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Interview: Steve Doyle, Doyle Trading Consultants

Doyle Trading Consultants' founder discusses how the US can remain in a competitive position for exports



Steve formed Doyle Trading Consultants in 2002 to provide coal and emissions consulting services to the energy and financial sectors.

1. What are the key variables set to affect domestic US natural gas/ coal price competition in 2015-2016?

There are five principal drivers that will impact the coal vs natgas competition in the US over the next two years.  The first is the most unpredictable: weather.  Cold winters have a big impact on residential demand for natgas; hot summers have a big impact on coal generation.  The second driver is the availability of rail and barge transportation.  As the transportation companies offset declining coal revenues with oil, container freight and grain, they have fewer resources to devote to swings in coal demand.  The third driver is the expansion of the natgas pipelines.  Each new pipeline opens up new markets for abundant shale gas.  The fourth driver will be coal-on-coal competition.  As low-cost PRB and Illinois Basin coal expand into new markets, coal’s ability to compete with natgas is strengthened.  The final principal driver is new demand for natgas and will become apparent in late 2016.  Abundant shale gas will result in new demand from the industrial sector, the power sector and LNG exports.  Natgas prices could increase as a result and allow coal generation to win back some market share.
 
2. Australia’s growth in coal exports is being supported by a weak AUSD. How do you see US coal exports competitively positioned in 2015-2016, and who is its greatest supply competition in the international market?

Since 2012, Australia’s currency has weakened by 15.65%; Indonesia’s by 25.70%; Russia’s by 31.95%; South Africa’s by 25.45%.  This, along with volume-driven cost reductions, have dramatically diminished the competitiveness of US coal exports.  DTC forecasts US exports to fall 35% between 2012 and 2015.  Barring a global supply event, the USD exporters will have to patiently wait for global demand to grow in order to absorb the global oversupply, particularly in Australia.  When this happens, prices will rise and the US exporters will benefit from the severe cutback in global coal investments.
 
3. Your presentation at the 15th Coaltrans USA conference will touch on the role of freight rates in determining US competitive position for exports. How influential are freight rates on US coal exports?

Ocean freight rates are a double-edged sword.  When they are very low, it benefits the end-users and keeps them profitable.  However, from the perspective of the US exporter, very low freight rates enable the Australian exporters to more effectively compete in the Atlantic Basin.  On the other hand, very high freight rates might protect our Atlantic Basin markets, but they also shut us out of the Pacific Basin markets.
 
4. Rail inefficiencies have proved a challenge for US coal producers in 2014. Where are the greatest bottlenecks and how might these be solved?

The railroads have invested heavily in rolling stock, locomotives and new crews.  This will gradually ease congestion, but the bottlenecks in the key interchange areas such as Chicago might be something that the industry simply has to learn to live with.
 
5. Where do you see US thermal coal prices in Q1 and Q2 in 2015?

I don’t expect US thermal prices to fluctuate from where the current curves are.  There is still plenty of coal-on-coal competition and, while coal inventories are low, the railroads will not be able to serve the pent-up rebuilding demand until later in the year and perhaps into 2016.
 
6. You have been active in the global and U.S. coal markets since 1983. Who has inspired you most in the course of your career and why?

I can hardly believe I am in my fourth decade!  Without question, the person who has inspired me the most is Ernie Thrasher.  Too often the consensus believes that if something is not being done, there must be a reason for it.  Ernie is an innovator.  He introduced US coking coal exports into China.  He successfully initiated a ground-breaking, topping-off program in Canada.  He is the Wayne Gretzky of coal.  Gretzky was famous for not skating to where the hockey puck was, but rather to where it would be.  Ernie Thasher has that same uncanny ability.

Steve Doyle will speak at the 15th Coaltrans USA in Miami on February 5. He will discuss 'US coal on the international stage – Improvising in an oversupplied market'. Click here to find out more.

This content is provided by Coaltrans Conferences for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.

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