Production to decline by as much as 40 million tons; prices will not benefit shareholders or stimulate new investment; anemic exports; few gains from regulatory relief; increasingly dim employment prospects
The Institute for Energy Economics and Financial Analysis (IEEFA) published its U.S. Coal Outlook 2017 in which it describes an industry like to decline further this year, though at a slower pace than in 2016.
The report—“IEEFA U.S. Coal Outlook 2017: Short-Term Gains Will Be Muted by Prevailing Weaknesses in Fundamentals”—finds that while coal producers stand to gain limited market share in day-to-day competition in regional electricity markets due to a relative increase in the price of natural gas, coal’s main competitor, any such gains will be marginal.
The IEEFA outlook has the following specifics occurring across the U.S. coal industry in 2017:
- Coal production declining by as much as 40 million tons.
- Coal prices failing to increase enough to benefit shareholder or stimulate new investment.
- Coal exports remaining weak.
- Little or no gain from regulatory relief as capital continues its flight from coal.
- Increasingly dim employment prospects.
“Consumption, production and prices will slump, but by a small amount compared to that seen in recent years,” the report states. “The overall effect will be one of flat performance at best.”
The authors, IEEFA Director of Finance Tom Sanzillo and Director of Resource Planning Analysis David Schlissel, said in a companion blog post that the current power shift in Washington will have little impact on the industry.
“Our outlook starts by acknowledging that the U.S. coal industry begins 2017 with better optics than it had a year ago,” they wrote. “A new administration comes to power in Washington this week promising regulatory relief and a coal resurgence, major industry players are emerging from bankruptcy, and a recent spike has occurred in global prices.”
“While these optics are positive on their face, IEEFA sees the industry as a sector saddled with a fundamental problem it has failed to address after being riddled with bankruptcies: Too many companies are still mining too much coal for too few customers.”
They questioned the reorganization strategies being pursued by the three largest U.S. coal producers, Alpha Natural Resource, Arch Coal, and Peabody Energy.
“The U.S. coal industry is not on a path to recovery in the short or the long term,” the report states. “The industry will continue to suffer from declining demand, low prices, and its inability to compete with natural gas and renewable energy.”
“Coal’s value as an investment will remain clouded, however, by market competition from natural gas, wind, solar and gains in energy efficiency. Potential benefits from regulatory relief that has been promised by the new administration will provide little or no gain. And the long-term prognosis for the coal industry in every coal-mining region from now through 2050 is poor, as more coal-fired power plants will close and as utilities will continue to allocate capital away from coal.”
Source: IEEFA U.S.