Politics Blog

Clean Power Plan and our proposed coal terminal

The fate of the coal industry is uncertain at best, due to multiple factors.

Oversupply in both coal markets — the kind used to make steel and the kind used to fire electricity plants — has depressed prices and deeply wounded coal companies’ bottom lines.

Internationally, major coal users in Asia are trying to give an advantage to domestic mines by reducing exports from suppliers in Australia and Indonesia, not to mention the more far-flung ports in Canada and the U.S. Coal demand in China, the No. 1 coal user in the world, is down for environmental reasons — to improve urban air quality and reduce carbon emissions.

In the U.S. we have the Obama administration’s Clean Power Plan, which sets the stage for reducing carbon output 32 percent by 2030.

(For a study in contrast, check out a report in the Casper Star-Tribune about how the plan will affect Wyoming, which gets almost 90 percent of its electricity from coal; and what it means for Washington, which has already enacted policies in line with the federal plan.)

The Obama plan could be one of the final, late-round blows to an industry that is on its heels. Or coal could just be going through a rough patch, and the companies that are stronger financially could make it through to a more profitable future.

Nobody knows for sure, but the questions are worth exploring because they could bear on whether a 48-million-metric-ton-per-year coal terminal is built at Cherry Point.

The demand for coal ports is there, evidenced by an agreement between the proposed Gateway Pacific Terminal and Peabody Energy for the shipment of 24 million tons of coal annually from the Cherry Point dock, which could be open as early as 2019 but probably not until later — if at all. Lummi Nation has asserted its treaty fishing rights in the Cherry Point area and in the shipping lanes off the point as a way to stop the project.

The timing of a decision on this request to the U.S. Army Corps of Engineers is uncertain but won’t come at the very least until after the tribe responds to information GPT provided to the Corps on July 27. The Corps has asked Lummi Nation to respond by Aug. 27.

Some financial analysts (especially those working for outfits looking to replace coal with sustainable energy sources) say the Gateway Pacific Terminal is a bad idea simply because the international market for coal is declining, and soon enough no one will be buying U.S. coal. That runs counter to moves such as the one last year by coal miner Cloud Peak Energy, which last year paid for extra capacity at a shipping terminal in Canada.

It stands to reason that coal companies, and the states that host them — Montana and Wyoming in particular — want and maybe even need these ports to be built, so the coal that is becoming harder to sell in the U.S. can find other markets.

In the wake of the announcement of the Clean Power Plan, TheStreet.com reported on the financial health of U.S. coal companies, including Peabody.

The writing is technical, and I understand finance just enough to know that the news for Arch, Peabody, et al. wasn’t good.

Alpha Natural Resources filed for bankruptcy on Monday, Aug. 3, the day the new EPA rules were released, “leaving industry watchers wondering if that was the last domino to fall, or if there will be more filings to come,” according to the report on The Street.

What the article from The Street had to say about Peabody:

One restructuring adviser who follows the coal industry but asked not to be named said the trading prices of Peabody Energy’s debt suggest that it is one of the most challenged coal companies out there.

The company’s $1.52 billion in 6% senior unsecured notes due Nov. 15, 2018 (announced Sept. 18, 2012) were trading at 35.4 cents on the dollar on Tuesday, according to data from Finra’s Trace service. Peabody’s longest-dated bond issuance, $250 million in 7.875% senior unsecured notes due Nov. 1, 2026 (announced Oct. 5, 2006) was trading even lower, changing hands at 27.33 cents on the dollar on Tuesday.

The hefty 2018 bond maturity could pose a major challenge for Peabody, but it doesn’t have sizable payments due before then, CreditSights’ Johnston said.

He noted that the company anticipates that improvements to its hedging agreements and other tailwinds should propel it to a free-cash-flow positive position by 2018, although it’s not clear what degree of positive free cash flow it will generate.

“If you take all of the bullish factors and put them together, you could paint a picture of [Peabody] making it through,” Johnston said. Officials at Peabody couldn’t be reached for comment.

I reached out to Peabody’s communications office today, Wednesday, Aug. 5, seeking comment on how the bad times for the industry may have affected the company’s arrangement with Gateway Pacific Terminal to ship coal. I’m waiting to hear back. I also contacted Gateway Pacific Terminal spokesman Craig Cole to ask him about the status of the agreement with Peabody, and I’m awaiting that response, too.

The article on The Street went on to speculate about coal’s prospects over the next couple years, quoting a bank analyst:

Deutsche Bank analyst James Kan noted in the report that there are more even problems on the horizon for coal producers outside of China, as he expects China will become a net exporter of coal by 2018. ...

Kan believes coal prices will hit bottom in 2017 or 2018 and then start to recover, but he said that for companies ... that export a lot of coal ... China becoming a net exporter of coal would drive further downward pressure.

• 

This is probably the final entry in The Bellingham Herald’s Politics Blog. In any case, it will be shut down tomorrow, Thursday, Aug. 6.

To focus on the in-depth stories and breaking news that readers have requested, we are shifting away from this blog. Many of the same items that appeared on this blog will now be news stories listed under the bellinghamherald.com/news/politics-government/election/local-election section, which is now available in the main drop-down navigation.

The blog section will remain online so people can access the old posts.

  Comments