Top Exporter of U.S. Coal Seeks Refuge in Natural Gas Boom

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Xcoal Energy & Resources LLC, the largest exporter of U.S. coal, is betting on natural gas as the world’s appetite for the cleaner-burning fuel expands at coal’s expense.

Ernie Thrasher, who founded Xcoal in 2003, is starting XLNG Energy & Resources, which plans to begin exporting liquefied natural gas no later than 2018. The company will focus on selling gas from the Marcellus shale region, which includes Pennsylvania, West Virginia and Ohio, historically coal-rich states, he said.

Xcoal’s move comes as cheaper gas and tighter clean-air regulations shrinks coal consumption in power plants. A strong dollar, a slowing appetite for the fuel from countries increasingly concerned about the environment and a global glut have reduced overseas sales of U.S. coal.

“Gas is going to continue to grow at an accelerated rate,” Thrasher said at the IHS CERAWEEk Energy Conference in Houston. “Coal will grow, but maybe at a moderated rate. I owe it to the people in our organization and the suppliers we have to make sure that we’re ahead of that curve.”

Optimism for coal was bright five years ago, as industry experts expected pricing to reach $100 a ton and there was an onslaught of plans to build export terminals to capitalize on it, Thrasher said. Coal futures on the New York Mercantile Exchange were about $49 a ton Tuesday.

’Tremendous Oversupply’

“Now we have a tremendous oversupply,” he said. “We have price destruction. We have terminals operating at 50 percent of capacity.”

Flush with gas from shale plays, U.S. companies are increasingly seeking to export. The Federal Energy Regulatory Commission has received plans for 15 proposed LNG terminals as of April 1, government data show.

New terminals along the East and Gulf Coasts with total capacity to ship 9 billion cubic feet per day of gas are expected to begin operation over the next three years, the Energy Information Administration forecasts.

Thrasher said his company will use that infrastructure once it’s completed. He’ll focus on Asian countries, he said.

If analyst projections are any indication, the company won’t have any shortage of gas to sell. Gas production from the Marcellus will reach 20 billion cubic feet a day in the early 2020’s, according to Ed Kelly, IHS’s vice president of Americas gas and power consulting. That’s up from 16.7 billion this month, EIA data show.

Biggest Exporter

Xcoal overtook Alpha Natural Resources Inc. as the largest U.S. coal exporter in the first quarter of this year, Thrasher said.

“We’re looking to take advantage of the synergies of our global coal presence,” Thrasher said. “We have a number of our global customers who are quite interested in the possibility of LNG from U.S. origins. We want to get involved in that decision-making process as existing contracts with these customers expire and they start to plan for long-term renewal.”

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