion. Coal receipts at those units totaled 733 million tons last year compared with overall shipments of 812.8 million tons, including those to plants slated for closure, according to U.S. Energy Information Administration (EIA) data. PRB coal will serve 47% of the surviving fleet, steady with 2014's total share but above 44% in 2007, before the U.S. shale gas production boom and closures in antic- ipation of the U.S. Environmental Protection Agency's (EPA) Mercury and Air Toxics Standards (MATS) ramped up. ILB and NAPP will see bigger market gains, ris- ing to 13% and over 14%, respectively, from 7.9% and 9.7% in 2007. The high-cost Central Appalachia (CAPP) region will be the biggest loser, with its portion of U.S. power sector coal deliveries looking to fall to 6.1% after all announced closures and conversions are completed from 6.5% in 2014 and a little more than 15% in 2007. Demand dis- placement by natural gas has affected all U.S. coal markets, but CAPP has been the most vulnerable. Average production costs in the basin of around $60/ton or more than $10/ton above current spot prices, according to SNL Energy over-the- counter market surveys. CAPP coal does not become more com- petitive on a spot basis until gas goes above $4 per million Btu (MMBtu), but futures are trading just below $3/MMBtu. ILB coal has a tough time competing with gas until prices for the latter reach $3.50/MMBtu to $3.75/MMBtu, but PRB coal is more attrac- tive even when gas falls to $2.50/MMBtu to $2.75/MMBtu, Peabody Energy's newly elected CEO Glenn Kellow said on the com- pany's April 23 earnings call. Producers of more competitive U.S. coals expect their market share — and outright sales — to potentially grow fur- ther. Peabody, whose U.S. mines are largely based in the PRB and ILB, expects demand for both coals to rebound after MATS-related unit retirements subside past 2016. "By 2017, we expect coal's share of U.S. electricity generation to return to nearly 40%. And PRB and ILB demand is projected to increase, as natu- ral gas prices recover and higher coal plant utilization and basin switching off- set expected retirements," Kellow said. Peabody estimates combined demand for PRB and ILB coal will grow by 50 million tons to 70 million tons between 2014 and 2017. Company Executive Vice President and CFO Michael Crews added that the PRB is the "go-to source, and one that we're pleased to be the No. 1 producer in." Although it will remain the single biggest source of U.S. coal, optimism on the PRB's long-term prospects may be overdone. Southern Co. is retiring or converting a large amount of its coal-fired generating capacity to burn natural gas, which could limit the PRB's penetration of the south- eastern utility market. PRB Coal Users' Group Executive Director Randy Rahm told SNL Energy that Southern had been considering burn- ing PRB coal at its Greene County plant in Alabama before gas became more attrac- tive. Southern expects to stop using coal at units 1 and 2 of the Greene County plant no later than April 2016 and start operating them solely on gas. Southern could switch to using PRB at one of its other units. The company said May 7 that it was "evaluating its plans" for unit 3 totaling 225 MW at the Barry plant in Alabama, which is currently unavailable for generation. Rahm said Southern was considering using PRB coal there. In early 2015, the Barry plant mainly received imported coal from Colombia, according to U.S. Energy Information Administra- tion data. Southern did not confirm whether it was considering using PRB coal at Barry, telling SNL Energy it is "waiting for more clarity on the future environmental regu- latory front to make final decisions on the future status of Barry 3. [Alabama Power] continually evaluates its fuel mix to ensure the most economic value for our customers." The company ceased using coal at units 1 and 2 of Barry in April, which will be available on a limited basis with gas as the fuel source. marketwatch 18 www.coalage.com July 2015 3 Basins to Serve the Surviving US Coal Fleet B Y M O L L Y C H R I S T I A N A N D N E I L P O W E L L , S N L E N E R G Y