Unless you’ve been hiding beneath the proverbial rock — or buried by huge utility stockpiles of coal — you’ve probably heard the US thermal coal / steam coal industry is in economic shambles. Demand is depressed; production has plunged, and prices are low.
Some of the largest coal producers, in the nation, have filed for bankruptcy, including Patriot Coal, Peabody Energy, and Arch Coal; among many others who are doing whatever they can to just survive — a difficult task in a market faced with more challenges than ever.
In spite of the dark cloud hanging over the industry, deep down there’s a seam of optimism filled with hope, recovery and a sunny future. A better coal market is coming, people in the industry say, simply because it can’t get any worse. However, King Coal’s return to the throne is most likely nonexistent.
But the reality of coal’s future may never sink in because to be a coal production entrepreneur, you must first be an “ultimate optimist”, even with coal’s evil stepmothers’ (natural gas) prices remaining low.
Trends at utility companies show why a recovery is unlikely. Duke Energy once the largest steam coal buyer in the country has retired 17 coal-fired plants in the last five years and has three more on the retirement schedule. American Electric Power, in the last five years, has shut down 11 coal-fired power plants.
These are just two companies that have historically depended upon coal for the production of electric power, but they’re transitioning toward wind and solar power (renewables) production rather than utilizing plentiful coal. The simple reason is that renewables are a promising way to make money and coal is a sure way to lose money.
Coal is a dying source of energy, and the simple fact is that the future of energy production belongs to natural gas and renewables. That's the reality, and the few remaining coal operators might as well get used to. Even utilities that have coal assets will soon have little choice but to retire them and build cost efficient methods for electricity production.
As a former participant in the coal production industry, it’s somewhat appealing to project a recovery for coal — at least eventually. After all, it's only been a few years since coal was king and seemed to be “the” source for energy in the U.S. and around the world. But cheap natural gas and the development of renewables makes the climb back almost impossible.
US steam coal consumption for the electric coal-fired power sector surpassed 930 million tons just five years ago (2010). Consumption dropped to 740 million last year (2015) and could fall to as little as 650 million tons by this year's (2016) end. Forecasters generally believe 2016’s steam coal usage will very likely remain unchanged for years to come.
Plenty of questions remain though . . . Most important: Will natural gas prices go up? Yes, renewable energy gets a lot of credit for coal’s decline; but if you want to know the real reason coal companies are struggling, you need not look further than the plentiful natural gas supply and to dampen the outlook for coals future even more, US natural gas production remains at record highs (therefore low prices are guaranteed) and there is no reason for price escalations.
Coal’s “Prince Charming”, alas, is nowhere in sight — unless, unless, Prince Charming turns out to be none other than Donald the Trump. But can the industry be helped without laying further waste to the global warming dilemma we now face?
For the past quarter century steam coal production has seemingly favored the large corporate producers like Peabody Energy and Arch Coal or large independent producers. Small operators that produce less than say, 50,000 tons per month have long complained that unnecessary rules and regulation have had a greater monetary impact on their operations than those of their counterparts—the large operators . . . you see, in theory, large monthly production requires lower profit margins, so as to facilitate the costs associated with such “unnecessary” or out-right silly regulations.
For example, most coal operators (even the large ones) recognize that the current Permitting Process which often requires years to complete or be approved; desperately needs to be streamlined! In the very early days of industrialized mining, less than a week was required to obtain a mining permit from the appropriate government agency. Yes, sensible and necessary environmental guidelines, rules, and regulations make that time frame well short of being reasonable today, but six months is surely a reasonable timeframe, especially when considering that the government requires licensed engineers to submit permit applications —whose fees are often legendary. This alone is a major handicap for the typical small coal operator.
Because small operators invariably produce coal at a much lower cost per ton than large operators, who are notorious for waste in regard to mining costs, the future could be bright for budget minded small coal producers. As is noted above the demand for US steam coal consumption is apt to level off at around 650 million tons by this year's (2016) end and in all likelihood the demand will not increase in the years ahead; if anything, steam coal demand is more likely to decline slightly.
Common sense dictates that multiple small coal producers could better serve the requirements of the utility companies by supplying their steam coal needs at a lower price and by extension supplement the demands of their consumers as lower electric utility costs are passed forward to users.
Regardless, with all the uncertainty, everybody can agree on one thing: The US coal industry won’t ever be the same!
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