Skip to footer

Is this the beginning of the end of coal?

Coal may be poised for a comeback in 2014 as natural gas prices rise and extreme cold push up electricity demand. But new EPA regulations and investor trepidation point to a structural decline for coal, Cunningham writes, not a cyclical one.

|
Matthew Brown/AP/File
A truck carrying 250 tons of coal hauls the fuel to the surface of the Spring Creek mine near Decker, Mont. Coal may experience a resurgence in the short-term, Cunningham writes, but the longer-term picture is much shakier.
  • By Nick Cunningham Guest blogger

Arch Coal (NYSE: ACI) reported a big loss for the fourth quarter of 2013, its eighth straight. The numbers came in lower than many analysts expected and the company continues to struggle amid declining revenues.  Arch posted a loss of $0.45 per share with revenues of $719.4 million. Part of the blame, according to Arch, was from a rail outage in the Powder River Basin and “geological” problems in Appalachia, which contributed to lower revenues.

With coal demand slumping, Arch Coal’s stock price has been in freefall since 2011. It closed at $4.01 on February 3, down from the pre-recession highs of $70 per share, and even much lower than $35 per share just three years ago. Arch Coal’s struggles mirror the sector as a whole. Shale gas is increasingly the fuel of choice for utilities as they make the switch away from coal to fire their power plants. In 2013, the coal industry produced only 984 million tons of coal, the first time since 1993 that the industry produced less than one billion tons. (Related article: Why Coal will Remain the Basis of Electricity Generation for Most of the World)

However, the company believes it may be poised for a bit of a comeback. Natural gas prices have more than doubled since their lows nearly two years ago and they have continued on an upward trajectory from the remarkably cold weather in the northeastern United States. Record-low temperatures have led to high demand, and Henry Hub prices have rapidly jumped above $5 per million Btu. And with infrastructure bottlenecks, regional natural gas prices have temporarily spiked far beyond those levels. 

This, Arch Coal believes, will allow coal to regain lost ground. For power generation, the U.S. burned through an additional35 million tons of coal in 2013 compared to 2012 as higher natural gas prices prompted a coal bounce back. Moreover, prices for metallurgical coal (used for steelmaking) may be unsustainably low. Arch reported sales of metallurgical coal that were lower than even what was considered on the low end of expectations. But, the coal industry hopes that as demand catches up with supply, prices will again rise.

Some investor analysts agree, and think that the coal industry is set for a comeback. That may be the case in the short-term, but the longer-term picture is much shakier. A coal resurgence is based on the belief that the downturn over the last three years has been cyclical, and if the industry can just weather the bad times, it will turn out OK. To do this, companies have reduced capital expenditures in order to straighten out their balance sheets while waiting for better days. Arch’s CEO John Eaves played down the losses and assured investors a rebound is coming, “Our goal in 2014 will be to once again tighten our belts to reduce cash outflow further and increase operational efficiencies…With signs that a rebound in U.S. thermal coal demand and pricing may be forthcoming, we are managing our operations in a manner that will enable us to benefit from that rebound as it occurs." (Related article: Chinese Regulator Warns about Credit Risks of Coal Companies)

But what if the coal industry’s struggles are not cyclical, but structural? The spike in natural gas prices may be an aberration. More importantly, forthcoming regulations on toxic mercury from the Environmental Protection Agency will put dozens of coal plants out of business. The much more significant limits on greenhouse gases from existing power plants may eliminate many more. Even if Congress or a new administration delays or prevents some of these regulations, at a minimum it is unlikely that utilities and investors will finance the construction of any new coal-fired power plants in the foreseeable future. This points to a structural decline, not a cyclical one.

Original article: http://oilprice.com/Energy/Coal/Coal-Industry-in-Structural-Decline.html

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.
editor@csmonitor.com
Subscribe
Mark Sappenfield
Editor

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

Subscribe to insightful journalism

QR Code to Is this the beginning of the end of coal?
Read this article in
https://www.csmonitor.com/Environment/Energy-Voices/2014/0205/Is-this-the-beginning-of-the-end-of-coal
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe