U.S. Thermal Coal Mining Faces a Future Dimmed More by Economics than Politics
On January 20, 2021, the coal industry's biggest fan, President Donald Trump, will be replaced by what could be the industry's biggest foe, as President-elect Joe Biden is sworn into office. Biden's campaign platform included a plank on making the electric power sector carbon-free by 2035, which would dramatically curtail if not eliminate coal from the nation's electric power fuel mix.
Coal's declining fortunes have been evident for some time. The main customer for thermal coal in the U.S., electric utilities, have sharply cut back their demand over the last decade in favor of some combination of natural gas-fired generation, renewable energy and customer energy-efficiency programs. For more on the continued closure of coal-fired power plants, see December 2, 2020, article - Wave of Coal Power Plant Closure Announcements Clouds Outlook for King Coal.
A declining share of the electric generation market, plus an inability to export as much coal as it wanted, has financially crippled coal companies, leading to bankruptcies and mine closures that put thousands of miners out of work.
Driven by the criteria of "environment, social and governance" investing, banks, institutional investors and insurance companies have turned against King Coal, with influential firms swearing off any further involvement in coal. Ratings agency Moody's Investors Service (New York, New York), a division of Moody's Corporation (NYSE:MCO) (New York, New York), in a late-October research note, predicted that the decline in U.S. thermal coal demand would accelerate under a Biden administration. But even if Trump had been re-elected, Moody's said, "thermal coal demand will remain in secular decline over the next decade." The ratings agency downgraded most thermal coal producers in 2020.
A recent article in Science magazine by Emily Grubert at the Georgia Institute of Technology School of Civil and Environmental Engineering explored some of the transition challenges associated with the effective shutdown of the nation's fossil-fueled generators. To some extent, she suggests, decarbonizing the electricity sector is a problem that will largely take care of itself: 73% of all U.S. fossil-fueled generators will reach the end of their useful lives by 2035, she estimated. A federal mandate that fossil-fueled generators close at the end of their useful lives, or by 2035, would need to include equitable and just transition assistance, the article noted.
But no comparable plans have yet emerged on whether the federal government should take an active role in managing the decline of coal mining. In early December, two coal mining firms, Lighthouse Resources Incorporated (South Jordan, Utah) and White Stallion Energy LLC (Evansville, Indiana), filed for Chapter 11 bankruptcy reorganization, citing diminished demand for their product as their reasons for insolvency.
The number of coal mines in the U.S. fell by nearly 50% between 2011 and 2016, but have held relatively steady in recent years, according to the U.S. Energy Information Administration (EIA) (Washington, D.C.).
Production of coal has similarly trended down over the last decade, though the EIA expects a small bounce-back next year, largely premised on the assumption that natural gas prices will rise, boosting coal's economic competitiveness among generators. Nearly all of the coal mined in the U.S. is thermal coal used in electric generation, but the EIA data combines thermal and metallurgical coal, which is used in steel-making.
Declining demand for thermal coal, as well as mine automation, have cut coal miner employment by about 75% over the last three and one-half decades, according to data maintained by the Federal Reserve Bank of St. Louis.
"President-elect Joe Biden's administration could accelerate the wind-down of coal mining, but is that something they need to do or want to do?" Rob Godby, an associate professor of economics and associate dean at the University of Wyoming's Haub School of Environment and Natural Resources, asked rhetorically in an interview with Industrial Info. "Why kick a hornet's nest when coal is going away anyhow?"
"All presidents get too much credit, and too much blame, for the economy," he continued. "The outlook for coal is bad regardless of who is president. The change in administration won't make much difference to coal."
"I expect we'll see coal production go away over time, it's only a matter of time," Godby said, even without specific actions by the incoming Biden administration. The main culprit in coal's decline has been natural gas, he said, adding: "If you look at coal's decline over the last decade or so, it really began after hydraulic fracturing unlocked massive gas deposits, which drove its price down sharply."
Godby noted that candidate Biden talked about the need for the federal government to fund a just and equitable transition to industries, like power generators, whose livelihoods were affected by the shift to cleaner energy resources. But he didn't specifically address transitioning coal miners and coal-mining communities.
But coal's fortunes could brighten if the incoming Biden administration made good on its campaign pledge to impose a moratorium on hydraulic fracturing on public lands, Godby predicted: "In the short run, that could hurt natural gas and improve coal's competitiveness."
Godby also downplayed the potential for coal exports to revive the industry. He noted that Lighthouse Resources, one of the firms that declared bankruptcy earlier in December, has been developing the Longview Columbia River Bulk Material and Coal Terminal in Washington state, but that project has failed to win the necessary permits from state authorities. That project was listed on the Trump administration's Executive Order 13927, issued June 4, to expedite the permitting of infrastructure projects earlier this year. For more on that, see September 8, 2020, article - U.S. Interior Department Seeks to Expedite Energy, Mining Projects. The current president is trying to wrap up a lot of unfinished business since the election, but whether this rises to the top of the priority list is uncertain.
Besides, the dynamics of Asian coal consumption and production have shifted in recent years, Godby said. "There is strong demand for coal in some Asian countries, like Indonesia and China, but those countries also have large reserves of coal. Why import coal if you have domestic deposits? The first coal priced out of Asian markets will be U.S. coal."
There was a narrow window of opportunity for U.S. coal exports during the preceding decade, but that window has closed significantly in recent years, he said: "Exports are always a very risky proposition. At one time, exports were a viable strategy, but between not getting the export terminals built and the changing dynamics of potential country markets in Asia, exports are even more unlikely now." China's recent decision to stop importing coal from Australia is an example of the varied forces -- economic, political and environmental -- that affect a nation's coal-import decisions.
With dwindling potential for exports and stiff economic challenges at home, Godby said the U.S. thermal coal industry likely will continue to suffer the death of a thousand cuts.