Terminal velocity? The decline of U.S. coal mining
It is probably hard to recall Barack Obama’s policies on coal when he was elected back in 2008. One would assume that he immediately began legislation to curtail its use domestically and bolstered the strength of the EPA, but that’s not quite what happened. He backed ‘clean coal’ and said if the US could put a man on the moon in 10 years then surely the technology to capture CO2 emissions was within its grasp? For a former Illinois senator, a major coal-producing state, that is probably not that surprising.
By 2012, the admittedly luke-warm mutual respect between President and coal lobby was on the decline and certainly no clean coal initiatives appeared to be forthcoming. The US coal industry, which has been a steady and active lobbyist in Washington, was starting to get pretty fed up. Republican candidate Mitt Romney stated in the run-up to the 2012 election that he loved coal, but sadly for domestic miners, the voters didn’t love Mitt Romney nearly enough and that came to nought. EPA policies all but decapitated any ideas that high grade US thermal coal, which would be perfect for burgeoning Asian import markets, could be exported from West Coast ports into the Pacific market.
So one can only imagine the delight that the US coal mining industry felt when Donald Trump came to power. One wrinkle in the Obama-era GHG policies was that Congress wasn’t supportive, so instead the existing Clean Air Act and executive orders were used to enforce his policies, not changes in the law. This meant that when Trump took power he was able to use the same methods to undo what had been done by the previous administration. He replaced Obama’s Clean Power Plan with the Affordable Clean Energy Rule, which effectively allowed for GHG emissions to go almost unregulated.
Further roll-backs included the reduction of regulation for the disposal of coal ash, airborne mercury and other toxins that pollute the atmosphere and water courses. In short, Trump was making good on his campaign promise to try to revive the US coal industry. One of Trump’s most outspoken supporters from within the coal industry lobby was the late Bob Murray, the owner of US coal producer Murray Energy. He had contributed to the Republican campaign, and was quick to hand the President a list of 16 demands to help revive the US coal sector, which had been under severe pressure throughout the Obama era. And Trump listened to the demands and put them into action.
So one would have assumed that with a very powerful ally in the White House and the ear of the pro-business and pro-coal President, that things would have started to improve, right? Unfortunately for the coal companies, that proved to be decidedly wrong. By the end of Trump’s first year in office, in fact coal-fired electricity production had fallen by 22% from 2016 (mid-term of Obama’s final stint in office). Coal provided just 27.5% of US energy in 2019, down from 50% a decade earlier. Despite receiving special attention, along with oil and shale gas industries, the decline of US coal seemed to be gathering pace rather than reversing.
Throughout the Trump administration one might argue that many of the requirements that the coal industry had lobbied for were delivered, but one thing that they could do nothing about was the price. Throughout Trump’s tenure coal just became too expensive compared to natural gas and renewables. Another significant blow to the domestic coal sector is the lack of coal-fired power station investment that electricity producers were prepared to make. While the government may have been improving the landscape for this investment, the often publicly-listed electricity companies were listening to investors and not the coal lobby. Why invest in coal against a backdrop of political uncertainty that might see a ‘double-back’ on environmental policy, a re-joining of the Paris Agreement and the reinstatement of many things that had only just been repealed? And of course, at the end of the day, it all comes down to price. And coal may still be plentiful, but it is no longer cheap.
Bob Murray died in October 2020. Before his death he had managed to get most of what he wanted from the Trump administration. However, a year before his death Murray Energy went bankrupt with debts of an estimated $2.7bn, with actual or potential liabilities of $8bn. It subsequently revived itself under the new name of American Consolidated Natural Resources, but the axe has been swinging through the US coal sector over the past few years with remorseless inevitability. The list of Chapter XI filings (voluntary or involuntary) includes Mission Coal, Cloud Peak Energy, Trinity Coal and nearly a dozen others.
Whether predictable, lamentable or cause for celebration, this presents a grim reality for the producers of thermal coal. The domestic market is shrinking fast, the export market is tantalisingly out of reach as well for the large part. So how does this affect shipping and trade? In 2018, the US exported 86.2m short tonnes of coal (76.9mt). This is a fall of 21.4% year on year. The source and destination of this coal, with very few exceptions, is Virginian hard coking coal via US East Coast ports such as Hampton Roads and Baltimore and southern States. India, Japan, Europe and Brazil account for the vast majority of the export destinations, making this a medium to long haul trade, carried mostly in Kamsarmaxes, Baby Capes and part-loaded Capesizes (due to draft restrictions). It is undoubtedly a significant seaborne trade in both volume and tonne-miles.
It would appear that if the trends elsewhere in the US coal markets are to be applied, that this trade is also somewhat doomed. However, despite the generally declining volumes, the majority of export coal is very grade-specific and ultimately ends up being used in the steel making process. This has seemingly made it far less vulnerable to domestic issues and there is no substitution for this coal in steel making, so its future looks relatively stable and secure. Because of the long seaborne legs though, it does remain somewhat susceptible to international coal and steel prices. However, the unique ‘low vol’ properties that are keenly valued in steel making means that finding alternative grades from producers such as Australia is not so simple. Lower quality coking coal may be vulnerable, but as of today, market conditions are favourable and trade continues unabated.
What of thermal coal? Its only growth story was going to be shipping it from the West Coast. Over the past 10 years Wyoming-based Lighthouse Resources, which owned a mine that produced high quality Powder River Basin coal, has been attempting to realise the dream of exporting via its own West Coast terminal in Longview, Washington. In December 2020 it filed for bankruptcy when it failed to find a buyer for the port facility. To make matters worse, its domestic coal contracts were not renewed by power producers. The future of ports like Stockton in California seems to be in intensive care when it comes to coal at least, although the West Coast business for agricultural products seems to be thriving. Stockton recorded a record throughput in 2019, but coal’s share is estimated to be less than 15% of the 4.5mt throughput. West Coast coal? That one’s pretty much dead.
In summary, it came to pass that Trump, Murray and the US domestic coal supporters were unable to turn the ship around. Blame it on Obama, blame it on Californian hippies, blame it on the boogie, the end result appears to have been unavoidable. Cheaper alternatives more than environmental considerations have done for it. However, while the dream of a thriving thermal coal sector in the US might be in tatters, the much rarer commodity of high-grade coking coal that is found in Eastern USA is still very much in demand and appears to have a reasonable future secured due to inelastic market conditions and specific grade requirements. These long-haul trades will be sustained regardless of the prevailing incumbent political climate, which is some cold comfort in an otherwise seemingly terminal story.