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Trump emissions rollback could help coal; thermal to overtake met exports in Q4

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Trump emissions rollback could help coal; thermal to overtake met exports in Q4

Although President Donald Trump's recent effort to rollback policies aimed at reducing emissions from power plants are not expected to result in new coal-fired facilities under current market conditions, it could provide an opportunity for the coal sector should natural gas prices soar.

This week, Jack Lienke, regulatory policy director for the Institute for Policy Integrity at the New York University School of Law, said increasing the threshold of carbon emissions power plants can generate could make high-polluting coal plants more enticing to build than low-emitting natural gas plants should the market conditions change unexpectedly.

In other pro-coal developments on the federal level, the sector will have an ally presiding as the top-ranking Democrat on the Senate Energy and Natural Resources Committee in 2019. Sen. Joe Manchin of West Virginia, who has been a coal industry advocate, was confirmed to the party's top spot on the committee despite his differing views on energy policy from many on the left side of the aisle.

While the Trump administration continues to pursue ways to save coal, Canada announced its final plan to end most coal-fired power generation by 2030. The nation will impose an emissions performance standard that incentivizes coal plants to transition to natural gas with a goal of producing 90% of the nation's electricity from nonemitting sources by 2030.

This week, several analysts noted that coal companies are more focused on buying back their shares rather than investing in additional capacity, despite the boom in seaborne demand for the fuel. Chiza Vitta, director of S&P Global Ratings' natural resources group, said the industry sees that there is "already more than enough capacity" resulting in "no appetite" in new or expanded mines at this point.

However, Foresight Energy LP may be moving to reopen its Deer Run longwall mine in Illinois, an operation that was closed earlier this year following a combustion event in 2015.

The seaborne market remained strong for both metallurgical and thermal coal, and the U.S. Energy Information Administration projects that steam coal exports will actually overtake coking coal in the fourth quarter of 2018 and first half of 2019. Steam coal exports surpassed metallurgical coal in July and September, something that had not happened since February 2015.

Metallurgical coal producers are also reaping the benefits of a strong domestic steel demand. Steel production has increased, driven partially by the 25% tariffs on imports of steel instated earlier this year, providing opportunities for coking coal producers.

The chances of western coal producers having easier access to the Asian markets grew slimmer this week after a judge dismissed claims from the backers of a proposed coal export terminal in Washington state that officials' denial of a necessary water quality permit for the project was preempted by federal law. Though the developers still have other claims, one attorney who has represented the mining industry said "the big issues in the case have been decided."

Two coal companies that declared bankruptcy in October were chastised in their respective courts by creditors this week. Unsecured creditors and the unionized workforce of Mission Coal Co. LLC filed objections to key employee retention and incentive plans. While they do not object to the broader retention plan, they are not pleased with the bonuses included in the incentive plan to two executives, who they said were also awarded bonuses just before the company filed for bankruptcy.

A group of Westmoreland Coal Co.'s creditors also told their counterparts to reject the company's restructuring plan and are investigating whether its unencumbered assets have value. The company has claimed they do not. Westmoreland announced this week that, amidst its bankruptcy proceedings, its chief financial officer will resign effective Jan. 4, 2019, as well, but the interim CEO said the company is still well positioned to complete its restructuring.

A report released this week also highlighted the global progress made in the carbon capture and sequestration realm, emphasizing the need for the technology to meet climate change goals set in the Paris Agreement. The report said that more than 2,500 carbon capture facilities must be operating by 2040 to limit global temperature increase to 2 degrees C from preindustrial levels by 2060. Eighteen large-scale facilities are operating and 25 more are under construction or being developed.

S&P Global Ratings and S&P Global Market Intelligence are both owned by S&P Global Inc.