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Electrical utility giant Southern Company expects its Central Appalachian coal purchases to drop to 1% of its total projected 2016 coal receipts of 45 million-50 million short tons, the company's director of coal services said Tuesday.

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The reason is cost, and increasing its plants' 2016 coal burn to 29% Illinois Basin and 64% Powder River Basin will mean "that savings translate ... into hundreds of millions of dollars a year for our customers," Southern Company's Robert Hardman said at Platts Coal Marketing Days in Pittsburgh.

About 6% of Atlanta-based Southern Company's coal receipts for that year are classified as "other," he said, not specifying sources or basins.


In 2012, this projected coal portfolio compares with, 18% from CAPP, 50% from PRB, and the balance from IB and "other" sources, for a total of 42 million st of coal receipts, Hardman said.

In 2007, Southern Company took 78 million st of coal, when the company's fuel-buying practices meant roughly a third of coal supplies came from each basin, which had been the utility's longtime practice until increasing its IB purchases.

Since Southern Company has largely scrubbed its power plants of emissions, and is able to take more of the higher-sulfur, less-expensive IB coal, it has saved hundreds of millions of dollars, Hardman said.

Southern Company is already making fuel-buying decisions for 2016, but has not lately been active in the spot market, he added.

While Hardman's details of Southern Company's fuel-buying strategy might be good news for IB and PRB coal suppliers, the bigger threat to coal in general comes from natural gas prices.

Though the utility foresees a minimum of 22% of coal comprising its 2016 generation portfolio, a larger portion -- 24% -- remains undecided based on the direction of natural gas prices.

That compares with 69% of Southern Company's 2007 generation mix coming from coal, and 36% in 2012.

Southern Company's coal fleet will remain at about 18,000 MW of capacity in 2016, Hardman said, but the question is, will the coal fleet run at 70-80% of capacity or less due to favorable natural gas prices.

BNP Paribas forecasts US natural gas prices to range from $3.70/MMBtu in 2013-2014, up to $4.20/MMBtu in 2014-2015 and back down to $4.10/MMBtu in 2015-2016, according to Teri Viswanath, the company's director of natural gas strategy.

That, of course, depends on US production levels, power demand, and whether any production is diverted to commercial trucking or European markets as LNG, she said.

She told the Pittsburgh audience it's possible coal generation will gain back market share with natural gas prices projected to average $6/MMBtu going into 2020.

Generally speaking, market share reverts to coal plants when natural gas prices are in the neighborhood of $3.50/MMBtu, she said.

NYMEX October natural gas futures fell 8.5 cents Monday to post a preliminary settlement of $3.602/MMBtu as traders broke support levels and looked ahead to lower seasonal demand in the coming weeks.

--Steve Hooks, steve.hooks@platts.com
--Edited by Derek Sands, derek.sands@platts.com