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Energy advisers urge more than regulatory rollback as coal surge slowed in Q4'16

As the Trump administration continues to take shape, some energy experts are urging more than just a regulatory rollback to save the industry, while early data suggests a recent production surge has started to slow.

Former energy advisers to President George W. Bush suggested that the Trump administration may be undermining itself in its approach to buoying the struggling coal industry. Carbon prices contemplated in the federal policies would be core to guiding an investor's decision to move money into a new coal project equipped with carbon capture or conversion technology, the former Bush administration officials argued.

"No one can commit $3 billion to a clean coal plant that you do not know the carbon number on," said Jim Connaughton, former chairman of the White House Council on Environmental Quality and current CEO of Nautilus Data Technologies. "You will not make a venture investment in carbon technology unless you know there is a future for new coal, because who are you going to sell it to?"

Speaking of clean coal technology, lawmakers and carbon capture and storage advocates are applauding the White House for its clean coal statements in its energy plan.

"I am happy to see the president immediately commit to advance coal technology and fuels that will help our nation ensure reliable baseload generation," said Sen. Joe Manchin, D-W.Va. "The last administration's energy policy crippled my state and this change will be welcomed in West Virginia. I have spoken with the president regarding the importance of fossil energy to our economy and look forward to working with the administration to repeal unnecessary federal regulations and grow our energy economy into the future."

While the new administration forges ahead with reviving the coal industry, Democrats and policy analysts say that fixing the federal coal leasing program should still be a focus of the incoming leadership of the U.S. Department of the Interior.

"At this point the fate of the coal moratorium and the programmatic review are up in the air," Jayni Foley Hein, the policy director at the Institute for Policy Integrity, told S&P Global Market Intelligence. She said the Trump administration will have to choose whether it wants to help taxpayers or help the coal industry in its decision on how or if it will update the program.

Continued support for displaced coal miners was also witnessed this week. Four U.S. congressmen reintroduced the "Assisting America's Dislocated Miners Act of 2017" bill on Jan. 24, which would establish a Dislocated Miners Assistance Program within the U.S. Labor Department to identify dislocated miners, assess their skills and training, identify job training programs, and provide grants to job training providers.

"As our energy sector evolves, it is our responsibility, not our choice, to make sure that miners in Ohio and across the country who have worked so hard are not left behind," Rep. Tim Ryan, D-Ohio said in a release.

On the state level, the Labor Department announced a $2 million grant for displaced Wyoming coal workers on Jan. 24. The money will go to the Wyoming counties of Campbell, Converse, Crook, Johnson, Niobrara, Sheridan and Weston and will serve about 140 workers, according to a press release.

Murray Energy Corp.'s fight against the U.S. EPA continued this week, this time looking to recoup $3.9 million in expenses lost along the way to a court win that forces the EPA to account for coal jobs lost due to the Clean Air Act. Murray Energy wrote it is entitled to compensation for its expenses because it prevailed on the merits of the case. It also accused former EPA Administrator Gina McCarthy of prolonging and complicating the nearly three-year litigation process.

It was a rather challenging week for Peabody Energy Corp., after it disclosed a Jan. 25 letter expressing its concerns with an alternate bankruptcy reorganization plan presented by a committee of creditors.

One concern, Peabody wrote, is that Peabody feels that in the "highly cyclical" coal market, Peabody cannot responsibly support a funded debt level over $2 billion, a figure exceeded by "several hundred million" in the alternative plan.

The company's U.S. coal production posted a slight decrease during the fourth quarter of 2016 following a surge in production in the prior quarter. The company reported about 41.4 million tons of coal from 15 of its mines to the U.S. Mine Safety and Health Administration in the final quarter of 2016. The total is about 1.1% lower than the prior quarter and down about 8.3% from the year-ago fourth-quarter total.

Preliminary data from the U.S. Mine Safety and Health Administration suggests that Peabody was not alone, as industry-wide, the steep upward bounce in coal production in the third quarter of 2016 largely leveled off in the last quarter of the year.

An S&P Global Market Intelligence analysis shows coal mines reporting production over zero tons in the fourth quarter so far, which is roughly 95% of the number of mines that reported more than zero in the prior quarter, represent about 0.2% more coal produced than in the prior quarter. Total 2016 production, not including mines that have not yet posted data, was about 711.2 million tons.

For this year, total U.S. production continued its upswing for a third week, surging 20.6% year over year to 16.8 million tons during the week ended Jan. 21, while coal rail traffic posted a 22.4% year-over-year increase to 90,786 carloads.