Geology’s War on Coal

June 3, 2014

One of the least talked about aspects of the coal vs climate discussion is whether the continued use of coal is even an option for the future under any scenario.  US Geological survey data suggests that current coal supplies fall far short of the oft quoted “200 year supply”.

Leslie Glustrom sends this update to the “War on Coal”:

As the Environmental Protection Agency moves ahead with limits on carbon pollution from the nation’s coal plants, you’ll hear a lot of industry outrage about “Obama’s War on Coal.” Don’t believe it.
The truth is, the US coal industry is already in dire straits—and it is due primarily to geology—not politics.
Coal is a quintessential non-renewable substance; the easily accessible deposits have been mined over the last 150 years and the planet isn’t making any more on a time scale that matters to humans.

As a result, the US coal industry is in serious financial distress—right now—months, and likely years, before any EPA carbon regulations actually go into effect.
Importantly, even if the EPA were to be eliminated tomorrow (not something I advocate), the US coal industry would still likely be largely winding down in the next decade or so—the result of geology, not politics.

As the remaining coal has become more difficult and expensive to mine, coal prices to electric utilities have increased significantly over the last decade, but these price increases have not been enough to keep coal company profit margins healthy.

In addition, the large profit margins that were available for coal sales in China in recent years are no longer buoying the coal industry as China’s economy slows and China has made impressive commitments to developing its own wind and solar resources and strong opposition has mounted to exporting of US coal to Asian countries.

The truth about the US coal industry can be found by reading the coal company’s own financial statements filed as “10-K” reports annually with the Securities and Exchange Commission (“SEC”) as well as quarterly “10-Q” reports, all available from the coal company’s websites.

Here are some facts you can learn from reviewing the current finances of the US coal companies:

Fact #1: The top 4 US coal companies are currently running in the red and reporting large losses:

  • #1 US coal producer, Peabody, reported a loss from continuing operations in 2013 of $286 million (and as additional loss from discontinued operations of $226 million (see page 43, Peabody 2013 10-K) and a loss from continuing operations of $44.3 million for 2014 Quarter 1 (Q1).
  • #2 US coal producer, Arch Coal Inc, reported a loss of $641 million for 2013 (see page 57, Arch 2013 10-K) and $124 million in losses for 2014 Q1.
  • #3 US coal producer, Alpha Natural Resources, reported over $1 billion in losses for 2013 (see page 57 Alpha Natural 2013 10-K) and a net loss of over $55 million for 2014 Q1.
  • #4 US coal producer, Cloud Peak reported a net income of $52 million for 2013 but a net loss of $15 million for 2014Q1. (See page 3, Cloud Peak 2014 Q1 10-Q).

Fact #2-Coal Company stock prices have plummeted in recent years. This can be followed on any financial website (e.g. Reuters Finance) using the three letter ticker abbreviation for the coal companies.  Before the EPA had even announced its carbon regulations for existing coal plants:

  • #1 Peabody (“BTU”)’s stock price had lost about 81% of its value falling from a peak of $88.69/share in June 2008 to $16.16/share on Friday May 30, 2014.
  • #2 Arch Coal (“ACI”)’s stock price had lost 95% of its value falling from a peak of $77.40/share in June 2008 to $3.56 on Friday May 30, 2014.
  • #3 Alpha Natural Resources (“ANR”)’s stock price had lost about 97% of its value falling from a peak of $108.73 in June 2008 to $3.88 on Friday May 30, 2014.
  • #4 Cloud Peak (“CLD”)’s stock price has been the most stable but still has dropped about 21% from a 2010 peak of $23.56 to $18.47 on Friday May 30, 2014.

Fact #3—It is very likely that the US is past peak coal production, with the peak occurring in 2008 of 1.171 billion tons while 2013 coal production fell below 1 billion tons for the first time since 1993. It is unlikely that coal production in any US coal region will increase enough in the coming years to surpass the 2008 production.

Fact #4—The costs to produce coal by the coal companies are rising regularly as the coal becomes less accessible. Even in the big, strip mines of Wyoming, the amount of dirt (“overburden”) that needs to be moved is increasing and driving up production costs. Instead of making the capital investments needed to mine this coal, the coal companies are slashing their capital expenditure budgets making it unlikely that coal production will be increasing in the future.

When asked why coal production in Wyoming was not increasing as coal prices rose, Peabody CEO Greg Boyce described the situation as follows during Peabody’s third quarter conference call in 2013:

“…people are going to have to start spending real cash to repair equipment that’s been parked, replace engines, rear motors and the like. That will provide a bit of an increment, but then in reality, people have not spent capital to replace equipment that ultimately reached the end of its useful life or spent capital to overcome the annual increase in stripping ratio that naturally occurs in the Powder River Basin.

Fact #5—The largest US coal mines are beginning to play out. What used to the be largest US coal mine—the Black Thunder in Wyoming—produced about 10% of the country’s coal. Now the owner of the Black Thunder mine, Arch Coal, says that the mine is likely to start playing out by 2020. (See page 15, Arch 2013 10-K).  The third largest US coal mine, the Cordero Rojo owned by Cloud Peak plans to take about a 25% production cut in 2015 due to rising costs of production and declining profit margins.

Scapegoating is an age old human tendency when times are difficult. It is important that the US not allow the coal industry to scapegoat the current President and EPA for their current financial distress which has been driven largely by geology, not politics.

The good news is that the US is blessed with abundant low-carbon renewable resources and the costs of harvesting these wind, solar and other renewable resources are falling.

Our energy future is bright—but if and only if we look to the future and not the past to keep us strong. The US is blessed with many fine minds working hard to create a cleaner and more abundant, sustainable and resilient energy future for our country and planet—but to get there we have to not be taken in by the efforts of the US coal industry to turn a geology problem into a political football.


Leslie Glustrom is a long-time coal industry watcher. She is the author of several reports on US coal cost and supply issues, including “Warning: Faulty Reporting of US Coal Reserves.” She is the former Director of Research and Policy for the non-profit, Clean Energy Action. 

Rebecca Smith in the Wall Street Journal:

Last year, the U.S. Geological Survey completed an extensive analysis of Wyoming’s Gillette coal field, the nation’s largest and most productive, and determined that less than 6% of the coal in its biggest beds could be mined profitably, even at prices higher than today’s.

“We really can’t say we’re the Saudi Arabia of coal anymore,” says Brenda Pierce, head of the USGS team that conducted the study.

No one says the U.S. is facing a coal shortage. But the emerging ranks of “peak coal” theorists argue that current production levels may be unsustainable and, if anything, create a false sense of security. David Rutledge, an electrical-engineering professor at the California Institute of Technology who has studied global coal production, figures the U.S. has about half as much recoverable reserves as the government says, which would work out to about 120 years’ worth.

The Energy Information Administration, part of the Department of Energy, says it is reassessing its coal tally in light of the new Geological Survey data. It intends to create a new coal baseline from which it will begin its annual subtraction “as soon as we can,” says William Watson, a member of the energy analysis team at EIA in Washington, D.C.

4 Responses to “Geology’s War on Coal”

  1. renewableguy Says:

    Interesting whine by the coal established power industry. If they plan properly for this really slow change in power, they deserve what they get. The consensus has been building slowly for a very long time, if the leadership is that dense about changing, so be it.

  2. Another case of supply demand elasticity caused by resource depletion, much the same as in the oil market. An increase in commodity price does not cause an increase in supply lowering costs. Instead, the increased supply is at a higher cost because of increased capital expenditures (Capex) to get the dwindling resource. In this scenario, providers are looking to go overseas for increased markets because demand is not stimulated by more supply at higher prices. Demand is stagnant or even decreasing. That causes a steady collapse in the market. We are going to see this scenario repeated in many resource markets, including other commodities like copper, in the coming years.

  3. […] there is no “war on coal.”).  These factoids are from Leslie Glustrom’s Geology’s War on Coal released […]

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