I. Energy Market Forecasts:
Implications for Appalachia. Fundamental changes in the energy market imply a future characterized by a sustained higher level of oil and natural gas prices. Based on this expected market outlook, Appalachia may have significant non-renewable opportunities. The larger opportunities appear to be coal-related, including clean-coal generation and coal conversion to liquids, gases, and chemicals. Appalachia has the ability to participate in each and every one of these future non-renewable opportunities. The Appalachian Regional Commission may be able to help the development of these non-renewable resources through regional commercial, policy, and research initiatives, as shown in the following table.
| Possible ARC Initiative |
Smaller Opportunity |
Larger Opportunity |
| Commercial Initiatives |
. |
Clean-Coal Generation
Coal Conversion: Liquids, Gas, Chemicals
|
| Policy Initiatives |
Natural Gas & Oil
Energy Infrastructure
Nuclear Generation
|
Clean-Coal Generation
Coal Production
|
| Research Initiatives |
Hydrogen |
CO2 Capture & Sequestration |
II. Energy Markets Dynamics
All signposts point to fundamental changes in the energy market to a future characterized by a sustained higher level of oil and natural gas prices. Global Insight's analysis of the future oil market suggests three realistic scenarios going-forward.
- Supply Constrained: We enter a new oil market era. Tight supply conditions drive the market and price spikes to more than $100 per barrel in today's dollars.
- Market Remanaged: Under this scenario, OPEC re-emerges as the oil market "governor." OPEC attempts to manage oil prices in the mid-$40 per barrel range.
- Cornucopia: Higher prices result in a significant oil supply surplus and prices drop to the low to mid $30 per barrel range, approximately at the level of marginal production costs.
Analysis of future oil supply and demand suggests that the Supply Constrained and Market Remanaged scenarios are most likely to occur. Moreover, the analysis does not see significant growth in either OPEC or non-OPEC oil production, thus yielding sustained higher prices.
Global Insight also believes that imported liquefied natural gas ("LNG") will not be able to fill the supply gap caused by the accelerated decline in U.S. natural gas production. Despite Federal efforts, there are still significant issues in siting the increased number of LNG import terminals that would be required to fill this gap.
In contrast to oil and natural gas markets, coal prices are forecast to be competitive in the long-term. Greater coal-on-coal competition resulting from increased mining capacity investment and scrubber installations will help bring coal prices down from their current highs. The near-term driver of this competition will come from the massive amount of power plant scrubbing that is underway, which will allow generators to pick coal supply from a variety of mining regions. Given higher oil and gas prices, coal companies are expected to expand production capacity further enhancing coal-on-coal competition. Lastly, competition from renewable and possibly nuclear generation will also exert downward pressure on long-term coal prices.
III. Prospects for Coal:
Following these national trends, Appalachian coal prices are forecast to be competitive and fall in real terms over the planning horizon for both Northern and Central Appalachian coal prices.
In the power segment, a steady 1% to 2% growth in electricity demand (net of demand reduction from energy efficiency initiatives) will require significant increases in U.S generation capacity. The U.S. will require between 400 and 500 gigawatts ("GWs") of new generating capacity by 2030 to meet electric demand growth.
There are significant opportunities for coal capacity additions, especially using clean-coal technology. Forecasts include significant new coal capacity additions, the acceleration of construction for planned coal capacity additions, repowering of existing coal-capacity, and replacement of coal units that need to be retired.
New environmental initiatives will overlay on these fuels and power market dynamics. There is a high likelihood that the U.S. will see a major global climate change initiative at the Federal level over the planning horizon. Global Insight expects this initiative to be comprehensive, broadly addressing the control of greenhouse cases and energy security, and include higher renewable standards, further policy enhancements to encourage clean-coal and nuclear generation, as well as the increased use of biofuels. Coal's challenge is to capitalize on the market opportunity by focusing on clean-coal technology and greenhouse gas capture and sequestration.
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