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Stream Protection Rule rollback will bring coal incremental relief, analysts say

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Stream Protection Rule rollback will bring coal incremental relief, analysts say

An expected vote to overturn the Stream Protection Rule by the House of Representatives this week is likely to provide incremental relief to coal producers in Appalachia and the Illinois Basin, according to analysts.

A Jan. 30 policy update from FBR & Co.'s Benjamin Salisbury and Cory Palmer said longwall producers in Northern Appalachia are particularly affected by the rule.

They said the rule would have increased surface mining costs by $71 million per year and underground mining costs by $10 million per year from 2020 to 2040 across the industry, which is 0.1% of aggregate yearly industry revenues. Salisbury and Palmer noted that Northern Appalachia would have absorbed $33 million of the $81 million total, while the Illinois Basin would have absorbed $25 million.

"Any challenge to the implementation could have positive implications for the Pennsylvania Mining Complex, owned by CONSOL Energy Inc. and CNX Coal Resources LP," they said in the policy update note.

While the House is scheduled to vote on rolling back the regulation through the Congressional Review Act this week, the analysts said the Senate will likely take similar action. Former Secretary of the Interior Sally Jewell identified the rule as one of those likely to be killed by the new administration.

"While subject to veto, we expect President Trump to approve the rollback, allowing himself and Republicans to fulfill campaign promises to the coal industry and workers," the analysts said.

Industry advocates have stated that the new administration may be able to help investors see coal more positively, though many issues that have led to the commodity's downturn will be difficult to reverse.

Moving forward, Salisbury and Palmer said the Trump administration may help the industry in a number of ways.

"We believe that the industry is counting on further support from the new administration in the form of (1) increased domestic energy demand, (2) greater exports of coal and gas, (3) reduced regulatory compliance costs, and (4) an alternative to the Clean Power Plan," the analysts said.