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Power-sector coal consumption called to fall below 700 million tons

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Power-sector coal consumption called to fall below 700 million tons

Havingalready predicted natural gas' toppingcoal as the nation's top source of electricity, the U.S. government lowered its2016 outlook for power-sector coal consumption to below 700 million tons.

Accordingto the U.S. Energy Information Administration, domestic coal-fired generators burnedan average of 948 million tons annually from 1997 through 2015. In its latest ","the government agency lowered its latest forecast for 2016 by 3% versus the prioroutlook to 689 million tons, a 6.8% drop year on year.

Power-sectorcoal consumption accounts for more than 90% of domestic coal consumption, accordingto the EIA. The government agency blamed falling coal demand on this year's mildwinter, low natural gas prices and coal plant deactivations stemming from a combinationof competition with natural gas-fired plants and burdensome environmental regulations.

Lastmonth, the government had projected coal would account for roughly 32% of the nation'selectricity needs to natural gas' 33.3% in 2016, but the latest projections havecoal providing roughly 31% to natural gas' 33.9% in 2016.

The shiftin coal consumption patterns has the nation's coal stockpiles rising. "OverallU.S. coal stockpiles are still very ample given the significant decline in coal'sshare of overall electricity generation," the report said.

Power-sectorstockpiles ended January at 189.1 million tons for a 22.3% increase year over year.Although that stockpile level is up 16.5% versus the five-year average, EIA-estimateddays-of-burn are up 18.1% and 47.2%, respectively, over the same period.

The EIAprojects secondary coal stockpiles will end the year at 181.7 million tons, up 3.4%versus the prior outlook, but down 11.4% versus the prior year.

As producerscontend with mounting stockpiles and falling consumption this year, the governmentprojects the largest annual production decline since 1958. Production is expectedto fall 16% to 752 million tons, a 4% decline versus the prior outlook, before recovering3.4% to 778 million tons in 2017. If 2016 production meets the EIA's projection,it would mark a nearly 25% decrease from the 2014 total of 1 billion tons.

The governmentagency expects the largest production cuts to come from the Appalachian and Westernregions. At 14% and 20%, respectively, those cuts compare to a drop in Interiorregion production of 6%.

"Interiorregion production is projected to account for more than 20% of production in 2016and 2017, up from 13% of production 10 years ago," the report said. "Thisincrease in share reflects the Interior region's growing competitive advantagescompared with other U.S. coal-producing regions, despite the higher sulfur contentof its coal, … including … higher heat content, closer proximity to other majormarkets than Western region coal, the prevalence of sulfur dioxide scrubbers atcoal-fired electric generating units, and lower mining costs than Appalachian coal."

Meanwhile,the EIA expects U.S. producers to find little relief in the global coal markets.

"Slowergrowth in world coal demand and lower international coal prices have contributedto a decline in U.S. coal exports," the report said. "Lower mining costs,cheaper transportation costs, and favorable exchange rates are expected to continueto provide an advantage to mines in other major coal-exporting countries comparedwith U.S. producers over the next few years."

The governmentexpects coal exports to total 58.5 million tons in 2016, down 20.9% year over yearand down 8.7% versus the prior outlook, before falling 3.1% in 2017 to 56.7 milliontons, a 7.3% decline versus the prior outlook.