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Peabody eyes its place in changing US, seaborne coal markets

As Peabody Energy Corp. nears completion of its Chapter 11 bankruptcy, the company is looking forward to the potential of coal in changing markets in the U.S. and abroad.

According to a Feb. 2 disclosure of preliminary financial information, Peabody collected revenue of between $4.71 billion and $4.72 billion in 2016 compared to $5.61 billion in revenue the year before. The company reported that its revenues decreased due to lower realized pricing on coal in the U.S. and internationally during the first half of 2016 and lower U.S. coal sales volumes in the face of natural gas competition and mild weather.

Peabody notes that U.S. coal demand rebounded in the second half of 2016 after natural gas prices rose off historical lows, a trend it expects to continue in the U.S. through 2017.

The company is projecting that coal will fuel over 30% of electricity generation in 2017, though consumption is expected to drop 5 million to 15 million tons between 2016 and 2021, and that coal will supply an estimated 29% of generation in the U.S. by 2021, down from 33% in 2015.

The company also projects the Powder River Basin and Illinois Basin will supply about 55% of U.S. coal production in 2021, compared to about 51% in 2016.

Peabody is expecting seaborne coal fundamentals will improve through 2021.

It expects seaborne metallurgical coal demand to increase about 10% to 15%, or about 30 million to 35 million tonnes, from 2016 to 2021. Most of that growth is expected to come from demand in India. Longer-term pricing, Peabody projects, will likely return to more stable levels driven by China's supply restrictions and expected response from seaborne suppliers.

Peabody expects seaborne thermal coal demand to rise 25 million to 35 million tonnes from 2016 as new coal capacity is expected to come online by 2021. Most of those additions, Peabody noted, are expected to be concentrated in the Asia-Pacific.

Peabody said the company is finalizing its reserve estimates as of the end of 2016, but it estimated that it held about 5.6 billion tons of preliminary proven and provable reserves. That is down from the year-ago period when the company reported it held 6.3 billion tons. The decrease includes 0.2 billion tons of production in 2016, with the remaining decrease coming from reserve disposals and lease rejection or revisions of unassigned reserve leases.