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Carbon capture gets budget bumps as Duke Energy envisions coal phaseout by 2050

Funding for carbon capture and storage technology increased 13.5% in Congress' fiscal-year 2018 omnibus spending bill, as Duke Energy Corp. issued a report exploring a phaseout of coal plants to meet climate goals.

The Consolidated Appropriations Act of 2018 released March 21 would provide $481.1 million for carbon capture and storage and power systems, an increase from the $423.8 million enacted in the Fiscal Year 2017 Consolidated Appropriations Act.

The spending bill also provides a record $6.83 billion in funding for the U.S. Army Corps of Engineers, which would allow much-needed improvements to coal shipping infrastructure to proceed.

Carbon capture has been touted by advocates as a possible way to stave off retirements of coal-fired power plants. One of the largest utilities in the U.S., Duke Energy, issued a report March 22 that said it would need to curb its power plant emissions 72% by 2050, including by phasing out all existing coal generation, under an emissions-constrained future in line with the goals of the Paris Agreement on climate change.

The threat of reduced coal shipment volumes as their utility customers close down has prompted major U.S. railroads to consider dynamic freight pricing tied to natural gas markets that would help coal compete in the power generation market.

Russ Epting, vice president of coal sales and marketing at CSX Corp., said March 1 at an analyst and investor day that the railroad has lost more than 113 million tons of coal freight since 2008.

William Wolf, vice president of business and market analysis at John T. Boyd Co., said his biggest takeaway from Epting's comment is that CSX "is fully aware that if they stick with the traditional fixed price tariff, they run the risk of seeing their coal delivery business dry up entirely," and that the railroad needs to implement a natural gas-indexed pricing plan to preserve remaining coal business in key market areas.

Norfolk Southern Corp. is also exploring the possibility of adjusting its transportation pricing level to help utility coal customers.

On the metallurgical coal side of the industry, mines owned by ERP Compliant Fuels subsidiary Mission Coal, Alpha Natural Resources Inc. and Ramaco Resources Inc. could be the most important indicators for predicting the direction of pricing for the commodity this year, according to analysts at Seaport Global Securities LLC.

However, Ramaco's executive chairman worried about "unintended consequences" of the 25% tariff President Donald Trump recently imposed on steel, while Alpha's CEO recently told S&P Global Market Intelligence that a lack of clarity on which countries may be exempted from the tariff makes the benefits for U.S. producers unclear. The bulk of U.S. metallurgical coal production is exported to overseas markets, which could see lower demand if the tariffs trigger a trade war.

Ramaco this week reported a net loss of $2.6 million, or 7 cents per share, in the fourth quarter of 2017, with coal sales of 265,000 tons at an average price of $69.76/ton. For the full year, the company sold 608,000 tons of coal for an average $65.71/ton.

"These prices were indicative of the need to introduce our products as a new entrant into the market," Chief Accounting Officer Michael Windisch said on a March 22 earnings call. "In 2018, we are seeing better pricing on leasing commitments, particularly in the export market."

Meanwhile, Westmoreland Coal Co. disclosed that its 2017 financial statements will likely contain a warning about the ability of the company to continue as a going concern, due to an uncertainty that it could meet its debt obligations.

The third coal mine fatality of the year occurred March 16 at the Sunrise Coal LLC-operated Oaktown Fuels no. 1 mine in Indiana. The U.S. Mine Safety and Health Administration reported that Jason Williams, 34, died from internal injuries he suffered when the mine transportation vehicle he was operating rolled over.

Upcoming events:

Carbon Capture Coalition: Members of the coalition will host a March 27 webinar discussing the changes to the 45Q tax credits for carbon capture technology.

Burton K. Wheeler Center: The center will hold a "Future of Coal" conference on April 6 at the Northern Hotel in Billings, Mont.

Coal Prep Society of America: The society will host its CoalProTec2018 conference April 23-25 at the Lexington Convention Center in Lexington, Ky.