Utility companies and other major coal purchasers are keeping a careful eye on falling oil prices, although few are switching energy sources yet.
"Coal is still more competitive than oil for us," said Peter H. Benziger, senior vice president for generation for Potomac Electric Power Co. "Should oil be competitive with coal, we would probably attempt to burn oil wherever possible." .
As oil prices have plummeted, coal prices have declined also. But the collapse of oil prices has been so rapid and dramatic that the differential between the cost of the fuels is shrinking.
For instance, the average cost of coal purchased by New England Energy Inc., a purchasing subsidiary of New England Electric System, was about half the cost of oil in 1985, according to the company's president, Glenn Schleede. But by last month, oil prices had dropped so steeply that coal was only about 24 percent cheaper than oil, according to Schleede's figures.
"The new situation is that the wide differential between coal prices on the one hand and oil and gas prices on the other hand has narrowed drastically to the point where coal may face direct competiton from oil and gas," Schleede said.
But he noted that "oil prices would have to go down quite a bit more before we switch."
"We see no real effect in the short term" from falling oil prices, said Paul M. Kvederis, manager of public relations for Consolidation Coal Co., the nation's second-largest coal producer. "Over the long term, five to 10 years, lower oil prices could have a negative impact.
"For instance, if a utility needed to add electrical-generation capacity in the 1990s, that utility may consider using a fuel other than coal to generate that electricity. But even then, that fuel would have to be available at relatively low price over a relatively long period."
Even if oil prices decline further and appear likely to stay at those relatively low levels, other factors may limit the extent to which coal purchasers buy oil instead.
Utilities, which buy about 85 percent of the nation's coal, generally reduced the amount of fuel oil they used to generate electricity and increased the amount of coal they used in the late 1970s, as the nation adjusted to the shock of much higher oil prices.
The utility industry consumed only about 185 million barrels of oil in 1984 compared with approximately 750 million barrels during the peak years in the mid-1970s, according to the National Coal Association. The figure for 1985 is expected to be even lower.
Many utilities have made major investments in coal-handling facilities and have knocked down oil storage tanks and other remnants of the past, according to Jerry Karanganis, vice president of economics for the Coal Industry Association. "They're not about to switch back unless there is a clear trend of competitive prices for at least a three- to five-year duration," he said.
Karanganis said utilties often have long-term contracts for coal delivery, which also would work against an immediate shift to oil consumption.
However, if oil prices continue at low levels, other industries that use coal, including cement plants and petrochemical plants, might switch, he said. In addition, despite the general switch to oil, many utilities, including Pepco, still have oil-powered generating plants that might be deployed more often.
Pepco's oil-burning plants generally are used only occasionally during periods of peak use -- for example, in the summer, when virtually every air conditioner in the metropolitan area is in use. As the price of oil declines, those units might be used in other circumstances, Benziger said.
Pepco is part of a power pool that includes eight electric utility systems in Pennsylvania, New Jersey, Delaware and Maryland. If the price of oil falls low enough, other utilities might be able to buy power more cheaply from Pepco's oil-fired units than from their own coal-powered plants. In that case, the oil-fired units would operate more frequently, indirectly displacing some coal consumption.
Benziger said the price of industrial oil delivered to Pepco's plants would have to come down to about $10 a barrel to prompt Pepco to buy oil in place of the coal it now buys. "It's got five or six dollars to go before it gets there," he said.