December 8, 2015 Read More →

McKinsey Report: ‘Crippling Liabilities’ in Coal Industry

Taylor Kuykendall for SNL:

A November report from McKinsey and Co. warns the domestic coal industry is not just facing overcapacity, but also “crippling liabilities that will outlive mine closures.”

McKinsey wrote in its report, “Downsizing the U.S. coal industry: Can a slow-motion train wreck be avoided?” that if the wounded industry wants to get back on a viable course, it needs to employ some new ideas. In a presentation, marked such that it indicated it was delivered to the National Mining Association in late-October, McKinsey outlined three paths for the sector but all lead to establishing a “smaller and healthier coal industry going forward.”

“The United States has plenty of coal, but the world does not need it,” the report begins. “By 2020, the convergence of low-cost shale-gas supply, environmental regulation, and waning international demand is likely to push demand for U.S. coal to at least 20% below what U.S. mines currently produce — which is already almost 20% below 2008 levels.”

Luke Popovich, a spokesman for the National Mining Association, said that the report was not surprising.

“The conclusions were sobering but not surprising or alarming I don’t think,” Popovich said. “CEOs know their business and market conditions by now can’t conceal from anyone the fact that changes will be needed to align capacity with demand. Obviously, that is already occurring — not just in our industry but in the entire fossil energy sector.”

The report notes that the industry’s woes are multifaceted — overcapacity, shrinking demand, “chronic indebtedness,” environmental liabilities and insufficient profitability — a combination of factors that leads to an industry strictly limited in its freedom of maneuver. One particularly troubling issue noted by the report is that even if coal cuts capacity to balance supply and demand in 2020, producers still will be unable to service most of its approximately $70 billion of remaining debt and liabilities.

Full article: ‘Zombie mines’ and a ‘slow-motion train wreck’ — report analyzes coal’s crisis ($)