Stable 2014 in Store for US Coal Producers

With 2013 now at an end, coal industry participants are beginning to take stock of how the fuel fared this past year. Unfortunately, as Resource Investing News recently pointed out, the answer is: not well. 

That’s especially true in the United States, where President Barack Obama is waging what coal enthusiasts are calling a “war on coal.” Perhaps most notably, this past year saw both the US Environmental Protection Agency propose new rules aimed at decreasing carbon pollution from future power plants, and the Department of the Treasury declare that the US will no longer support new coal-fired power plants worldwide, as per The New York Times.

It’s thus not too surprising that coal production in the US was lower in the third quarter of 2013 than it was in the year-ago period. Specifically, it came in at 256.7 million stone, a 0.9-percent decrease from Q3 2013, Platts recently quoted the US Energy Information Administration (EIA) as saying. The EIA’s forecast for the entirety of 2013 is similar — based on the first three quarters of the year, it estimates that the US produced about 993.1 million stone of coal last year, around 2.3 percent less than the 2012 total.

Third-quarter US coal exports decreased more significantly, sinking to 28.6 million stone, a 9.4-percent decline from the same period in 2012. The EIA expects 2013 US coal exports to come in at 119.8 million stone, 4.7 percent less than 2012.

The bright side

While those numbers are a bit of a downer, that doesn’t mean coal is entirely out of luck in the US. In fact, at the beginning of December, Platts quoted Moody’s Investors Service as saying that it expects US coal production to rise in 2014. “We expect production volumes to rise by 2% to 3% next year off the 2013 trough of a little over 1 billion st,” Anna Zubets-Anderson, vice president and senior analyst at Moody’s, told the news outlet.

And, though the country’s coal earnings are expected to “decline modestly as more lucrative contracts roll off and metallurgical coal prices remain low, the outlook for producers remains stable.”

Another option

On a different note, those who don’t like the sound of that forecast may soon be able to embrace another coal-related investment opportunity: the decomissioning of old coal-fired power plants.

In an article published last week, The New Republic’s Jeffrey Ball states that as a result of “cheap domestic natural gas, tougher environmental regulations, and rising public opposition to dirty coal,” the US has begun “rip[ping] out dozens of old coal-fired power plants.” In the next few years, this tearing down is expected to do away with about 20 percent of US coal-fired power generating capacity.

Revenue from decommissioning is expected to be significant — Ball notes that Navigant Consulting (NYSE:NCI) puts global revenue from the decommissioning of coal plants at a total of $5.3 billion from 2013 to 2020. After that point, natural gas prices are expected to rebound, meaning that such power plants will be needed once again.

Investors may thus want to consider getting behind some of these decommissioning companies in the upcoming years. The trick, as Ball states, will be separating those that have the expertise to complete the deconstruction from less experienced companies that just want to make a quick buck.

 

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Related reading: 

Counting Down the Best and Worst of 2013: Part One

New EPA Rules Cast Shadow on US Coal Industry