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Cloud Peak CEO finds exports only option for growth as US coal market calms

SNL Image

A mechanized shovel loads coal from an 80-foot-thick seam into a haul truck at Cloud Peak Energy's Spring Creek mine near Decker, Mont. Coal from the mine is shipped to power plants for generating electricity.

Source: Associated Press

Two weeks after announcing an export deal to supply two new integrated coal gasification combined-cycle coal-fired power plants in Japan, Cloud Peak Energy Inc. CEO Colin Marshall told S&P Global Market Intelligence that the global market offers the only room for real growth as domestic demand for thermal coal levels out.

Speaking on the sidelines of the Coaltrans 2018 conference in Miami, Marshall said the deal, completed though subsidiary Cloud Peak Energy Logistics, helped put the company's export volume on the way to 10% of total production, after declining to virtually zero in 2016.

SNL Image

Cloud Peak Energy CEO Colin Marshall

Source: Cloud Peak Energy

Echoing a number of U.S. coal producers in recent months, Marshall said Cloud Peak has looked to higher prices abroad for relief as domestic demand for thermal coal continues to wane, despite strong support from the Trump administration.

While most of those producers finding opportunities in the export market have been metallurgical coal producers in eastern states, Cloud Peak in the Powder River Basin has sought out options in Asia, mostly among countries still pursuing new coal-fired power plants.

"We've seen it for a long time as the only growth market that we're facing," Marshall said. "The actual story playing out in Asia, with Indonesian coal — the quality seems to be dipping and more is being used domestically, with South Korea building lots of power plants, and their coal consumption has gone up 20% — where else in the world is that going on?"

Marshall noted that unlike producers relying on Atlantic Basin consumers, Cloud Peak is restricted by geography and the limited port capacity along the U.S. West Coast. Over the last few years, a number of proposed port project in western states have faltered under legal and regulatory challenges.

"You see the demand in places like South Korea, but in the end, it's a port problem, and that's on our side of things," Marshall said. "They're building coal plants. They'd like to take the coal."

Cloud Peak still has an option to export through one of the projects that has not been abandoned: the Millennium Bulk Terminal project in Washington. However, Marshall said the company is not holding out much hope that it will be completed in the near future.

Marshall downplayed reports that the Trump administration is working to ease regulatory delays for export terminals, saying the potential for federal influence is limited because so many permitting decisions are made at local levels.

"Certainty when you talk to people, they realize how important it would be to coal sales," Marshall said. "But, as far as action, it's further back than that. They understand the potential, but equally they understand that it's difficult. I haven't seen an actual plan."

Still, Marshall joined a chorus of praise at the conference for the Trump administration for providing what the coal industry see as much-needed clarity and optimism.

"We're getting back to a place where we can say, 'OK, we can run the mine, it's a proper process that's legal and that's great,'" Marshall said, adding that he had noticed federal permits are moving faster.

In order for U.S. thermal producers to gain stability at home, though, he said domestic utilities would have to find the same optimism in the coal sector and adjust the lifespan of their coal-fired power plants.

"The key thing is going to be, until you can change the closure plans at utilities, you're not going to see much of that," he said.