Coal Crisis Threatens to Consume Murray Energy

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Workers at Murray Energy Corporation (St. Clairsville, Ohio) have been WARNed. On June 29 the nation's largest private coal mining firm told about 4,400 employees in six states--about 80% of the company's workforce--that they could be subject to layoffs. A federal law, the Worker Adjustment and Retraining Notification (WARN) Act, requires workers and state and local governments to be notified 60 days before potentially widespread layoffs. The company's WARN notice to employees said it anticipated "mass workforce reductions in September, 2016." Subsequently, company spokesman Gary Broadbent told Industrial Info Resources the June 29 notice was "a precautionary measure to comply with this (WARN) legal requirement. But, no layoffs are contemplated or expected at this time."

"These workforce reductions are due to the ongoing destruction of the United States coal industry by President Barack Obama, and his supporters, and the increased utilization of natural gas to generate electricity," the coal company said in its June 29 WARN statement.

There have been news reports Murray was working with lenders and investment bankers for financial relief that would stave off a Chapter 11 bankruptcy filing. But Broadbent said in an interview the company has not made any public comments about a potential Chapter 11 filing. Murray is expected to report second-quarter results August 15, after the stock market's close. Barring a last-minute development, Murray may soon join its peer coal companies, including Peabody Energy Corporation (Pink Sheets:BTUUQ) (St. Louis, Missouri), Arch Coal Incorporated (Pink Sheets:ACIIQ) (St. Louis, Missouri) and Alpha Natural Resources Incorporated (Pink Sheets:ANRZQ) (Bristol, Virginia) in bankruptcy.

Coal mining companies' pain comes from falling demand, tighter environmental regulations and low-cost natural gas. Central Appalachian coal currently sells for about $41 per short ton, reportedly about 50% less than it cost in 2011. Falling demand has caused prices and production to plummet. For the week ended August 6, coal production year-to-date was about 405.8 million short tons, down 25% from year-earlier levels, according to the weekly coal report from the U.S. Energy Information Administration (EIA) (Washington, D.C.).

Direct employment in coal companies fell from about 214,400 in 2011 to about 147,400 at yearend 2015, a decline of about 31%, according to Luke Popovich, vice president for external communications at the National Mining Association (NMA) (Washington, D.C.). He was citing data compiled by a branch of the U.S. Department of Labor (Washington, D.C.). "We use 2011 as a baseline year because that's the year the Mercury and Air Toxics Standards (MATS) rule was first finalized," he told Industrial Info. Those numbers do not include jobs induced or supported by coal mining, Popovich added.

In some states, coal miner employment is the lowest it's been in over a century.

Depending on a specific utility's environmental footprint, some utilities have been able to comply with earlier environmental regulations by switching from Illinois or Appalachian basin coal to Western low-sulfur coal. If the Obama administration's Clean Power Plan (CPP) is upheld by the courts, its carbon dioxide emission level is expected to lead to the closure of more coal-fired power plants and the loss of more coal-mining jobs.

Next month the U.S. Court of Appeals for the D.C. Circuit is scheduled to hear oral arguments on the legality of the CPP. Whichever side loses at the D.C. Circuit is expected to ask the U.S. Supreme Court to hear an appeal. For more on the CPP, finalized a year ago, see August 5, 2015, article - Obama Unveils Final Clean Power Plan, But Will it Survive Court Challenge? For more on the unprecedented Supreme Court stay that sent the case to the D.C. Circuit, see February 16, 2016, article - Unprecedented Stay by Supreme Court Casts Long Shadow Over Clean Power Plan.

While Murray CEO Bob Murray places primary blame on the Obama administration for the coal mining industry's fate, others say tougher regulation is only part of the explanation. Another significant contributor is low-cost and abundant natural gas. "Fracking. If you wanted to put it in one word, that's it," Andrew Moore, managing editor of S&P Global Platts Coal Trader, told the Pittsburgh Tribune-Review when asked what happened to coal. "It unleashed a flood of cheap gas, and that had serious repercussions on coal."

State and federal policies supporting renewable energy are a third factor contributing to coal's decline. Though still a small fraction of the overall U.S. generating resource mix, wind and solar power have grown dramatically in recent years, as about 30 states have mandated a certain percentage of electricity must come from renewable sources, and federal production tax credits (PTC) and Investment Tax Credits (ITC) have spurred development of wind and solar generation.

Gas-fired generation and renewable energy are virtually the only sources of new-build generation scheduled to be built over the next five years, according to Industrial Info Resources' North American Industrial Project Database. But growing reliance on power generated from gas or renewable sources carry their own downsides as well. High reliance on gas-fired generation has become a concern for some utilities and regulatory organizations. For more on that, see July 7, 2016, article - NERC Frets About Some Regions' Over-Reliance on Gas-Fired Generation. And utilities are finding it challenging to integrate so much central-station renewable energy into their transmission systems. For more on that, see July 6, 2016, article - Developers Hope 2016 is the Year Clarity Comes to Transmission Planning in the West.

"The tide had turned. More electricity is produced from gas than from coal," commented Joseph Govreau, Industrial Info's vice president of research for the Metals & Minerals Industry. "Coal country is hurting as the electric fleet is transitioning. But coal has come to the rescue before, like during the Polar Vortex of early 2014, when gas-fired generators malfunctioned in the bitter cold and idled coal-fired generators were called to be turned on. An 'all of the above' energy strategy that effectively marginalizes coal is not a balanced energy strategy. There are many good reasons why generators don't want to place all their eggs in one basket."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.