Resilience and the Road Ahead

The coal supply chain continues to adapt to the forces of energy markets and regulation. The winter of 2016 failed to materialize, causing demand to plunge and inventories to spike. By spring, additional power sector coal generating capacity was shuttered as compliance plans made while the Environmental Protection Agency’s (EPA) mercury rule wound its way through the courts were put into place – although the Supreme Court struck down the rule last summer. The mild 2016 winter was followed by a better summer story, with heat and extreme heat across much of the nation. While in the past the fortunes of the coal chain have tended to rise with temperature extremes and fall without them, weather impacts are part of a far more complex set of business and market conditions now. In addition to the depth of the cold and the strength of the heat, our industry circumstances are affected by changes in natural gas prices and whether or not the wind is blowing or the sun is shining. They are subject to compliance with new and changing federal regulations, and the threat of even more rules from agencies in Washington, DC whose leadership and employees are insulated from the impacts of their regulatory actions.

Market pressures have affected the entire energy spectrum. Coal, oil, and natural gas have all been impacted by a tepid economy and slow growth in energy demand, forcing rationalization of energy markets. Job losses, bankruptcies, and restructurings have occurred across the oil, natural gas, and coal segments. Business cycles are not new to any of these commodities, of course. The natural gas markets are in need of higher overall prices to support the industry, and this should carry over into coal and provide opportunities for its continued key role in the fuels mix.

However, for coal this cycle is more than another commodity cycle and represents a secular shift. Much of this is driven by the extreme federal regulatory agenda so pointedly focused on coal. The coal sector is confronted with additional regulatory costs and restrictions, in addition to contending with challenging market conditions. Beyond that, state and federal government mandates continue to force coal’s competitors into electricity generation markets, our largest market sector

All of this means less predictability than ever for producers, suppliers, and traders of coal, transportation companies and terminals, and power and industrial plant consumers, along with the many services partners that together make up the coal community.