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US coal CEO sees 'worst of times' behind sector despite domestic challenges

After living through the "worst of times" in recent years, including a wave of industry bankruptcies, U.S. coal is finding some relief amid improved sector conditions despite some challenges at home, a coal executive told colleagues at an industry event late last week.

While export markets are flourishing, many of those attending the Eastern Fuel Buyers Conference in Florida were thinking about the future of the domestic market for coal in a country that continues to lean on natural gas as it retires an aging coal fleet. Regulatory impediments, energy economics, public sentiment and other factors keep most utilities from investing in any sort of new coal facilities that might bolster domestic coal markets.

Consol Energy Inc. President and CEO Jimmy Brock delivered his Dickensian assessment of today's coal market in a presentation titled "A Tale of Two Coal Markets" at a conference on May 10.

The industry's "worst of times," Brock noted, were marked by a confluence of lower overall electricity demand, volatile export markets, cheap natural gas and the actions of the Obama administration, which Brock believes wanted to eliminate the use of coal. The conditions led to a wave of bankruptcies through the coal sector that is largely over.

Now controlling its own destiny after a 2016 split from the predecessor company's natural gas segment, Pennsylvania-based Consol is exploring improved markets abroad but has also focused on developing relationships with its core customer base: utilities burning coal in the United States. While many of the largest coal plants in Consol's market have retired, the company has noted, what remains is only getting older and closer to retirement.

Southern Co., one of the largest coal consumers in the country, has already drastically reduced the share of coal generation in its portfolio. The company's vice president of commercial operations, Scott Teel, said at the same industry conference that keeping coal in the mix is the "right thing to do" but added that it has not been easy to do so.

"Our objective is we want to keep what we have, but it's becoming more challenging," Teel said. "In the face of economics, we were forced to retire or convert coal plants to natural gas."

Southern has reported it does not expect to invest in any new coal-fired generation and laid out a plan for cutting nearly all of its greenhouse gas emissions by 2050.

Brock worries the continued retirement of coal-fired power plants will cause electricity blackouts and put lives at risk.

"All of this begs a question," Brock said, pointing to reports coal generation was heavily relied upon to provide electricity to the grid during recent inclement weather. "Is it really a responsible use of capital to shut down coal and build new gas given the fuel price and resilience risk associated with this decision?"

Like many coal producers, Brock wants grid operators to adopt mechanisms that would value baseload power generation although a broad array of critics including energy and environmental interests have dismissed the value of doing so. Such valuation could offset competition from cheaper sources of energy such as natural gas and renewable energy and support the existing coal or nuclear fleet.

That may only solve part of coal's domestic woes. Brock notes that there are still rules in place that could make it difficult to upgrade existing plants to make the sort of incremental investment needed to keep those plants efficient and running. At the same time, he added, renewable sources of energy are receiving subsidies that help it outcompete coal.

Energy Venture Analysis President Seth Schwartz said at the same conference that although coal prices got a lift from export demand, the industry will continue to face a lot of competition for U.S. market share as overall electricity demand has been stagnant. Meanwhile, coal companies have begun funneling cash to shareholders instead of growth projects while big banks largely remain on the sidelines when it comes to coal projects.

"We've had a significant restructuring of the coal supply sector to meet a low level of demand, which is going to create some issues going forward," Schwartz said.