14
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World Coal
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June 2016
Industry View
Industry View
T
he current state of the US coal
industry is a microcosm of a
global market for coal still ailing from
unfavourable macroeconomic trends.
This year will extend a difficult period of
capacity adjustments that US producers
are making to align production with
more modest demand scenarios. US coal
production, last year, was down 10% from
2014 and is expected to decline further this
year, based on preliminary data from the US
Energy InformationAdministration (EIA).
The number of active mines has fallen but
the number of operating sections within the
mines has fallen further.
The EIA’s parsing of coal demand
explains why. Demand from all sectors, last
year, fell by 13%. Coal exports, for example,
declined sharply in 2015, down
23 million short t from 2014 to approximately
74 million short t. In addition to the impact
fromAsia’s slowing economies, US
shipments to the EU, traditionally a major
destination for US coal, declined by 28%.
Adding significantly to the oversupply
challenges has been the competition from
unexpectedly low natural gas prices. Today,
natural gas generates almost as much
electricity as coal, even as coal remained the
domestic market leader last year, generating
more than 34% of the nation’s electricity.
The suddenness and steepness in the
decline in demand for coal has had an
indiscriminate effect on US coal producers.
Many were deep into a new investment
cycle, acquiring new capacity in anticipation
of growing offshore demand. The resulting
burden of debt service has added to the
challenges of producers as they struggle
with soft and shifting markets.
Further impacting coal domestically is
the growing saturation of renewable
generating capacity fuelled by generous tax
policy that encourages solar and wind
investment. Offshore, a strong dollar against
world currencies has made US coal exports
less competitive relative to other coal
supplying regions.
US government policies have also played
an outsized role in the dramatic change we
see in the outlook for domestic coal.
Beginning with the Mercury andAir Toxics
Standards (MATS) for power plants in 2011,
regulations have contributed to the loss of at
least 33 GW of coal generating capacity in
addition to more expected to be retired this
year. For example, the administration’s
Clean Power Plan, designed to reduce
carbon dioxide emissions from coal-fired
power plants, is expected to double the
capacity already lost to fuel switching and
prior regulations, while triggering double
digit increases in wholesale electricity costs
and adding US$216 billion to the nation’s
utility bill by 2030.
Other rules aimed at coal production
could render a substantial amount of US
coal reserves inaccessible. Aproposed
three-year moratorium on coal produced
from federal lands largely in the West will
throttle production from the largest source
(43%) of total domestic production. Higher
royalties and fees on government coal
leased at auction may follow.
The toll of these policies demonstrates
the steep price of keeping coal in the
ground. The US has lost about 40 000 coal
mining jobs since 2011 and many tens of
thousands more that coal supports
throughout the supply chain – frommines
and power plants to railroads and ports.
Fortunately, the effects of policy, like the
effects of market forces, are not immutable.
Apresidential election year in the US offers
our industry, its employees and its varied
allies the opportunity to vote in a
government with a more balanced energy
policy and hopefully see out many of the
damaging policies from this government.
Change may well be coming in the
marketplace, too. The commodity cycle that
didn’t stop at the top will not stop at the
bottom either. Global demand for coal is
likely to pick up next year, albeit at a
gradual pace initially with more rapid
growth in the years thereafter. World Bank
President JimYong Kim reminded member
country representatives last month that the
bank expects “a marked increase of coal
consumption” in coming decades.
Elsewhere we see sustainable
improvements for domestic coal. The
introduction of new safety technologies and
practices helped US coal mining achieve a
record safety year in 2015. Companies that
adopt the National MiningAssociation’s
own CORESafety™ initiative, wholly or in
part, can document improved safety
performance that results from following the
programme’s best practices.
Similarly, the environmental
performance of our industry continues to
improve. Our fleet average reduction of
conventional pollutants per unit of
electricity – 90% since the 1970s – rivals the
achievement of any industry. By 2019, the
US coal-fired power industry will have
invested more than US$126 billion in
emission reductions, leaving a fleet that is
more efficient and cleaner than ever before.
Our commitment to high-efficiency,
low-emissions (HELE) technologies remains
a more rational and sustainable solution for
addressing climate change concerns than an
approach based on ending coal’s use.
Missing from this strategy, we believe, is an
effective approach for addressing either the
environmental issues of affluent nations or
the pressing economic concerns of emerging
countries seeking their rightful place among
rich ones.
So, for 2016, the forecast for US coal is for
continuing showers, heavy at times, with
possible sun in the near future.
About the author
Hal Quinn is President and CEO of the National
Mining Association.
SHOWERS
BUT WITH A CHANCE OF SUN
Hal Quinn, National Mining Association
