This is not a good time to be in the coal business. Even before the realization that burning coal is one of the most detrimental things we can do to ourselves could make its unhurried way around the world, the price of natural gas dropped to levels not seen in years. Electrical utility operators, by far the biggest customers for coal, don’t have to be environmentalists to make the switch; it’s a matter of simple economics.
This week, Arch Coal, the second largest coal company in the U.S., filed for bankruptcy, citing $4.5 billion in debt from which it hopes to get relief. St. Louis-based Arch supplies 13 percent of America’s coal, sourced mostly from Wyoming. It is not the first to file, but is following in the footsteps of Patriot Coal, Walter Energy and Alpha Natural Resources, which are all seeking bankruptcy protection.
The announcement claimed that the reorganization won’t affect employees or production, and that no mines will close at this time. Though with production now at a 30-year low, the company acknowledged that it would be hard to rule out “additional steps” in the future, if the market continues to weaken.
Arch Coal operates the world’s biggest coal mine, Black Thunder in Wright, Wyoming, which produced 101 million tons of coal in 2014. That was about 10 percent of total U.S. production.
Ever hopeful, Arch’s chairman and CEO John W. Eaves said in the press statement announcing the Chapter 11 filing: “We are confident that this comprehensive financial restructuring will further enhance Arch’s position as a large-scale, low-cost operator.”
The future of the company seems to rest on the construction of a proposed coal export terminal in Longview, Washington. The terminal, which, if built, would be the largest in the U.S., would require an investment of $680 million.
“It’s a clear confirmation that the markets are not seeing any significant upside potential in coal and that the company is fighting for its financial life,” said Ross Macfarlane, senior advisor with Climate Solutions. “The prospect that it is going to raise the $650 million to $1 billion that is estimated is needed to do this project is effectively zero.”
It has become clear that coal will eventually be phased out, starting with those countries that have viable alternatives with natural gas and renewables, such as the U.S. It will likely linger longer in places like India, where supply is abundant and demand is growing quickly.
Responding to the announcement, Jeremy Nichols of WildEarth Guardians said: “There is no future for coal, and it’s time for Arch Coal to be honest about this with its shareholders, its employees and the American public who sustain so much of the company’s operations.”
Nichols joins the chorus of voices urging fossil fuel companies to come to terms with the $2 trillion in stranded assets that must be left in the ground if global temperature rise is to remain below 2 degrees Celsius. Yet, despite the fact that existing reserves already far exceed the amount of carbon that can safely be emitted, the fossil fuel industry spent some $674 billion last year looking for more.
Arch employs 2,100 people in Wyoming and Colorado. A new mine that was supposed to open Montana has faced repeated delays.
Meanwhile, 35,000 solar jobs were added in the U.S. last year.
The slowdown also hurts states. Coal leases in Wyoming, which added over $700 million to the state budget in 2013-14, dropped to $26 million this year.