[Report#:DOE/EIA-0581(2000)]
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The coal market module (CMM) represents the mining, transportation, and pricing of coal, subject to end-use demand. Coal supplies are differentiated by heat and sulfur content. CMM also determines the minimum cost pattern of coal supply to meet exogenously defined U.S. coal export demands as a part of the world coal market. Coal supply is projected on a cost-minimizing basis, constrained by existing contracts. Twelve different coal types are differentiated with respect to thermal grade, sulfur content, and underground or surface mining. The domestic production and distribution of coal is forecast for 13 demand regions and 11 supply regions (Figures 19 and 20). Figure 19. Coal Market Module Demand Regions Figure 20. Coal Market Module Supply Regions The solutions for the components of CMM are found simultaneously. The sequence of solution among components can be summarized as follows. Coal supply curves are produced by the coal production submodule and input to the coal distribution submodule. Given the coal supply curves, distribution costs, and coal demands, the coal distribution submodule projects delivered coal prices. The module is iterated to convergence with respect to equilibrium prices to all demand sectors. The structure of CMM is shown in Figure 21. Figure 21. Coal Market Module Structure Coal Production Submodule This submodule produces annual econometric coal supply curves, relating annual production to marginal prices. The supply curves are constructed from a regression analysis of production, prices, and costs. A separate supply curve is provided for surface and underground mining for all significant production by coal rank (bituminous, subbituminous and lignite), coal grade (steam or metallurgical), and sulfur level in each supply region. Constructing curves for the coal types available in each region yields a total of 34 curves that are used as inputs to the coal distribution submodule. A different set of supply curves is constructed for each year in the forecast period. The factors accounted for in constructing the supply curves are labor productivity and the costs of factor inputs (mining equipment, mine labor, and fuel). Labor productivity projections are developed and applied to each supply curve, based on historical data. The projections incorporate an assumption that the rate of improvement will decline as the rate of technology penetration slows. Labor costs are tied to labor productivity and wage rates. It is assumed, in the reference case, that wage rates keep pace exactly with inflation. Coal Distribution Submodule The coal distribution submodule is a linear program that determines the least-cost supplies of coal for a given set of coal demands by demand region and sector, accounting for transportation costs from the different supply curves, coal heat and sulfur content, existing coal supply contracts, technical limitations of older boiler types, and sulfur allowance costs under the Clean Air Act Amendments of 1990. Existing supply contracts between coal producers and utilities are incorporated in the model as minimum flows between specific supply curves and region-sulfur level combinations. The minimum flows are assumed to remain in effect for the duration of the contract and then be replaced by market-determined flows. Coal transportation costs are simulated using interregional coal transportation costs derived by subtracting reported minemouth costs for each supply curve from reported delivered costs for each demand type in each demand region. Transportation rates are assumed to change in response to railroad labor productivity, diesel fuel costs, and equipment costs. In recent years, railroad rates have declined because of operating efficiencies from such measures as improved scheduling and lower fuel cost per ton-mile that have resulted from low crude oil prices, more efficient diesel engines, and larger and lighter aluminum cars. Coal Export Component The coal export component of the coal distribution submodule projects quantities of coal imported and exported from the United States. The quantities are determined within a world trade context, based on user-provided characteristics of foreign coal supply and demand. The component disaggregates coal into 16 export regions and 20 import regions, as shown in the "Coal Export/Import Regions Table". The export component is a part of the linear program that optimizes domestic coal supply. It determines world coal trade distribution by minimizing overall costs for coal, subject to U.S. coal supply prices and a number of constraints. Supply costs (mining and preparation plus transportation) for each coal export region, coal type, and end use compete in two demand sectors (coking and steam). The component also incorporates within the model structure supply diversity constraints that reflect the observed tendency of coal-importing countries to avoid excessive dependence upon one source of supply. |
