(Repeats with no changes to text)
By Clyde Russell
LAUNCESTON, Australia, Sept 20 Thermal coal has
been one of the commodity success stories this year, but there
is a risk that it becomes a victim of its own success by eating
into its advantage over liquefied natural gas (LNG) in
The benchmark Australian thermal coal price, the Newcastle
Index, rose to $70.76 a tonne in the week to Sept.
16, its highest in 18 months and taking its gain since the start
of the year to almost 40 percent.
In contrast, the price of spot LNG in Asia LNG-AS was
$5.60 per million British thermal units (mmBtu) on Sept. 16,
down almost 19 percent from the end of last year.
The two fuels are at different stages in their price cycle,
with thermal coal likely to snap five years of losses in 2016,
while LNG is on track to notch up a third consecutive down year.
The difference is mainly because the market for coal used in
power stations has finally started to balance, with the prior
years of oversupply coming to an end as mines shut down or cut
back output and demand gains in Asian markets, with China
proving a standout so far this year.
LNG is still some way from this point, with more supply
expected to reach the market this year and for the next few
years, coupled with question marks over whether demand growth
will rise sufficiently to absorb the new production.
Nine liquefaction trains are expected to start up in 2016,
adding 35 million tonnes of LNG to the market, ANZ Banking Group
said in a research note published on Sept. 13.
The additional capacity is largely from new plants in the
United States and Australia, which is poised to become the
world's largest producer of the super-chilled fuel as it
completes eight new projects that have been under construction.
Between 2016 and 2020, global LNG capacity is expected to
rise by about 50 percent to around 370 million tonnes a year.
This surge in supply will challenge even the most optimistic
demand forecasts, meaning that the LNG price is likely to have
to decline further to make the fuel more tempting to buyers.
Global flows data compiled by Thomson Reuters Supply Chain
and Commodity Forecasts using vessel-tracking show that the LNG
market is growing, but nowhere near fast enough.
In the January-to-August period this year, the ship data
showed cargoes totalling 186.6 million tonnes being delivered.
This was 7.7 percent higher than the 173.2 million tonnes
for the same period in 2015, and 10.7 percent above the 168.5
million in the first eight months of 2014.
WIDENING LNG SUPPLY-DEMAND GAP
While a 10 percent gain in demand doesn't sound too bad, the
additional capacity in supply in 2016 is in the order of 15
percent, opening up a substantial supply-demand gap.
This gap is likely to widen over the coming years as new
plants start up in Australia and the United States, which will
grow to become the third-largest exporter of LNG behind
Australia and Qatar by 2020.
Overall, a picture emerges of plentiful LNG supply and a
thermal coal market closer to balance.
The question then is just how much further do LNG prices
have to drop for the cleaner-burning fuel to displace coal in
Asia, as it has been doing successfully in the United States.
One tonne of anthracite coal provides approximately 22.58
mmBtu of heating value when burned in a coal-fired plant,
according to data from the U.S. Environmental Protection Agency.
Using Japan's landed costs for thermal coal, which was an
average $69.30 a tonne in July, it implies an equivalent of
$3.07 per mmBtu, which is roughly half of the landed cost of LNG
of $6.39 per mmBtu in the same month.
Since July, the rising cost of coal and the cheaper LNG
price will have narrowed that gap slightly, but not to the
extent where Japanese utilities will be rushing to switch
But it pays to look at a bit of context here. When LNG
reached its record high of $20.50 per mmBtu in February 2014,
Newcastle coal was around $77 a tonne, or $3.41 per mmBtu.
This means that generating power from coal is largely the
same cost now as it was 30 months ago, while using LNG is a
little more than a quarter of the price, a substantial drop.
There are other factors that may help LNG's case, such as
its lower carbon emissions, cheaper capital costs of building
gas-fired power plants and its suitability to integrate with
higher use of less consistent renewables such as solar and wind.
Nonetheless, it seems likely LNG will have to drop further
to become competitive with coal in Asia on a purely cost basis.
(Editing by Himani Sarkar)