April 27, 2017 / 4:14 PM / in 7 months

INTERVIEW-Union Pacific CEO: natural gas remains main factor for coal

DETROIT, April 27 (Reuters) - A recent Trump administration executive order aimed at boosting the coal industry by rolling back power-plant emission standards will have much less of an effect than market forces and cheap natural gas, the top executive of No. 1 U.S. railroad Union Pacific Corp said on Thursday.

“The stabilization that we’re seeing in the market is much more driven by the price of natural gas as a competitive fuel,” Chief Executive Lance Fritz told Reuters after the Omaha, Nebraska-based railroad reported a better-than-expected first-quarter profit that was boosted by a 25 percent increase in coal revenue.

He said he was also optimistic that the North American Free Trade Agreement (NAFTA) can be renegotiated in a way that benefits all three signatories: the United States, Canada and Mexico.

Fritz said coal now accounts for a little over 30 percent of U.S. electricity generation - down from a peak of 50 percent - and that Union Pacific expects it will remain around that level moving forward.

Like the other major U.S. railroads, Union Pacific has been hit by a slump in coal demand over the past two years as utilities switched to burning cheaper natural gas. Coal freight volumes have bounced up from a low base in the last quarter.

Prices for gas have averaged less than $3 per million British thermal units over the past two years, one-third of the price in 2005, and are expected to remain mostly below that level through at least 2023, based on current futures trading on the New York Mercantile Exchange.

“If (natural gas) drops to around $2 for an extended period of time, then coal will struggle again,” Fritz said.

Fritz said Union Pacific remains cautious about the outlook for the U.S. auto industry as it comes off a peak year in 2016, but is “very optimistic about being able to penetrate the auto parts business” and taking market share from trucking firms.

U.S. Republican President Donald Trump has long criticized NAFTA as unfair to the United States and he said Thursday that renegotiating it was “very possible.”

Fritz, a free-trade advocate, said he sees Canada and Mexico as willing to hash out a deal that will improve the trade accord.

“My perspective is there’s an opportunity for NAFTA to be renegotiated and modernized,” he said. “What I am looking forward to is a renegotiated agreement that works for all three parties.” (Editing by Matthew Lewis)

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