Coal Industry Woes

Brian Hicks

Written By Brian Hicks

Posted September 13, 2013

An apt description of the state of the coal industry would be stagnant or dead in the water.

Thanks to new EPA measures, the coal field has essentially gone from bad to worse.

The bone of contention lies with a new measure that would require newly built coal plants to install expensive carbon-capture technologies – a move that many are saying is the death of newly constructed coal plants.

coal handsSuch capturing technology includes capturing carbons and storing them underground, but this method is still in its developmental stages and far from being introduced on a commercial scale.

According to data projections, costs in building a new plant with the new measures in place would be 24% higher. The emissions standard will apply to newly built coal plants and could take effect as early as September 20. It will be applied to existing facilities in 2014.

This new proposal is a revision from last year. The EPA cites the Clean Air Act as a way of requiring all new coal plants to have a standard of “1,000 pounds of carbon dioxide per megawatt hour,” which is the same standard applied to natural gas, Reuters reports.

The official measures have not been released, but the revised proposals could include anywhere from 1,300 pounds per MW to 1,600 pounds per MW. Current industry standards are 1,800 pounds per MW.

But the changes in this new measure will certainly not win over coal fans. Some in the industry would prefer a rate of 1,900 pounds per MW.

It seems the Obama administration is willing to make concessions, but this is not enough for coal insiders who are struggling. There will no doubt be an uproar, and we have already heard from Kentucky Senator Mitch McConnel on the matter, saying to Bloomberg:

“If these reports are accurate, his latest proposal is not only an open war on coal jobs, but on all the residents, jobs, and businesses across the commonwealth that rely on this vital industry.”

But some in the industry are seeing this as a positive. When word leaked of the revised proposal, stock for Consol Energy Inc. (NYSE: CNX) jumped 2 percent on the domestic market.

In an industry where there have been numerous setbacks, many are seizing upon any semblance of good news. And there is good news in the coal sector to be happy about.

Metallurgical coal stocks have been doing well internationally, with Consol jumping to an overall 6.5 percent in the last three months. Alpha Natural Resources (NYSE: ANR) rose by 2.0%, Peabody Energy (NYSE: BTU) rose 6.9%, and Arch Coal (NYSE: ACI) jumped 10.7%.

State of Coal Industry

The coal industry worldwide is already on weak legs due to weak demand, stiffer regulations from governments, and lower natural gas prices.

Domestically, many utilities are switching to factories powered on natural gas because prices are so low.

First Energy Corp. (NYSE: FE) has had to close two plants in Pennsylvania because of strict regulations and poor demand. And Black Hills Energy (NYSE: BKH) and Xcel Energy (NYSE: XEL) will be closing plants in Colorado as part of the Clean Air-Clean Jobs Act.

Worldwide, coal is not doing much better either.

Coal can’t even catch a break in China; the government there has banned new coal plants in key cities such as Shanghai, Beijing, and Guangzhou as part the nation’s effort to deal with its notorious pollution. Chinese consumption of coal will increase, but the government has a long-term goal of cutting coal below 65 percent and replacing it with other energy sources like natural gas and renewables.

There have been numerous layoffs in Australia, and coal mines across Indonesia and South Africa are also suffering from low demand. Between the green energy campaign across Europe, tougher emission standards in the U.S., and China’s efforts in reducing coal, the industry is in for a long slump of low demand.

But India is set to replace China as the primary importer of coal by 2014. On an international level, this will benefit such companies as Adaro Energy (OTC: ADOOY) from Indonesia and BHP Billiton (NYSE: BHP) – two companies that have been hampered by layoffs and cutbacks.

Is Coal Worth It?

Coal stocks have been performing well in the short-term, but if you’re looking for future growth, you’re just not going to find it. The industry is being squeezed from both sides, with low natural gas prices followed by tougher regulations from the White House.

A saving grace for coal will be rising natural gas prices, but this is quite a ways away. Even though natural gas prices are slowly rising, we would have to see more exports for prices to drastically creep up. But the Department of Energy approved a fourth LNG export terminal this week, so things are slowly moving forward.

Some are saying natural gas prices are more damaging to the coal industry than regulations, but commodities prices tend to fluctuate. Regulations are another matter. When Obama’s exit from the White House arrives, you’re going to hear some pandering by politicians who say they will repeal harsh regulations when in fact this rarely occurs. Once regulatory measures are set in place, they are pretty much etched in stone, with little room for change or repeal regardless of the political party.

European nations like Germany have been importing coal from the U.S., and this has helped coal towns in Kentucky and West Virginia remain on steady ground. But caution be must be taken since the European Union is coming out with tougher emissions standards.

According to projections, coal demand is set to plummet in the coming winter due to the increased presence of renewable energy. A total of 28 gigawatts of coal energy is expected to dissipate between 2012 and 2020. And winter for next season is expected to be mild – something that will decrease the need for coal.

But the good news for coal is that Germany will be adding more capacity for coal – 5 gigawatts this year and 3 for 2014.

At a time when Europe is facing an economic crisis, more countries need cheap coal, and this is where coal can make inroads, so long as it stays cheap.

That being said, coal producers must also do more by joining the green movement, and it can be done. There must be more investment in research that burns coal without emitting harmful pollutants. The technology and capability is there, but the coal industry must do more in adopting a clean energy campaign as a way of staying competitive with natural gas and other renewable sources.

Drawbacks of adopting clean-burning coal are higher costs, which is the last thing coal companies need at the moment. But it will be a necessary feat if the coal industry wants to have a substantial impact in the energy game.


If you liked this article, you may also enjoy:

Angel Publishing Investor Club Discord - Chat Now

Brian Hicks Premium


Hydrogen Fuel Cells: The Downfall of Tesla?

Lithium has been the front-runner in the battery technology market for years, but that is all coming to an end. Elon Musk is against them, but Jeff Bezos is investing heavily in them. Hydrogen Fuel Cells will turn the battery market upside down and we've discovered a tiny company that is going to make it happen...

Sign up to receive your free report. After signing up, you'll begin receiving the Energy and Capital e-letter daily.