February 17, 2016 Read More →

Analysts See Little Advantage to Coal Industry in Supreme Court Delay

Taylor Kuykendall for SNL:

While some celebrate what they say is not only a break from designing compliance with the Clean Power Plan but also indication that the rule could be tossed completely, some are skeptical a recent U.S. Supreme Court is really much of a saving grace for coal.

While coal remains a significant portion of electric generation into the near future — Michael Ferguson, an associate director in the utilities and infrastructure group of Standard and Poor’s Rating Services, said estimates are modeling about 27% generation share by 2025 — more and more coal plants are “going to continue to not make a ton of sense” going forward. Those most impacted, he said, will be those in regions that have been less progressive on transitioning.

“Are there certain coal generating assets that will get another year or two of life? Sure, because the way we’re looking at it now, a lot of these states are going to use a carbon tax or a carbon fee to comply with this in order to incentivize carbon reduction,” Ferguson said. “In general, there’s kind of a consensus that gas prices are going to remain low for a while just because the economics of gas in our country. Even if gas prices were to go up, there would be more drilling.”

Chiza Vitta, a credit analyst who monitors the coal industry for S&P, also sees natural gas prices being a heavier weight on the lid of coal demand than regulatory pressure. He said the reason the EPA has been so bold in its policies is that low natural gas prices and anticipation of the same going forward has drastically lowered the economic consequences of bold emissions reductions goals.

“Unless that changes, unless that [natural gas] price changes, it’s going to be more of a driving factor than what’s happening on the regulatory side,” Vitta said. “It doesn’t materially change our view. … We’ve had bankruptcies — clearly there’s more immediate concerns in the short term that are more of a factor for these companies than what may happen on the regulatory side here.”

Vitta said those bankruptcies, which have included coal production giants such as Arch Coal Inc. and Alpha Natural Resources Inc., may allow companies to restructure in a way more fit to current and future coal demand. He said that while most coal mines outside of the Powder River Basin are “deep out of the money,” there are several mines that will continue on as they either mine coal with special properties or are located in a manner as to be an economical choice for certain plants.

“They call coal a commodity, but that’s not exactly true in the sense that there are specific situations where coal might be more valuable to one generator than another,” Vitta said. “There are different levels of how dirty it is, but more important your plant may be situated next to a coal producer so it’s very cheap for you to get that coal maybe dedicated to you. … If you were just to think of it as a commodity that everyone viewed exactly the same, only one of the basins is cost-competitive: the [Powder River Basin], which is low heat rate.”

Vitta said that absent something coming “out of the blue” in the way of discovering further danger from hydraulic fracturing for natural gas or some other supply disruption, he does not see coal demand improving in the near future. He added that what regulations such as the Clean Power Plan accomplish is changing the mindset on coal “decades into the future.”

Full article ($): Analysts: Stay of Clean Power Plan not likely to outdo economics in coal decline

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