Last updated: July 17. 2013 5:59PM - 242 Views
Fred Pace

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The average cost of shipping coal by railroad to power plants increased almost 50 percent in the United States from 2001 to 2010, according to the U.S. Energy Information Administration Power Plant Operations Report (EIA-923) and U.S. Surface Transportation Board’s Confidential Waybill Sample.

Railroad transport accounts for more than 70 percent of U.S. coal destined to the electric power sector, so changes in rail rates can have an important impact on the cost of coal delivered to power plants, the report said.

“Though they vary significantly, transportation costs accounted for 40 percent of the average overall cost of coal delivered at electric power plants in 2010,” it was stated in the report.

On average, nominal U.S. rail rates for shipping coal grew from $11.83 to $17.25 per short ton from 2001 to 2010.

Rates grew slowly in the beginning of the decade before increasing almost 11 percent in 2005, then continuing to grow at a relatively robust pace until the recession, the report said.

“However, the impact of the recession on transportation rates was short-lived as rates grew more than 9 percent in 2010,” it said.

National numbers can be misleading, however, as regional dynamics tend to vary considerably among the six major coal basins, the report added.

“For example, Southern Appalachian coal costs increased more than 10 percent annually in 2001-10, while Powder River Basin (PRB) rates grew 1.5 percent over the same period. For a few PRB destination states, rates fell during this period,” the report stated. “The wide range in minemouth coal prices and transportation distances across the United States create significant variation in the impact of transportation rates on overall coal costs, with different basins affected to significantly differing degrees.”

While rail transportation costs for Appalachian and Illinois Basin coals as a percent of total delivered cost fall in the low 20 percent range, the relatively low commodity cost of PRB coal, and the long distances it travels, results in transportation costs that averaged almost 60 percent of the total delivered cost in 2010—more than the commodity itself, according to the report.

State-level data show further variation in rate changes over 2001-2010. At the high and low ends, Virginia-to-Tennessee rates grew 83 percent, while Wyoming-to-Kansas rates fell 23 percent — a 106 percentage point swing, the report concluded.

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