US coal companies struggle to cash in on shortages in Europe
Wednesday, May 18th, 2022
US coal producers are seeking to boost exports to cash in on soaring prices since Russia’s invasion of Ukraine but face big headwinds including shipping bottlenecks, labour shortages and a dismal long-term outlook discouraging investment in new mines.
The outlook means the US, which holds the world’s biggest reserves of coal, is unlikely to play a major role in international efforts to expand shipments of the fuel to Europe ahead of an expected EU ban on Russian imports in August to punish Moscow for the invasion.
It also means the rally in global coal prices is unlikely to pull the US coal industry out of a more than decade-long tailspin driven by federal and state efforts to slash carbon emissions that have led utilities to replace coal with cleaner-burning natural gas, and solar and wind power. President Joe Biden has set a goal to decarbonise the US power grid by 2035 to fight climate change.
“The ability of US companies to respond [to the price rally] has been limited by logistics challenges, like most industrial activity at the moment,” said Ted O’Brien, managing partner and chief commercial officer at Oluma Resources, a Pittsburgh-based marketer of the fuel, citing clogged railroads, labour shortages and the unavailability of new equipment.
Ernie Thrasher, CE of Xcoal Energy & Resources, a coal marketer, estimated that bans on Russian coal could remove 114-million tonnes a year from global markets, but that the US would be poised to fill less than a tenth of that given the lack of investment in the US industry.
“That’s really the issue,” said Thrasher. “There’s been virtually no capital invested in the industry since 2015.” Europe is likely to rely most heavily on other countries such as Colombia, Indonesia, SA and Australia to replace Russian coal, he added.
US coal production year to date is up 3.8% from the same period in 2021 at about 203.7-million short tonnes, according to the latest data from the Energy Information Administration (EIA), marking a slight recovery from the depths of the Covid-19 pandemic when output hit the lowest level since 1965.
But exports have not kept up. Shipments of US coal abroad in the first quarter of 2022 slipped about 2.5% year on year to about 20.2-million tonnes, the EIA said. And the logistics hurdles prompted the EIA to lower its 2022 US coal export forecast to 85.7-million tonnes, down about 3.7% from its previous prediction in April.
The EIA said US exports are expected to rebound about 3.6% in 2023 to 88.8-million tonnes.
One company that expects its exports to do well is Alliance Resource Partners, which has mines from Illinois to West Virginia. President and CEO Joe Craft sees the Ukraine war driving US export prices for both thermal coal burned in power plants and metallurgical coal used to make steel higher than prices for domestic coal for at least 18 months.
As a result, Alliance’s export volumes should be more than 6-million tonnes this year, up from about 4-million tonnes last year, and is most likely to grow by an additional 1.5-million tonnes in 2023, Craft said in a first-quarter earnings call in May.
But an industrywide expansion of exports is unlikely to happen quickly as few companies have new mines coming and most new investments are going towards sustaining output from ageing facilities, said O’Brien of Oluma.
Arch Resources does not anticipate investment in new mines for thermal coal, CEO and president Paul Lang said during the number two US coal supplier’s earnings call in April.
“I think we’ll continue to generate cash out of these assets, but we’re simply not going to put any more cash into them,” Lang said. “It’s not what our shareholders want and I don’t think it’s a good investment for us.”
The National Mining Association (NMA) industry group said the supply chain problems with rail, the primary means of transporting coal, are costing companies both in lost shipments and additional labour.
“Mining companies are facing enormous difficulties getting coal to the consumer,” Katie Mills, an NMA lawyer, said late in April in testimony to the Surface Transportation Board.
NMA spokesperson Ashley Burke said the industry is “ramping up as much as possible” to supply European buyers, but faces “limits to what the rail transport and ports can handle”.