By Brian Sewell
A light winter that dented demand is the least of the coal industry’s worries in a year of unprecedented challenges that may point to a very frigid future.
While the industry is familiar with market fluctuations and the shifting regulatory framework, analysts considering coal’s present challenges, especially natural gas’ affordability and abundance, are saying it will be difficult to recover.
In June, the Energy Information Administration reported that during the month of April natural gas-fired electricity caught up to its coal-burning counterpart. Both sources contributed about 32 percent of total electricity generated in the United States during that month.
In domestic markets, coal is finally facing a true competitor and investors are taking note. “Get out of coal,” the investment analysis website SeekingAlpha.com advised shortly after the EIA’s announcement. Among other indicators, the steady decline of coal stocks reveals that natural gas is already taking its toll. Prices for major Central Appalachian coal producers such as Alpha Natural Resources and Arch Coal continue to fall.
Casting a deeper cloud of uncertainty over the entire sector, Patriot Coal filed for bankruptcy in July, having reported considerable losses every year since 2010. The St. Louis-based spin-off of Peabody Energy lost nearly $200 million in the fiscal year that ended March 31 and had collected more than $3 billion in debt.
In an effort to save itself, Patriot had increased exports to China, the world’s largest coal consumer and a nation that looms large for United States coal producers. The demand overseas, however, was not enough to serve as Patriot Coal’s lifeboat. Other Appalachian-focused coal producers have also looked to exports as a viable way to stay afloat.
On July 19, Rep. Ed Markey, the ranking democrat of the House’s Natural Resources Committee, released a report, titled “Our Pain, Their Gain,” that analyzes data from the EIA, the U.S. Mine Safety and Health Administration and self-reported data from 97 mines. According to the report, exports from mountaintop removal mines in Kentucky, Pennsylvania, Virginia and West Virginia have increased by 91 percent since 2009. Some of the mines exported 100 percent of their production in 2011.
“The coal may be shipped to foreign markets,” Rep. Markey said the day the report was released, “but the diseases, the destroyed mountaintops, and the environmental ruin from these destructive practices are staying right here in America.”
Recent public backlash in response to proposed ports and the expansion of exports on the west coast will not be easily overcome. Nor will the challenges associated with geographic distance and transportation change – analysts believe Australia and Indonesia rather than the United States are in the best position to appease China’s demand for coal.
For Appalachian coal miners, the effects of coal’s decline are much closer to home. In June, Arch Coal announced it would lay off 750 workers, citing “the unprecedented downturn in demand for coal-based electricity.”
That unprecedented downturn has caused the industry to focus their ire on environmental regulations for the challenges coal faces. In June, an attack on the U.S. Environmental Protection Agency’s greenhouse gas rules failed when a federal court ruled the EPA’s interpretation of the Clean Air Act to pursue the regulation of carbon dioxide to be “unambiguously correct.”
Industry leaders and politicians who lambast President Obama’s “war on coal” are backed by miners and families that depend on the coal industry for their living and are fearful of its uncertain future. Recently, the coal industry’s rhetoric spurred one of its most ardent Congressional supporters to speak out.
“The reality is that many who run the coal industry today would rather attack false enemies and deny real problems than find solutions,” West Virginia Sen. John Rockefeller said on the Senate floor in June. “Scare tactics are a cynical waste of time, money, and worst of all coal miners’ hopes. But sadly, these coal operators have closed themselves off from any other opposing voices and few dared to speak out for change – even though it’s been staring them in the face for years.”
Posted on Wednesday, August 8th, 2012
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