A publication of Appalachian Voices

A publication of Appalachian Voices

Energy Report

Coal Export Market Evaporates

By Brian Sewell

Up until 2012, the coal industry was optimistic about the outlook for U.S. exports. A record high amount of coal was shipped from American ports that year — twice as much as just three years prior.

Global demand soared as China, the world’s largest coal consumer, rapidly urbanized, and as India, the world’s third-largest coal importer, electrified far-flung rural areas. American coal even played a role in powering countries in Europe and South America.

Stateside though, slumping demand, power plant closures and competition from natural gas and renewables cast dark clouds over coal’s future. To some experts, the sunny forecast abroad was the industry’s only hope.

“The future of the U.S. coal industry is at stake,” Richard Morse, an energy consultant, told The New York Times in 2013. “It is fair to say that a resuscitation of the industry has to come overseas.”

But the surge in exports was short-lived.

An Unequal Impact

In recent years, proposed export terminals in the Pacific Northwest turned the conversation westward. Producers in Wyoming’s Powder River Basin are desperate for greater access to international markets, but opponents of new export capacity have economics on their side.
In 2013, six terminals were planned in Oregon and Washington. All but two are now off the table.

For central Appalachian producers, proximity to rail and ports along the East Coast have encouraged companies to cater to an increasingly volatile global market.

Wyoming, the nation’s largest coal producer, exported around 1 percent of its coal in 2011. West Virginia, the second largest producer, exported 27 percent. And while total U.S. exports fell 23 percent in 2015, the drop was 10 percent steeper at terminals along the Virginia coast, which primarily ship central Appalachian coal.

The Ghost of Growth

In 2011, the nation’s three largest coal companies bet billions of dollars on future demand for steelmaking metallurgical coal, a primarily Appalachian product that fetches a much higher price than coal burned in electric power plants. Alpha Natural Resources, Arch Coal and Peabody Energy each acquired companies with large metallurgical reserves to capture their share of the market.

Two months before Alpha Natural Resources acquired the central Appalachian-focused Massey Energy to become the leading producer of metallurgical coal in the United States, JPMorgan Chase forecast the price for the high-quality coal to increase by 50 percent in 2012.

Instead, it plunged. China’s feverish economic growth had driven up prices. When it broke, so did the market. According to a February 2016 study by the economic analysis firm Rhodium Group, 93 percent of the decline in the industry’s revenue between 2011 and 2014 was due to a drop in the consumption and cost of metallurgical coal.

The market shift still haunts the companies today. Alpha and Arch are both in bankruptcy, while Peabody teeters on the edge unable to recover from the collapse.

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2016 — (April/May)

2016 — (April/May)

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