Coal, LNG, petrochemical sectors face poor outlook and uphill battle for investors

Three major fossil fuel-based industries—coal, liquefied natural gas, and plastics—were becoming less financially attractive even before the global coronavirus pandemic, according to experts who spoke during the second week of IEEFA’s 2020 Energy Finance Conference.

The annual meeting of international energy, finance and policy experts, which was offered online this year because of COVID-related restrictions, focused on the declining coal industry’s impact on communities; the uncertain prospects for liquified natural gas projects; and the risky financials for petrochemicals projects and the harm they cause to public health.

The coal industry has declined over the last decade, said Shannon Anderson, staff attorney for the Wyoming-based Powder River Basin Resource Council. The basin is home to a dozen of the largest coal mines in the world and produces 43 percent of U.S. coal output, but because of a drop in coal consumption—from about 1.1 billion tons in 2007 to 600 million tons in 2019—mining companies are declaring bankruptcy at a steady clip, often leaving behind financial and environmental liabilities.

“It’s a mess, and we’ve really got to work collectively to make sure these problems get addressed,” she said. Anderson said lawmakers need to ensure that regions with abandoned mines and coal-fired plants continue to receive funding and that federal legislation, such as the RECLAIM Act that would provide support for revitalizing distressed mining communities, is passed. 

Mary Varson Cromer, deputy director of the Appalachian Citizens’ Law Center, said bankruptcies such as the summer 2019 declarations by Cambrian Coal and Blackjewel LLC are the “culmination of a shell game” that has cost workers, communities, and local governments. She cited the example of Cambrian, a Kentucky-based holding company that declared bankruptcy in June 2019 – but only after offloading $50 million in debt from one company to Cambrian, roughly doubling the bankrupt company’s debt load.

“Bankruptcy allows a company that should not exist to continue to exist,” Anderson said. “And the incentives are really perverse in some of these cases.”

The global market for liquified natural gas (LNG), once viewed as a potential destination for the abundance of fracked gas in the U.S., isn’t much better than the market for coal, two IEEFA experts agreed. 

Bruce Robertson, an IEEFA energy finance analyst who focuses on the gas industry in Australia and south Asia, said an LNG glut is likely to persist because of a massive expansion of facilities over the last four years; government subsidies to the industry; and continued low demand. In addition, Robertson said, the environmental risks of gas are becoming more obvious, with studies showing that the industry loses roughly 3.2 percent of its production in leaked methane—resulting in fossil gas producing more greenhouse emissions than coal.

“[Companies and politicians] have been lying about [gas] emissions for many years,” Robertson said. “It’s a knowing lie. They know they’re lying. And you can only do that for so long in the U.S. before some smarty pants lawyer gets hold of you, and that’s going to happen.”

Clark Williams-Derry, a U.S.-based IEEFA energy finance analyst, said the global decline in demand for LNG has led to a sharp reduction in operating capacity. Typically, U.S. LNG facilities operate at 85 percent to 90 percent of capacity, but currently are running between 25 percent and 40 percent. 

“It’s looking very grim right now,” he said.

Petrochemicals, viewed as a potential economic lifeline that could consume excess feedstock for the oil and gas industry, also is a sector in crisis, said IEEFA Finance Director Tom Sanzillo. A series of projects were planned between 2009 and 2013, when plastics sold for a dollar per pound; since then, prices have fallen to between 40 and 60 cents per pound. Sanzillo said profits from these petrochemical projects are also being threatened by competition from recycling and lower demand caused by the global economic slowdown.

“We’re seeing a deterioration of the plastics market right before our eyes,” he said.

Beyond the financial costs to investors of petrochemicals lies a particularly harsh human toll. Sharon Lavigne, founder and president of RISE St. James, a Louisiana-based nonprofit, described the grassroots campaign she has been leading to block construction of a $9.4 billion plastics facility to be located just two miles from her home. The Formosa plant would emit roughly 13 million tons of greenhouse gas in a Louisiana parish where the cancer risk has increased 800 percent over the last decade.

In fact, the stretch of the Mississippi River between New Orleans and Baton Rouge is nicknamed “Cancer Alley” because of its concentration of petrochemical facilities.

“People are sick and they are dying,” she said. “This is my land, this is my home, and I’m not giving up.” 

The last week of the three-week conference will take place July 28-30, from 1-2 p.m. Eastern Daylight Time kicking off with a panel on Renewables Taking Market Share from Fossil Fuels, featuring Luis Reyes, CEO and general manager of the Kit Carson Electric Cooperative, and Dennis Wamsted, an IEEFA analyst/editor. The panel moderator is Karl Cates, IEEFA transition policy analyst.

On Wednesday, July 29, the session will focus on Under Pressure: The Impetus for Over-Building Pipelines and How to Stop It, with Niskanan chief counsel David Bookbinder; University of Minnesota Law School Professor Alexandra Klass; and Suzanne Mattei, IEEFA energy policy analyst. The panel will be moderated by Rebekah Sale, executive director of the Property Rights and Pipeline Center.

The week’s activity wraps up on Friday, July 30, with a closing keynote address on Political Leadership on Global Climate Change, Divestment and the Energy Transition, featuring William Peduto, mayor of Pittsburgh, and Grant Ervin, Pittsburgh Resiliency Officer. The session will be moderated by Steven M. Carbó, principal for Carbó Strategic Consulting. 

Registration for the online conference is free.

Session videos are posted on IEEFA’s YouTube channel 

Frank Bass ([email protected]) is an IEEFA editor.

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