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More than 1/3 of US coal from entities recently filing bankruptcy

Nearly 35% of the coal produced in the United States in thesecond quarter of 2016 came from coal mines associated with companies that hadfiled for bankruptcy court protection since 2012.

Companies that have filed for bankruptcy since 2012 producedabout 55.5 million tons of coal in the second quarter, according to an analysisby S&P Global Market Intelligence. That is down from about 91.9 milliontons of coal produced in the fourth-quarter of 2015 from mines by a recent bankruptcywhen the lastanalysis was conducted.

The analysis was created by combining S&P Global MarketIntelligence's tracked coal company bankruptcies and quarterly production datafrom the U.S. Mine Safety and Health Administration. Mines are classified bycurrent controller and mines that were once owned by bankrupt entities are notconsidered in the total amount of production tied to a company currentlyaffected by bankruptcy.

Since the fourth quarter of 2015, mines that were associatedwith recently bankrupt companies have lost percent share of the coal market.Mines from those companies produced about 44.3% of coal produced in the countryin the fourth-quarter of 2015.

Meanwhile, the size of the entire market has shrunkdramatically. In the fourth quarter of 2015, coal companies produced about207.4 million tons of coal. That total figure shrunk by about 22.6% to just160.5 million tons of coal in the second quarter.

The Powder River Basin is the source of most production tiedto companies recently filing for bankruptcy. There, about 59.3% of the coalmined came from such companies.

Powder River Basin producers have led the way in steepquarterly coal production. Of the 46.8 million tons less coal produced in thesecond quarter compared to the fourth-quarter of 2015, about 34.3 million tonsof the lost production came from reductions in the Powder River Basin duringthe period.

Murray EnergyCorp. CEO Robert Murray, who has coal operations primarily centeredin Northern Appalachia and the Illinois Basin, recently told S&P GlobalMarket Intelligence in an interview that the Powder River Basin's appeal was"artificially created" by Clean Air Act amendments. When theamendments were first made, plants could comply with the new air emissionslimits by burning lower-sulfur coal from Powder River Basin or installingscrubbers.

Many chose to delay installing scrubbers and shifted tosupply from the Powder River Basin. He said now that market will suffer as thehigh-moisture, lower-Btu coal from the Powder River Basin struggles to competewith higher-Btu coal with lower transport distances to power plants.

"You're going to see a huge decline in the Powder RiverBasin. I'm the only guy in the country saying it," Murray said. " …If you're going to compete against natural gas, you can't haul 20% water coalin a railroad car and compete against gas or with the local coals which arehigh-heat coals."

Only about 4.5% of coal produced from the NorthernAppalachia coal basin came from coal mines currently associated with companiesthat recently filed bankruptcy. Many of the mines in the region deployunderground longwall mining techniques and are located in closer proximity topower plants near high population centers on the East Coast.

Murray Energy, the largest coal mining company to avoidbankruptcy, was founded on a "concentric ellipse" strategy in whichMurray found coal resources that had access to cheap barge transportation, wereable to be longwall mined and also were near power plants that were candidatesfor scrubbers. Murray recently shared his broader strategy in an in which he added thatCentral Appalachia thermal

coal markets were "destroyed."

"The reason I focused on Northern Appalachia andIllinois basins is because they provide the lowest-cost, highest heating valuecoal in America on a cents per million Btu basis," Murray said."That's what you're selling, heat."

Some of the large producers that did resort to thebankruptcy courts could soon return to competition. , for example, hassprung from the bankruptcy of Alpha Natural Resources Inc. with some of Alpha's topresources such as the Belle Ayr mine in the Powder River Basin. Alpha's lessproductive assets remained with the company, which is now largely focused onreclaiming the properties.

Arch CoalInc. also plans to soon emerge from bankruptcy. In a recentpresentation, the company said it plans to emerge from bankruptcy into what itbelieves is a "healthiersupply equation" in coal markets given recent signs of themarket turning.

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