Message-ID: <18173704.1075858185091.JavaMail.evans@thyme> Date: Thu, 3 May 2001 07:11:00 -0700 (PDT) From: george.ellis@americas.bnpparibas.com To: george.ellis@americas.bnpparibas.com Subject: Coal Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: george.ellis@americas.bnpparibas.com X-To: george.ellis@americas.bnpparibas.com X-cc: X-bcc: X-Folder: \Michael_Maggi_Jun2001\Notes Folders\Discussion threads X-Origin: Maggi-M X-FileName: mmaggi.nsf By Timothy Gardner NEW YORK, May 3 (Reuters) - Adding stress to an already frazzled power market, a nationwide coal shortage could spawn electricity brownouts in northeastern states and in the West this summer, experts said on Thursday. While coal provides the country with 51 percent of its power, years of industry underinvestment and record prices for competing fuels natural gas and fuel oil this year have pushed utilities' coal stocks to their lowest levels since 1974. In January, the last month of available government data, stocks at electric plants were 94 million tons, 27 percent less than a year earlier, according to the Energy Information Administration, the Department of Energy's number cruncher. Thin coal stocks compound a U.S. natural gas shortage that led to rolling brownouts in California last winter. That came after a failed deregulation plan and amid natural gas infrastructure bottlenecks. Natural gas prices have fallen from last summer's all-time highs, but are still nearly twice what they were last year at this time. "In certain regions we would expect brownouts this summer," said Deck Sloan, spokesman for Arch Coal Inc. , the nation's second largest coal firm. "In California that seems to be a very high likelihood, especially given the situation with reservoir levels behind the hydro-dams in the West," he said. Los Angeles has avoided brownouts, largely because it has a coal cache in Utah. L.A.'s power department is the largest participant in the 1,600 megawatt (MW) Intermountain Power Project in Utah. The project supplies L.A. with 14 percent of its power and lesser amounts to nearby cities Anaheim and Pasadena as well as parts of Utah. One megawatt powers about 1,000 homes. Mike Nosanov, the operating agent of the 1,600 MW Intermountain project, said the plant now has 700,000 tons of coal, or 60 days supply. "That's more than enough to keep us out of trouble this summer," he said. Still, L.A. mayor Richard Riordan has been meeting with Utah Governor Mike Leavitt to discuss adding another 500 to 1,000 MW to the Utah plant, though it would take years to add the capacity. OVERLOADED RAILROAD Another potential problem is stemming from the nation's largest coal producing state, Wyoming, which delivers coal to 24 states. The two major railroads at Wyoming's Powder River Basin, Union Pacific and Burlington Northern Santa Fe, operate a joint line out of the mines that has reached its capacity of 64 trains per day or more than 300 million tons per year. "The two lines could probably carry another 10 to 20 million tons (per year) out of Wyoming's Powder River Basin. Beyond that it may take additional investment by the railroads in order to get more production out of the basin," said Sloan. The Midwest is also thirsty for Wyoming coal. A proposal to build a $1.4 billion coal rail project from Wyoming to power plants in the Midwest is in the works. Hill and Associates, an independent industry consulting firm, agrees that Wyoming coal trains are at their limits, a problem that will take years to solve. "The question is who is going to make the investment?" asked Hill and Associates Vice President John Hanou. "The mines or the railroads?" COAL DROUGHT ALL OVER Northeastern states, where years of production underinvestment has led to thin stocks, are also in danger, said Arch Coal's Sloan. "We could also see the Northeast, if the summer is normal or hotter than normal, suffer brownouts as well," he said. Adding to the mix, Massey Energy , the nation's seventh-largest coal company, experienced flooding last month in one of its major mines in Appalachia. "In this current atmosphere, that is a hell of a big story, said Jim Thompson, general manager of Energy Publishing, a Hill and Associates affiliate. And the EIA reported utilities so far this year are burning six percent more coal than last year. Prices on the spot market have jumped, though long-term contracts make up 80 percent of coal deals, which mean consumers will mostly be protected from rising prices. But utilities may find themselves scrambling for coal. "As far as we can tell there is no coal available anywhere," warned a Hill and Associates supply report this spring. "Brownouts are possible," said Lehman Brothers coal analyst Peter Ward. "Utilities have gotten complacent. Coal has been a buyer's market for about two decades. That has suddenly changed in the past three months, and for many utilities with low inventories, that is a scary situation." Analysts said high coal prices should eventually spur increased production of the fuel, and new natural gas and coal plants will eventually clear up brownout threats. "But we're not going to see much capacity come on line for at least three years," said Hanou. ((Timothy Gardner, New York Energy Desk, +1 212 859-1632, fax +1 212 859-1629, timothy.gardner@reuters.com)) For related news, double click on one of the following codes: [E][U][MNI][O][ELN][OIL][CGO][G][RNP][DNP][PGE] [RRL][CRU][PROD][ENR][ENV][US][NEWS][ELG][LEN][RTRS] [ACI.N][MEE.N] For related price quotes, double click on one of the following codes: Thursday, 03 May 2001 18:04:52 GMT RTRS [nN27675175] ______________________________________________________________________________ _______________________________________________________ Ce message et toutes les pieces jointes (ci-apres le "message") sont etablis a l'intention exclusive de ses destinataires et sont confidentiels. Si vous recevez ce message par erreur, merci de le detruire et d'en avertir immediatement l'expediteur. Toute utilisation de ce message non conforme a sa destination, toute diffusion ou toute publication, totale ou partielle, est interdite, sauf autorisation expresse. 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