US coal companies' prospects challenged by Europe shortage

US coal producers are seeking to increase exports to cash in on soaring prices since Russia's invasion of Ukraine, but face problems including shipping bottlenecks, labour shortages and a dismal long-term outlook discouraging investments in new mines. The outlook means the US, which holds the world’s biggest reserves of coal, is unlikely to play a major role in international efforts to expand shipments of the fuel to Europe before an anticipated EU ban on Russian imports this August to punish Moscow for the invasion. It also means the rally in global coal prices is unlikely to pull the US coal industry out of a more than decade-long tailspin driven by federal and state efforts to cut carbon emissions that have led utilities to replace coal with cleaner-burning natural gas, and solar and wind power. US President Joe Biden has set a goal of 2035 to decarbonise the US power grid to fight climate change. “The ability of US companies to respond [to the price rally] has been limited by logistics challenges, like most industrial activity at the moment,” said Ted O'Brien, managing partner and chief commercial officer at Oluma Resources, a Pittsburgh-based coal marketer, citing clogged railroads, labour shortages and the availability of equipment. Ernie Thrasher, chief executive of Xcoal Energy & Resources, a coal marketer, estimated that bans on Russian coal could remove 114 million tonnes a year from global markets, but that the US would be poised to fill less than a tenth of that given the lack of investment in the US industry. “That's really the issue,” Mr Thrasher said. “There's been virtually no capital invested in the industry since 2015,” he said, adding that Europe was likely to rely most heavily on countries like Colombia, Indonesia, South Africa and Australia to replace Russian coal. US coal production in the year to date is up 3.8 per cent from the same period in 2021 at about 203.7 million short tonnes, according to the latest data from the Energy Information Administration, marking a slight recovery from the depths of the coronavirus pandemic when output fell to its lowest level since 1965. But exports have not kept up. Shipments of US coal abroad in the first quarter of 2022 slipped about 2.5 per cent year-on-year to about 20.2 million tonnes, the EIA said. And the logistics hurdles prompted the energy body to lower its 2022 US coal export forecast to 85.7 million tonnes, down about 3.7 per cent from its prediction in April. The EIA said US exports are expected to rebound by about 3.6 per cent in 2023 to 88.8 million tonnes. One company that expects its exports to do well is Alliance Resource Partners, which has mines from Illinois to West Virginia. President and chief executive Joe Craft sees the war driving US export prices for both thermal coal burnt in power plants and metallurgical coal used to make steel higher than prices for domestic coal for at least 18 months. As a result, Alliance's export volumes should be more than 6 million tonnes this year, up from about 4 million tonnes last year, and most likely will grow by an additional 1.5 million tonnes in 2023, Mr Craft said in a first-quarter earnings call this month. But an industry-wide expansion of exports is unlikely to happen quickly as few companies have new mines coming and most new investments are going towards sustaining output from ageing facilities, Mr O'Brien said. Arch Resources does not anticipate investing in new mines for thermal coal, chief executive and president Paul Lang said during the No 2 US coal supplier's earnings call last month. “I think we'll continue to generate cash out of these assets, but we're simply not going to put any more cash into them,” Mr Lang said. “It's not what our shareholders want, and I don't think it's a good investment for us.” The National Mining Association industry group said the supply chain problems with rail — the primary means of transporting coal — is costing companies both in lost shipments and extra labour. “Mining companies are facing enormous difficulties getting coal to the consumer,” Katie Mills, a National Mining Association lawyer, said late last month in testimony to the Surface Transportation Board. National Mining Association representative Ashley Burke said that the industry was “ramping up as much as possible” to supply European buyers, but faced “limits to what the rail transport and ports can handle”.

US coal companies' prospects challenged by Europe shortage

US coal production year-to-date is up 3.8 per cent from the same period in 2021 at about 203.7 million short tonnes