Dwindling financial options due to political pressure, and not a drop in global demand, may be the biggest obstacle facing the coal industry, a panel of industry executives said March 14 at CERAWeek by IHS Markit in Houston.
While the group was optimistic that coal has a future thanks in large part to continued demand in Asia, the executives believe that environmental groups have succeeded in giving coal a negative connotation.
"We still see consistent demand; we're looking at that for the next while," Peabody Energy Corp. President and CEO Glenn Kellow said. "[Coal] is a fuel, in my view, that's often miscast as a Hollywood villain."
The group noted that demand for coal remains strong with approximately 25% of world energy produced coming from coal, the same level as 1980. "The world's electricity is provided more by coal than anything else," Kellow said.
Even with those positive factors, the panel took a largely dour tone due to the impact of political activism in the United States, Europe and elsewhere against coal, which has caused demand to either remain steady or start to taper off.
CMC Coal Marketing Co. CEO Howard Gattis described the "Atlantic Market," which includes the U.S., Europe and the Mediterranean region, as being in a demand decline.
"It's in decline because of politics," Gattis said. Political considerations have also hampered the ability to obtain capital for new projects or expansion as banks have become wary of relationships with coal companies. Many lenders have stopped working with coal producers entirely due to pressure from environmental groups.
"With most commercial banks, thermal coal is taboo. The ones who know the difference between thermal coal and metallurgical coal are hard to identify," Coronado Global Resources Inc. CEO Garold Spindler said. "There's the political impact of coal … and that's what drives commercial banks out of the arena. Not only are you hunting harder for capital … it's more expensive. It's an ill wind that favors no one."
Instead of looking for help from commercial banks, coal producers are increasingly turning to private equity to fund their capital plans. But even that segment is not immune to outside pressure and is becoming less inviting.
"If you're at a private equity fund, you take a career risk if you propose a coal project to your funding committee," Corsa Coal Corp. CEO George Dethlefsen said.
Members of the panel expressed frustration at what they saw as industry progress made in efficiency and carbon reductions over the past 15 years being overshadowed by environmental group activism.
"The story of coal in the U.S. since the 1970s is that, as the market has increased 180% to 190%, emissions have decreased 90%," Kellow said. "We've seen 24 countries, half of the world's producing countries, talking about the use of coal as part of their Paris emissions [reduction] plans. We could eliminate two gigatons of [carbon dioxide], that's equal to the emissions of India, using current technology."
Instead of becoming a solid part of the future world energy equation with coal becoming less of an emissions risk, the industry finds itself fighting to find capital to stay on firm ground.
"We think the market is there. But there's no question environmental activism plays a part," Kellow said. "The capital may not be there in the future."