Coal Production Plummets to Lowest Level in 35 Years

Source: By CLIFFORD KRAUSS, New York Times • Posted: Monday, June 13, 2016

Full rail cars outside Cloud Peak Energy’s Antelope Coal loading terminal in Rawlins, Wyo. About 40 percent of the nation’s coal is mined on public land in the state. Jim Wilson/The New York Times 

Coal production in the United States is plummeting to levels not seen since a crippling coal strike 35 years ago, according to a report released by the Energy Department on Friday.

The coal industry in recent years has been plagued by bankruptcies as power utilities increasingly moved to replace coal with cheap natural gas and renewable sources, like solar and wind energy. Coal was once the dominant source of the nation’s electricity generation, but consumption of the fossil fuel has declined by nearly a third since its peak in 2007.

Once gradual, the decline in coal mining appears to be picking up momentum. Coal production in the United States of 173 million tons for January through March was the lowest in any quarter since 1981. The quarterly production total represented a 17 percent decline from the previous quarter, the steepest quarter-over-quarter drop in nearly 32 years.

Part of the reason for the production drop were the above-normal temperatures through much of the nation in recent months, which lowered electricity demand. Utilities had stockpiled an additional 34 million tons of coal during the final months of 2015, anticipating a colder winter.

But the Energy Department noted broader forces at play in its brief report.

“Coal production has declined because of increasingly challenging market conditions for coal producers,” the report said. “In addition to complying with environmental regulations and adapting to slower growth in electricity demand, coal-fired generators also are competing with renewables and with natural gas-fired electricity generation during a time of historically low natural gas prices.”

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The biggest declines in production came in the Powder River basin of Montana and Wyoming.

The Obama administration has suspended new coal leasing on federal lands, and worked to tighten environmental regulations on burning of coal. Those efforts have been challenged in the courts, but could eventually gain momentum as Washington complies with commitments made last year during climate talks in Paris.

In recent years, coal companies have pinned their hopes on exports, as coal remains an important power source in Asia and Europe. But slow economic growth and low international coal prices, also depressed by the increase in liquefied natural gas trade, has contributed to a decline in coal exports.

The Energy Department recently reported that coal exports in March were 32 percent below the same month in 2015. The department forecasts an annual coal export decline of 10 percent this year and 12 percent in 2017.

Coal companies are not the only businesses suffering from the production cuts. The Association of American Railroads has reported a 20 percent decline in coal railcar loads transported during the first quarter from the fourth quarter of 2015.

As recently as early 2008, coal was the source of roughly half the electricity generated in the United States; this year, that figure has fallen to roughly 30 percent. Still, most energy experts say that coal will continue to be an important source of power for years to come, and the Energy Department projects a small increase in coal consumption next year as natural gas prices are projected to rise.

“Eventually things are going to turn around,” said Rick Curtsinger, a spokesman for Cloud Peak Energy, a major coal producer in the Powder River basin. Noting that the warm winter was an anomaly, he added, “The U.S. and the world will continue to use significant amounts of coal going forward.”

Private equity and other investors are already moving to pick up the remains of bankrupt coal companies cheaply, and continue operating the most efficient mines.

“It’s a rapidly shrinking industry, but it will continue to be an industry and there will continue to be success stories,” said Jim Thompson, a coal analyst at IHS, an energy consultancy.