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China-US talks may boost coal exports; Va. governor reinstates coal tax credits

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China-US talks may boost coal exports; Va. governor reinstates coal tax credits

The U.S. Department of Commerce informed the West Virginia Coal Association about Chinese interest in 7 million to 8 million tons of steam coal for a group of power generators in China, while Virginia Gov. Ralph Northam signed a bill into law that reinstates tax credits designed to incentivize coal employment and production.

U.S. Commerce Secretary Wilbur Ross is scheduled to visit China June 2-4 as the two countries continue trade talks.

Bill Raney, West Virginia Coal Association's president, said a group of Chinese power generators is looking for low-ash, low-sulfur coal that could be supplied by the Northern Appalachia or Central Appalachia mining regions within the state. He also said he believes there may be opportunities for sales of metallurgical coal, generally a higher-margin product used to make steel, to China that could also reduce the trade deficit between the U.S. and China.

"The overall positive attitude that's been created since [President Donald] Trump was elected for the coal industry and the need for coal and how beneficial it is as a reliable fuel to make not only electricity but steel — I think that's helped all around. It really has," Raney told S&P Global Market Intelligence. "Everybody has a much better attitude about it."

One hurdle to exporting coal to the Asian market is a lack of port capacity, especially on the West Coast. Two proposed facilities that have been stalled by litigation saw more action this week: A federal court denied the state of Washington's motion to dismiss a case challenging the denial of necessary permits for a proposed Millennium Bulk Terminals-Longview coal export facility, clearing the way for the suit to proceed, while the city of Oakland, Calif., announced that it will appeal a federal court decision reversing a ban on coal intended to limit development of the proposed Oakland Bulk and Oversized Terminal.

In a bid to increase domestic demand, the U.S. Department of Energy expressed interest in testing the commercial viability of small, modular coal power plants capable of highly efficient and low-emitting operations. The DOE's Office of Fossil Energy is focused on improving the nation's existing fleet and spurring development of new coal-fired power plants to replace retiring generation domestically and export the technology abroad, Assistant Secretary for Fossil Energy Steven Winberg told a coal conference in mid-May.

"We have the opportunity to make great strides in efficiency and cost improvements to not only the existing fleet but also accelerate the development of transformational technology that will pave the way for the plants of the future," Winberg said at the Virginia Coal and Energy Alliance conference.

However, some policymakers raised concerns during the event about the viability of building new coal plants amid skepticism from power generators.

"I can't get past the fact that I don't have one utility executive in Kentucky that has any intention of ever building a coal-fired power plant again," Charles Snavely, head of the Kentucky Energy and Environment Cabinet, said at a committee meeting of the Southern States Energy Board. "What do we do from a resolution or policy standpoint [to mitigate the] risk that's out there in the utility industry? I don't know how to answer that."

In state-level news, Virginia Gov. Ralph Northam signed a bill into law that reinstates tax credits for coal producers that expired in 2016, but limits them to metallurgical coal producers to keep the state's costs down. Producers can claim a credit of $2 per ton of met coal mined underground from seams 36 inches thick or less, $1 per ton of coal mined from thicker seams, and 40 cents per ton for surface-mined coal.

S&P Global Ratings this week lowered Westmoreland Coal Co.'s credit rating to SD from CCC-, citing the company's $110 million bridge loan financing that subordinates the first lien lenders' debt to the new loan.

Upcoming events:

EMLF: The Energy & Mineral Law Foundation will hold its 39th Annual Institute on June 17-19 in Nashville, Tenn.

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