Even some of the top-producing mines in Central Appalachia are producing less coal as producers with a large footprint in the region find it increasingly difficult to keep business going in today’s market.
According to an SNL Energy analysis of U.S. Mine Safety and Health Administration data, of the top 25 producing coal mines in Central Appalachia, 13 produced fewer tons in the 12 months ended in the second quarter than the prior-year period. The top 25 mines accounted for a cumulative 9.4 million tons of production in the second quarter, down about 16.2 percent from the 11.2 million tons the same mines produced in the year-ago period.
The region’s thermal and metallurgical coals are challenged by weak markets on domestic and international fronts. The outlook could soon become even grimmer as producers begin to cut back production in response to new federal regulations including the Clean Power Plan and the Stream Protection Rule, which affect coal-fired power plants and coal mining operations, respectively.
An impact analysis from the U.S. EPA suggests regional coal production for the electric power sector in Appalachia could decline as much as 25 percent from a base case scenario by 2025 under the newly released Clean Power Plan.
Of the top 25 mines in Central Appalachia by second-quarter production, 14 of them are owned by Alpha Natural Resources Inc. or Patriot Coal Corp. Both of these companies are currently engaged in Chapter 11 bankruptcy reorganization. Patriot is attempting to sell the majority of its assets to Blackhawk Mining LLC.
The grim outlook in the region has prompted concern from many producers.
“With the weakness in the Central Appalachia coal markets, we made the decision to limit production and idle certain of our Central Appalachia operations,” Rhino Resource Partners LP wrote in a news release. “We continue to focus on reducing our carrying costs in Central Appalachia while exploring divestiture opportunities for certain assets in this region.”
Arch Coal Inc. executives said on a recent earnings call that low prices appear to be bringing the coal market into a better balance as tons begin to come off the market. Many of the smaller mines that are closing now, Arch President and COO Paul Lang said on a recent earnings call, are likely not coming back.
“From what I’ve seen in Central App, a lot of these mines that are closing — particularly the smaller ones — I think are gone for good,” Lang said. “And the cost to reopen them I think is going to be very difficult when you look at, you know, in terms of regional natural gas pricing. I think the issue in the other regions of the U.S. is going to be more of when some of this coal comes offline, it’s not permanently, but the cost to restart it is going to be really high. It’s going to take a very strong market to bring some of this back.”
Arch operates three top 25 mines in the region. Its Coal-Mac Holden No. 22 and Beckley Pocahontas mines produced fewer tons of coal in the recent 12-month period compared to a year ago. Arch’s Mountaineer II mine boosted production slightly, from 1.9 million tons to 2.0 million in the same period.
While many producers are awaiting a supply rebalancing in Central Appalachia, that may not happen just because producers are turning to bankruptcy. Alpha, for example, has indicated it plans to continue to operate, though it is also evaluating its production portfolio.
The top producer in the region has remained CONSOL Energy Inc.’s Buchanan No. 1 mine. The company’s metallurgical coal mine, located in Virginia, produced over 1.0 million tons of coal in the quarter. The company recently said it was considering dropping Buchanan into its new master limited partnership, CNX Coal Resources LP, or partnering with a third party to expand that asset.
The company reported total unit costs were $48.38 during the quarter, an improvement of over the $61.14 per ton last year.
Cliffs Natural Resources Inc. reported to MSHA that its Pinnacle mine, the second top-producing mine in the quarter, produced 2.6 million tons in the most recent 12 months. The total is down from 3.0 million tons in the year-ago period.
Pinnacle is among the three mines Cliffs hopes to sell, and on a recent earnings call, the company said a deal announcement is expected in the “very near future.”
This story was distributed by SNL Energy. The full report can be seen online at https://www.snl.com/InteractiveX/Article.aspx?cdid=A-33449574-10288