U.S. Coal Industry Severely Hurting From Coronavirus, Low Demand, Switch To Clean Energy

The coronavirus pandemic, which has led to the shutdown on many coal mines across the country, may accelerate the overall collapse of the entire industry.

Coal companies have responded to the vanishing demand for their product by laying off workers with some contemplating filing for bankruptcy.

Coal was already struggling even before the virus, besieged on a number of fronts. For example, some utilities are switching to natural gas and renewables for their power needs.

"Just about everything that can go wrong, has gone wrong for the coal industry," said Matthew Preston, a coal analyst at Wood Mackenzie.

Coal demand, he noted, has plunged between 35% and 40% this year, "and last year wasn't a great year."

Rhodium Group, an independent research provider, found that from mid-March to mid-April of this year, coal represented only 16.4% of total U.S. electric power, down with 22.5% in the same period last year.

Preston also noted that coal is now more costly to produce and operate than other forms of energy like natural gas, wind or solar in some parts of the country. This means that when demand weakens, coal plants are quick to shut down.

As with oil, companies are now stuck with a coal glut with nowhere to go.

"We're seeing coal stockpiles run up to some historically high levels," said Joe Aldina, a coal industry analyst with S&P Global Platts. “[It’s] actually pushing the physical constraints of the coal-fired generation system."

Andrew Blumenfeld, an IHS Markit research analyst, indicated that coal stockpiles at power plants were now "basically double what it should be at this time of year."

Blumenfeld was also shocked by the severity of the downturn.

"We're seeing coal production numbers and power generation numbers from coal going back to roughly late 1960s, mid-1970s levels," he said.

Moody’s Investors wrote that it “expects a very challenging year for the coal industry in 2020.”

The U.S. Energy Information Administration said it expects coal-related electricity generation to fall by 20% in 2020, while coal production will drop by 22%.

Manan Ahuja, another S&P Global Platts analyst, said utilities may simply decide to retire their coal-fired power plants.

"If you lose some of that capacity permanently, it's not going to come back," Ahuja said.

For example, Peabody Energy (BTU) has laid off dozens of workers at some of its mines in Wyoming.

“We routinely match staffing levels with production needs and this action is consistent with that approach,” said company spokeswoman Charlene Murdock.

Peabody Energy’s three mines in the Powder River Basin of Wyoming produced 27.5 million tons of coal in the fourth quarter of 2019, down from 29.9 million tons in the same quarter of 2018.

For all of the mining firms in Wyoming, coal output fell to a two decade low in the first quarter of this year.

On a regulatory basis, coal faces other challenges. Earlier this year, the Federal Trade Commission blocked a proposed joint venture between Peabody Energy and Arch Coal (ARCH), the two largest coal companies in the U.S. Peabody and Arch contended that a joint venture would cut costs and save their companies.

Since 2015, six coal companies in Wyoming have filed for bankruptcy.

It’s the same picture for the coal mining heartland of western Pennsylvania and West Virginia.

Longview Power, a coal-fired power plant in Maidsville, W. Va., filed for bankruptcy on April 14, citing low power prices and the COVID-19 pandemic.

Consol Energy (CEIX), which runs the country’s largest underground coal complex in southwestern Pennsylvania, recently shut down its Bailey Mine in Graysville, Pa., for two weeks after several employees tested positive for coronavirus.

After it returned these miners back to work, Consol then idled the nearby Enlow Fork Mine due to low demand.

“The extent to which the COVID-19 pandemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted,” Consol said in a statement.