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Mine idlings rise in 1st half of 2018; Appalachia again bears the brunt

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Mine idlings rise in 1st half of 2018; Appalachia again bears the brunt

U.S. coal producers idled production at 66 coal mines in the first half of 2018 that were responsible for producing 3.0 million tons of coal in the 12 months that ended June 30, primarily in the Central Appalachia region.

According to an S&P Global Market Intelligence analysis, 40 Central Appalachia coal mines accounting for about 1.6 million tons of coal production in that period were idled in the first quarter, the second quarter or both.

For the previous period, the second half of 2017, 46 mines reporting 1.2 million tons of coal production in the 12 months ending in that half were idled.

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In Northern Appalachia, 18 mines reporting 717,178 tons of coal production in the last 12 months were idled. Both regions have seen an increase in overseas demand, particularly for metallurgical coal, but mines in the area struggle to compete for U.S. utility customers. While the high cost of mining in Central Appalachia has pressured producers in the region, even mines in the generally lower-cost Northern Appalachia basin could struggle if power plants continue to announce retirements.

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"At present, the [Northern Appalachia] market is arguably balanced from a supply/demand perspective with increased exports helping offset the persistently noxious impact of low regional natural gas prices," Seaport Global LLC analyst Mark Levin wrote in a Sept. 5 note about a recent announcement that two large coal plants in the region were scheduled to retire. "For companies under coverage that operate in the region like Consol Energy Inc. and Alliance Resource Partners LP, the closure of these plants and the impact to the [Northern Appalachia] market in 2020 and beyond bears watching. It clearly puts more pressure on the export valve to remain open."

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West Virginia and Kentucky saw the most mines idled in the period, 13 and 21, respectively.

Other eastern U.S. coal regions idled far less capacity. Only two mines were idled in the Illinois Basin, where coal production has recently increased on strong export demand.

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"We believe that the export market will continue to provide an economical outlet for a significant portion of our production in 2019 as fundamentals across the globe remain favorable as it relates to the demand for thermal coal with high Btu content," Foresight Energy LP CEO Robert Moore said on an Aug. 3 earnings call.

Two mines were idled in the Interior region and four mines were idled in Southern Appalachia during the first half.

The largest mine idled in the period was the Equality mine, a surface coal mine that Murray Energy Corp. purchased from Armstrong Energy during Armstrong's bankruptcy reorganization. The mine produced 432,348 tons of coal in the 12 months ending in the second quarter.

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James C Justice Companies Inc was the only company to idle more production capacity, with three mines accounting for a total of 447,033 tons produced in the most recent 12-month period. The company is operated by the family of West Virginia Gov. Jim Justice.

Average U.S. coal mine employment has increased recently even though overall U.S. coal production has declined slightly in the same period, according to an S&P Global Market Intelligence analysis.