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EIA bumps coal consumption outlook higher, but keeps it below 700 million tons annually

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EIA bumps coal consumption outlook higher, but keeps it below 700 million tons annually

Amidrising natural gas prices, the U.S. government boosted its power-sector coalconsumption outlook through 2017, but still kept it below 700 million tonsannually.

Accordingto the U.S. Energy Information Administration's latest "Short-Term EnergyOutlook" released July 12, delivered natural gas costs are expected toaverage $2.92/MMBtu in 2016, up 5.6% versus the but down 9.3% versus the2015 average, before climbing 21.3% to $3.55/MMBtu in 2017, down 1 cent fromthe prior outlook.

TheEIA raised its 2016 power-sector coal consumption outlook by 0.9% from lastmonth to 674 million tons and expects that figure to reach 697 million tons in2017, up 0.4% versus the prior outlook.

Inspite of higher expected demand, the government agency cut its domestic coalproduction outlook for 2016 by 1.8% from the prior outlook to 728 million tonsfor an 18.7% year-over-year decline. The EIA expects coal production to climb5.9% in 2017 to 770 million tons, up 0.3% versus the prior outlook.

Accordingto the report, the largest production declines in 2016 will come from theAppalachian and Western regions at 18% and 21%, respectively, while Interiorregion production declines by 11%. The EIA expects almost all of the 2017production growth will come from the Appalachian and Interior regions.

"Coalin these two regions has the advantage of lower transportation costs and ahigher heat content per ton compared with Western region coal," the reportsaid.

Exports,which had totaled 97.3 million tons in 2014, are expected to reach 59 milliontons this year, for a 20.2% drop year over year and a 10.9% drop versus theprior outlook. The EIA projects 2017 exports will decline another 6.9% to 54.9million tons, down 5.4% versus the prior outlook.

Thegovernment agency also revised lower its projection for year-end stockpilelevels. Industry observers say bloated power-sector coal stockpiles haveimpeded a coal price recovery, but producer discipline is showing signs ofalleviating thatglut. At 166.9 million tons and 148.5 million tons, respectively, for 2016 and2017, the EIA's year-end secondary stockpile projections are 12.1% and 11.5%below the prior outlook.