The slump in coal demand has taken its toll again, with Signal Peak Energy announcing that it has laid off 58 workers and eliminated 8 vacant positions in its Bull Mountain Mine. The 20% workforce reduction in this underground mine is primarily due to the industry-wide slowdown that has started to impact even the largest coal-producing region of the U.S.
Signal Peak Energy is jointly owned by Wayne M. Boich, the utility FirstEnergy Corp. FE and Gunvor Group, a global commodities trading company. The company aims to cut coal production from almost 8 million tons in 2014 to 5.5 million tons annually and will continue to produce less until the market improves.
Coal miners are having a tough time thanks to the ongoing softness in natural gas prices, stringent emission standards and extension of the renewable tax credit which will see more alternate energy generation replacing coal as a fuel source.
Coal operators across the U.S. initially tried to cope with falling demand by lowering their operating expenses. However, that was found to be insufficient given the wide gap between supply and demand. The persistent slowdown in the Chinese economy made matters worse. Coal miners then resorted to production cuts and idling of coal mines. Ultimately, they had to take the hard decision of letting go excessive workforce to survive the downturn.
The softness in coal demand has affected the majority of coal miners in the U.S. The likes of Peabody Energy BTU and Arch Coal Inc. ACI had to go for a reverse stock split to check the free fall in share prices.
Per a recent release from the U.S. Energy Information Administration (“EIA’’), U.S. coal production in 2015 will decline by nearly 10% or 97 million short tons (MMst) and further dip by another 3% or 29MMst in 2016.
To add to coal’s woes, the recent Paris Climate deal set a target of limiting global warming to “well below” 2.0 degrees Celsius (3.6 Fahrenheit) compared with the Industrial Revolution. This will continue to push back demand for coal.
And it’s not just domestic demand that is being affected. The fall in international coal demand has forced coal miners to amend their long-term strategies. Cloud Peak Energy CLD announced that it has entered into an agreement with BNSF Railway Company, keeping in mind the softness in coal demand in the international markets. The new agreement will disregard the volume obligation arrangement that both parties had agreed upon earlier for the period 2016 through 2018.
In spite of tremendous odds we still believe that coal can make a comeback as a fuel source. This can only happen if utilities put in some extra investment in their coal-fired units to meet carbon emission standards. Lest we forget, coal is still the cheapest and most widely available fossil fuel that can provide a solution to new-age energy problems, provided we are willing to harness this energy.
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