U.K. Takes U.S. Coal Castoffs as EU Use of the Fuel Set to Rise

U.K. purchases of thermal coal from the U.S. jumped in the first quarter as demand for the dirtier- burning fuel advanced and exporters took advantage of Britain’s ability to scrub sulfur dioxide from emissions.

Coal imports from the U.S. advanced by more than four times partly because the fuel was discounted compared with better- quality shipments from traditional markets such as Russia and Colombia, according to Nigel Yaxley, head of the Association of U.K. Coal Importers, a lobby group whose members include the British units of EDF SA and EON AG.

“The import increase is price-driven, because U.K. power stations are buying high-sulfur coal at discounted prices,” said Yaxley by phone Aug. 12. U.S. coal is “essentially of inferior quality,” he said. Some U.K. power stations use a technology called desulfurization, which cleans emissions, while fewer U.S. power companies do that, Yaxley said.

Lower European Union carbon-permit prices and a shift away from nuclear power in Germany will probably boost EU demand for coal, according to analysts at Bloomberg New Energy Finance in London. Sulfur dioxide regulations may also be prompting more coal trade, Yaxley said. Global coal consumption advanced 7.6 percent last year, a faster pace than crude oil, natural gas and nuclear, according to statistics published by BP Plc in June.

The U.K. bought 850,000 metric tons of thermal coal from the U.S. in the first quarter this year, compared with 160,000 tons in the same period last year, according to a report on the website of the U.S. Energy Information Administration. U.S. exports to Germany and the Netherlands also surged.

Sulfur Policy

“A big push” to encourage natural-gas burning in the U.S. may drive up coal exports to Europe, China and India, Hayden Atkins, an analyst in London at Macquarie Group Ltd.’s commodities unit, said on Aug. 10. U.S. coal exports are at their highest level since 1992, the EIA said.

The sharp imports increase is “obviously influenced by U.S. policy on sulfur,” Yaxley said. Switching to natural gas from coal in U.S. power generation will accelerate in 2012 because of new Environmental Protection Agency rules to cut emissions of sulfur dioxide and nitrogen oxides, Bank of America Merrill Lynch said July 19. The U.S. is regulating other emissions even as lawmakers reject proposals to limit greenhouse gases. Coal produces about twice as much carbon dioxide compared with natural gas for each unit of power generated.

The Cross-State Air Pollution Rule requires 27 states in the eastern U.S. to cut sulfur dioxide emissions by 73 percent and nitrous oxides by 54 percent by 2014 compared with 2005 levels, Merrill analysts including Sabine Schels in London said. Generators that exceed caps must cut emissions by twice the amount exceeded as a penalty, they said.

Coal supplies from Australia, the world’s biggest exporter, may rise next year after floods cut production this year, Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. (NAB) in Melbourne, said today by phone. “We will start to see a price response when that supply comes on line,” he said.

Westmore forecasts northwest Europe coal may fall to $112 a ton next year, compared with current prices in the forward market of $127 a ton, according to prices from brokers compiled by Bloomberg.

To contact the reporter on this story: Diao Ying in London at dying6@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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