October 3, 2014
One of the largest coal mining companies in the United States, Alpha Natural Resources, Inc. has announced the layoff of 250 workers, with the promise that more layoffs are coming. The coal industry is often quick to blame the current Administration’s rules and environmentalists for the downturn. However, the hydraulic fracturing technology which has allowed energy companies to reach tough natural gas deposits is also to blame for the decline in coal mining.
James Stevenson, IHS Energy’s Director of North American Coal estimates that it is a “50/50 split” between regulation and the newfound availability of natural gas causing the decline. However in explaining the impact of markets versus regulations Stevenson cites that “the tipping point really has been caused by cheap gas.” This is because existing coal generation facilities are competitive or economically advantageous over gas units, but new and predicted regulations encourage old coal power plants to close and increase the expense of new coal fired power plants.
Some Coal Markets Analysts believe that the Mercury and Air Toxics Standards (MATS) have accelerated the closure of the coal fleet. However, analysts predict that remaining coal fired power plants will be “newer, more efficient and cleaner.” Stevenson notes that this decade will see stable retirements, but an acceleration will likely be observed in 2030.
In addition to the regulations and natural gas competition, Appalachian coal mines are seeing changes as a result of technologies that allow higher-sulfur coal to be competitive again with the higher grade coal generally produced in the Appalachia unit. Additional factors like mechanization, geologic constraints, and increased safety standards are to blame for the decrease in cost competitiveness of coal from the Appalachia unit, resulting in fewer jobs and a flagging industry. The higher grade metallurgical coals available in Appalachia will continue to be in demand, but a flagging demand for power supply coal will be noted in the future.
The Powder River Basin is also experiencing a production reduction, however the outlook for production in this this area is still potentially robust, if the coal can make it out of the country given concerns about environmental issues as related to transport in the Pacific Northwest.
Ulimately, analysts believe that for the medium and long term the outlook for energy production and steel (metallurgical coal is used in steel production) is robust.
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