By Peter Galuszka
This just in from the trenches of “The War on Coal.”
How can it be that the U.S. coal industry is heading towards extinction because of Barack Obama’s “war” on the sector when American coal exports to Europe are approaching record highs?
Yes, I have that right. It’s actually an unusual flip side of the natural gas market and it has nothing to do with Obama, the Environmental Protection Agency or nefarious plans to keep Bristol, Va., from becoming the Saudi Arabia of black diamonds, regardless of what George Allen and others say.
Exports of U.S. coal to Europe are now approaching record highs. This year, exports may break a record 112.5 million tons set in 1981 just after the Iranian crisis sent oil prices soaring. You may not remember this, but back then about 100 colliers were swinging at anchor in Hampton Roads waiting for dock space to load up for coal to take back to the Continent.
This time it’s a little different. What’s happening is that natural gas prices in Europe are extremely high — roughly three times what they are here. Utilities that can switch to another fuel are doing exactly that — to American coal.
Why? Simple, hydraulic fracking of shale formations in the U.S. has flooded the utility market with cheap gas. More gas is also being produced in record amounts in the Plains and Southwest along with oil. How can this be when Barack Obama is doing everything he can to break the fossil fuel industry? Gee, I don’t know, let’s ask the Koch Brothers.
Whatever, U.S. coal prices are approaching their lowest prices in 40 years thanks to gas. They were about $160 a ton for thermal product four years ago and now are around $60 a ton. That’s bad news for U.S. coal firms operating in the high cost Appalachians where they may spend more to mine coal than what they can now get for it on the market.
A double whammy hits producers such as Bristol’s Alpha Natural Resources which has rich reserves of coking coal. Alpha had hoped that metallurgical sales to China would continue to be robust but China’s economy is sputtering. So, Alpha lost $2 billion in this second quarter and is laying off 1,200.
But bad news here can be good news somewhere else — namely in Europe. They love America’s cheap coal and can’t get enough of it. True, this may be short lived, but anyone who’s been around the coal industry knows it is always boom-bust. Coal will start to recover domestically next year when natural gas prices start to rise.
As for Mitt Romney, Paul Ryan, George Allen and the rest — it just so happens that their election cycle coincides with the down side of coal’s cycle. Lucky for them it isn’t two years ago. They’d have a hard case to make.