U.S. Coal Companies Scale Back Export Goals
By:Clifford Krauss (NY Times) September 2013
HOUSTON — The ailing American coal industry, which has pinned its hopes on exports to counter a declining market at home, is scaling back its ambitions as demand from abroad starts to ebb as well.
Just south of here, New Elk Coal terminated its lease late last month at the Port of Corpus Christi, where it had hoped to export coal to Brazil, Europe and Asia. Two days later, when the federal government tried to auction off a two-square-mile tract of land in Wyoming’s Powder River basin, a region once poised to grow with exports to Asia, not a single coal company made a bid.
They were the latest signs that a global coal glut and price slump, along with persistent environmental opposition, are reducing the likelihood that additional exports could shield the industry from slipping domestic demand caused by cheap natural gas and mounting regulations.
United States coal exports this year are expected to decline by roughly 5 percent from last year’s record exports of 125 million tons, and many experts predict the decline will quicken next year.
At the beginning of 2012, the coal industry had plans to expand port capacity by an additional 185 million tons. But those hopes have faded this year.
“Global coal prices right now are not supportive of large-scale U.S. coal exports,” said Anthony Yuen, a Citigroup energy analyst.
European demand is soft, and the economies of the developing world are slowing. But the main reason for the slumping prices is China’s softening demand growth, experts say.
For most of the last decade, China’s soaring thirst for energy accounted for more than 50 percent of world coal demand, driving up international coal prices and stimulating mining activity across Australia, Indonesia and as far away as Colombia and South Africa. With Australia and Indonesia straining to produce for China, South Korea and Japan increasingly looked to the United States for future supplies, stimulating interest in the building of several export terminals in Oregon and Washington State and on the coast of the Gulf of Mexico.
But over the last few months those hopes appear to be receding with a reshaping of global coal markets. After years of mounting imports of coal to fuel its growing economy, China has taken a number of steps to slow those imports. It has modernized domestic mines, made coal-fired electricity plants more efficient and stepped up development of nuclear and renewable power.
On Thursday, China announced a ban on construction of new coal-fired plants around Beijing, Shanghai and Guangzhou to control air pollution. The plan will shift new power plant construction to natural gas, nuclear and solar power. Those initiatives, along with slowing Chinese economic growth, have undercut expectations for rising imports and helped produce an overabundance that has sent world coal prices plummeting by more than 30 percent from last year. In response, international coal companies are scaling back mining and shelving export projects from Australia to the Gulf of Mexico, especially for thermal coal used to produce electricity.
“We’re seeing the beginnings of a big structural shift, particularly in the Chinese energy sector,” said Richard Morse, managing director at SuperCritical Capital, an energy consultancy. “For global markets, this is a significant bearish signal for coal.”
In the United States, a half-dozen planned export terminals in the Pacific Northwest and in the Gulf of Mexico have already been canceled over the last year because of poor economics and political opposition. Shipping experts said that if weak coal prices endured for a few more years, financing could be jeopardized for a handful of the remaining ones.
International coal prices have been slumping for about a year. The Newcastle coal benchmark spot price, which early last year rose to as high as $120 per metric ton, declined through much of 2012 to below $90, and finally fell below $80 this summer.
American coal prices are also down, but they have revived somewhat in recent months along with natural gas prices. Some utilities have switched from gas back to coal. Still, coal now constitutes less than 40 percent of United States electrical generation, down from 50 percent a decade ago, and East Coast producers are struggling.
United States coal production continued to decline this year as utilities work off inventories. The continued closing of antiquated coal-burning plants as well as impending federal regulations on existing plants could slash domestic demand by half by the end of the decade, according to Rhodium Group, a consultancy. And next week, the Environmental Protection Agency is expected to introduce revised regulations that would make the construction of new plants virtually impossible without advanced and expensive carbon capture and sequestration technologies.
Coal company revenue and stock prices have plummeted this year, forcing mining companies to cut operations, especially in Appalachia, where expenses are higher, and to lay off roughly 6 percent of their employees during the first half of the year.
Senior coal executives acknowledge that they are going through a rough patch, but they say that coal will recover.
In an e-mail, Vic Svec, a senior vice president at Peabody Energy, the largest American coal company, wrote, “We continue to believe that West Coast exports represent a good long-term opportunity.”
The executives note that the state of the economy has forced many companies to shut operations of higher-cost mines, which will eventually rebalance the market once economic activity revives and drives prices back up.
“We are in a dip,” said Colin Marshall, chief executive of Cloud Peak Energy, a major United States coal company.
But he added in an interview, “If history means anything, the world in a few years will need more commodities, both metals and energy including coal.”
Several export terminals in the Pacific Northwest are still being proposed, but local political opposition and years of regulatory hurdles put their future in doubt.
“It’s understandable that lenders would be getting a little bit nervous about those projects,” said Trevor Houser, head of energy and natural resources research at the Rhodium Group. “I don’t expect coal prices to return to the frothy levels of over the past decade.”
