The biggest private coal company on the planet filed for bankruptcy today, marking the biggest sign yet of the struggling health of the global coal industry. The FT reports:
The world’s largest private sector coal producer by output sought protection under Chapter 11 of the US bankruptcy code in a Missouri court, weeks after it delayed two bond interest payments and warned of its potential inability to continue as a going concern. […]
Peabody blamed “unprecedented” factors affecting the global coal industry, including a sharp drop in the price of metallurgical coal — used in steelmaking — and weakness in the Chinese economy, as well as problems in its domestic market.
The US coal sector expanded through acquisitions at the start of the decade but has been hit by competition from cheap gas and tightening environmental regulations. Of the four largest US coal producers, three — Alpha Natural Resources and Arch Coal as well as Peabody — have filed for bankruptcy. The trio accounted for about 41 per cent of US coal output in 2014.
The two biggest culprits for the dethroning of Old King Coal are slowing Chinese demand and the American shale boom. In China, concerns over the massive amounts of deadly smog generated by coal-fired power plants and a desire to decrease reliance on foreign sources of energy have led to a concerted effort to diversify away from the sooty rock. That strategy has coincided with the bursting of the Chinese bubble which has necessarily depressed demand coal further, and put China on the path towards significantly ramping up its coal exports this year. When you take into account the fact that China consumes roughly half of the world’s coal, all of this becomes a very big deal for producers everywhere.
And then there’s fracking. The shale boom unleashed a veritable flood of new supplies of natural gas here in the United States, and have pushed spot prices for the hydrocarbon down to preposterously low levels. Natural gas can be burned to generate electricity, and suddenly coal-fired plants—the dirtiest but often cheapest options—have found themselves out-competed on price. The EIA expects natural gas to displace coal as the largest source of U.S. power this year, and that’s a direct result of the shale revolution. When you consider the fact that natural gas emits far fewer local pollutants and half the greenhouse gases, this is nothing less than a green triumph.
That will come as cold comfort for the coal industry, though. If there’s any silver lining, perhaps it’s this: demand for the cheap and dirty rock is still robust across the Atlantic in “green” Europe.