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US coal betting on exports, technology as climate concerns pressure sector

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A worker carries materials into Consol Energy's Enlow Fork mine in Pennsylvania. Consol operations have benefited from increased demand for coal abroad in recent years with management expressing optimism in coal demand overseas.
Source: S&P Global Market Intelligence

U.S. coal producers are leaning into the potential of overseas demand even as shifting energy economics and concerns about climate change begin to call into question whether global economic growth will continue to be coupled with increased coal demand.

Demand for coal from abroad is softening this year after a strong showing in 2018, although U.S. companies continue to see hope in markets abroad. Opponents of coal and others concerned about the impacts of climate change are working to spread coal's decline in places such as the U.S. and Europe to other parts of the world by targeting banks, insurance companies, investors and others associated with coal projects.

"Between the reality that the rest of the world is taking climate change seriously and the competitiveness of renewable energy — just as the promise of a new wave of coal plants in the U.S. ended up being a mirage — I think we will see the same story play out in some other parts of the world," said Mary Anne Hitt, director of the Sierra Club's Beyond Coal campaign. Earlier this year, consulting firm McKinsey & Co. Inc. projected that global energy-related emissions would peak in 2024, largely due to reduced coal use led by China as renewables become cheaper than existing coal and gas in most of the world by 2030.

The coal industry is betting differently, placing its money on growing global demand for energy and steel. Seth Schwartz, president of consulting firm Energy Ventures Analysis, said at a May coal industry conference that unlike the U.S. and Europe, many countries will still want low-cost energy from coal.

"They are building coal-fired power plants because none of them have natural gas," Schwartz said. "So, U.S. coal exports, while they will come and go because of the worldwide volatility or markets, are in a large sense here to stay."

U.S. power generators have retired significant coal capacity already, and new coal construction remains off the drawing board due to environmental regulations and the availability of cheaper natural gas and renewable sources. While many U.S. coal companies have been cautious with their capital in recent years, a few are beginning to invest in new mines or expansions with an eye on demand abroad.

On a recent earnings call, Consol Energy Inc. CFO David Khani pointed to projections of 111 GW of new coal-fired capacity slated before 2024 and an additional 300 GW of coal-fired capacity in the planning stages.

"We believe this bodes well for seaborne thermal coal demand, particularly high-Btu Northern Appalachia coal," Khani said.

On the other hand, Glencore PLC, the world's largest exporter of thermal coal, recently said it is capping its coal production at current levels as the world transitions to a lower-carbon economy. And London-based Rio Tinto, one of the world's largest metals and mining corporations, touts its divestiture from the coal sector to investors.

"The transition away from coal will be a multi-decade journey," Rio Tinto CEO Jean-Sébastien Jacques said at a May metals and mining conference. "However, having divested our coal assets, and with no oil and gas in the portfolio, we have a unique exposure in the low-carbon economy. Shareholders today have a choice."

While at least one analyst argued that coal producers could make a case to certain environmental-, social- and governance- focused investors, the movement toward socially responsible investing is a significant headwind for coal producers.

Some coal supporters said the solution may be designing and exporting smaller, modular coal plants with near-zero emissions with support from the federal government. Meanwhile, technologies for generating power without fossil fuels advance as carbon dioxide emissions, particularly from coal plants, remain under a high level of scrutiny worldwide.

Carbon Tracker Initiative recently announced a $1.7 million grant from Google.org to use satellite imagery to quantify carbon dioxide emissions from large power plants and make the information public through a collaboration with nonprofit software startup WattTime and global research organization World Resources Institute. The project could inform researchers about power plant emissions from places where data is scarce or unavailable while empowering campaigners and helping large companies identify where they source their energy, Carbon Tracker data scientist Durand D'souza said in an interview.

That information could be used by investors looking to limit exposure to companies contributing the most to climate change. "I think a lot of hedge funds are quite interested in using our methodology," D'souza said.