(EnergyAsia, June 13 2012, Wednesday) — US coal prices and demand for power generation are expected to recover next year after declining sharply in 2012 on account of its growing substitution by natural gas, said the US Energy Information Administration (EIA).

In its latest monthly forecast, the agency expects US coal demand for power generation to plunge by 12.9% to 808.4 million short tons in 2012, causing its price to fall next year.

But the projected lower price of US$2.25 per million BTU will entice power companies to switch back to using coal in 2013, boosting the fuel’s demand to 812.7 mmst, said the EIA.

US coal use has been in decline in recent years, falling from 975.1 mmst in 2010 to 928.6 mmst last year.

The EIA said low natural gas prices have contributed to a significant increase in the fuel’s use for power generation.

In response to lower demand, domestic coal production will fall by 9% in 2012, said the agency.

Production for the first four months of 2012 was down by 8% to 28 mmst, and is expected to fall further next year, albeit by a slower rate of four percent.

As a result, there will be less to export over the next two years. The EIA is forecasting US coal exports to slip from last year’s 107 mmst to 106 mmst in 2012 and 97 MMst in 2013.  Still, these levels are significantly higher than the average annual exports of 56 mmst in the decade preceding 2011.

Despite the production decline, the EIA is projecting secondary inventories to rise in 2012, with power companies to hold more than 200 mmst in stock.

EIA forecasts for US coal prices, production and demand
                                                                  2010       2011         2012      2013
Prices (US$ per million Btu)
Coal for Power Use                               2.27        2.40          2.34        2.25

Supply in million short tons (mmst)
Production                                              1084.4     1094.3     996.7     960.5
Imports                                                    19.4          13.1         12.9        15.7
Exports                                                    81.7          107.3       106.2      97.4

Consumption in mmst
Power Sector                                         975.1        928.6       808.4      812.7
Other Sectors                                        76.3           74.5         79.1         82.9
Total Consumption                              1051.3      1003.1     887.1      895.6

Inventories in mmst
Power Sector                                         174.9         175.1      201.8      200.9
Total Inventories                                   233.6         226.2       247.5     243.6