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Andrew Topf

Andrew Topf

With over a decade of journalistic experience working in newspapers, trade publications and as a mining reporter, Andrew Topf is a seasoned business writer. Andrew also…

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5 Reasons Why Coal Is Being Killed Off

5 Reasons Why Coal Is Being Killed Off

Just over a year ago, Australian Prime Minister Tony Abbott stood in front of a coal mine and declared that “coal is good for humanity” and will be “the world’s main energy source for decades to come.”

“Coal is good for humanity, coal is good for prosperity, coal is an essential part of our economic future, here in Australia, and right around the world,” said the former PM, opening the $3.9 billion BHP Billiton Mitsubishi Alliance (BMA) Caval Ridge coal mine, in central Queensland.

Being a major coal exporter and consumer, it was Abbott's job to promote an industry that provides billions in export revenue and taxes to Australia’s treasury. But in today’s current climate of low prices, increased regulation, retiring coal-fired power plants, and most recently, climate talks in Paris aimed at curtailing global use of fossil fuels, Abbott’s words seem, at best, overblown PR, and at worst, a lie that is easily exposed with a few economic and scientific facts.

Fact one: Coal kills

The first is Abbott’s assertion that coal is good for humanity. While the coal industry and its supporters have argued for some time that coal is a way to alleviate poverty by providing access to cheap electricity, others have countered that the industry’s negative impacts, both to the environment and human health, outweigh any sense of economic empowerment among the developing world’s poor.

Four months ago the World Bank rejected the notion that fossil fuels are a cure for energy poverty, saying instead that climate change threatens the impoverished more than expensive electricity inputs. The international lender is solidly behind the pledge by the UN conference on climate change in Paris to limit the warming of the planet by 2 degrees Celsius.

While the notion that fossil fuels are to blame for global warming is still hotly debated, the negative health effects from coal mining and coal-fired power-gen cannot be refuted. The release of mercury, particulate matter, nitrogen oxides and sulfur dioxide, plus other hazardous substances, cause respiratory problems, congestive heart failure, cancer, nervous system damage, and in the end, shortened life expectancy. Clean coal and carbon-capture and storage (CCS) technologies alleviate the emissions problem, but can never eliminate it. CCS technology has also been slow to progress: to date, only one commercial-scale plant is operating. Related: OPEC’s Newest Member That Actually Likes Low Oil Prices

According to Physicians for Social Responsibility, a U.S.-based advocacy group, coal contributes to four of the top five causes of mortality in the United States and is responsible for increasing the incidences of major diseases affecting large portions of the U.S. population. In China, where coal represents a whopping 80 percent of electricity generation, a 2013 report showed that the fossil fuel was responsible for a quarter of a million premature deaths and for damaging the health of hundreds of thousands of Chinese children.

China and the United States are the world’s two biggest users of coal and between them, account for nearly half of the world’s carbon dioxide emissions.

Fact two: Politicians are cracking down

Some may scoff at the UN climate change conference, which has become little more than a talking shop and photo-op for politicians that often seem out of touch with energy economics. However there is no denying that the climate change, anti-coal agenda is creeping into the policies of developed-world governments including Canada, the United States and Britain. For Western politicians, coal is public enemy number one. U.S. President Obama of course is the poster-child with his “war on coal” whose main weapon of mass destruction is the EPA and its rules to cut carbon emissions from coal-fired power plants.

In Great Britain, coal plants will be phased out over the next decade, albeit only if the retired plants can be replaced by natural gas. The same trend is happening in Canada, where provincial governments of all stripes are nixing coal for natural gas and renewables. The left-leaning government of oil-rich Alberta recently passed a carbon tax and rolled out a plan to cut carbon emissions, including a promise to phase out coal-fired power plants by 2030. Alberta relies on coal for nearly half of its electricity. Ontario, the most populous Canadian province, became the first coal-free jurisdiction in North America by shuttering all its coal-fired power plants by 2014.

Fact three: Coal use is declining

Coal mines continue to pump out thermal and metallurgical coal despite prices (for thermal) trading at a dismal USD$43 a tonne, but most countries, with the notable exception of India, are cutting back on coal use.

While coal still accounts for some 35 percent of global energy generation, its market share has dropped nine points since 2009 and by 2018 coal's market allocation will be down to 33 percent, according to Goldman Sachs. The demand drop is accounted for by tighter regulations on coal-fired plants, increasing use of renewables and competition from cheaper natural gas, especially in the United States. Related: Turkey Prepares For Protracted Standoff With Russia

The U.S. coal industry has been getting hit from all sides – government, low prices, cheap gas, and citizen-led campaigns against pollution.

As coal plants started closing, U.S. producers switched to exporting coal to China, but even there, demand has cratered. While coal use in China rose for 13 consecutive years up to 2013, in 2014 the tide started to turn against it, as Beijing began tackling its serious pollution issues. In 2014 coal imports fell to their lowest level since 2012, and were down another 28 percent year to date in September. Not helping coal in China, nor U.S. exporters, will be a cap and trade scheme introduced in September which will take effect in 2017.

In 2015 the four largest coal companies in the United States lost 90 percent of their market capitalization, says Goldman Sachs. This week McKinsey and Company called the U.S. coal industry “a slow-motion train wreck.” In its report the consultancy says that while the U.S. has lots of coal to sell, the world just “doesn't need it.”

Fact four: Coal is uneconomic

Market wisdom says the cure for low prices is low prices, but in the case of coal, there are un-natural economic forces at play, namely, the global imperative to limit or even eliminate use of the power and steel-making commodity.

Another new report this week states that over 65 percent of global coal production - both coking coal and thermal coal - is unprofitable at current prices. Wood Mackenzie estimates around a third of Australian coal is cash-negative, while in Indonesia, it's even worse: 60 to 70 percent of coal miners are operating at a loss.

While the solution would seem to be simply to cut production, even that hasn't had any effect on prices.

"Producers have exercised supply restraint; it hasn't been enough to support prices as demand has dropped even more," Bloomberg Intelligence analysts said in a note quoted by Sydney Morning Herald.

Fact five: Even coal miners are walking away


If all the above factors weren't working against coal, producers would probably lean on their shovels and wait to fight another day. But now, even coal miners are throwing in the towel and looking to sell their troubled assets.

Anglo American has been trying to sell four of its Australian coal mines for a year, without success, and earlier this week, announced it would cut 85,000 positions, nearly two-thirds of its workforce. Related: The Hidden Danger Of OPEC’s Market Share Strategy

Not too long ago the world's two biggest mining companies, Rio Tinto and BHP Billiton, were betting heavily on coal, but they too have lost confidence in the commodity and are looking to bail out. Earlier this year Rio folded its coal operations into its copper division, then later divested 40 percent of its Bengalla mine in Australia.

Meanwhile BHP got rid of its thermal coal business in South Africa by spinning it off into a separate company, South32.

Both firms have been trying to strike a nuanced position on coal, on the one hand supporting the industry that has made up a significant portion of their portfolios over the years, while at the same time quietly reducing their exposure, MINING.com reported recently.

The result is statements like this one, coming from Jean-Sebastian Jacques, Rio's chief executive for copper and coal, who said at a conference in Sydney that coal demand is not going to disappear, but that the company has “better options” than to spend money on it:

“There is a future for coal. Now the question is, should it be Rio or not Rio” that owns the mines, Jacques told the audience. “If you have a big checkbook, I’m more than happy to take your name.”

By Andrew Topf of Oilprice.com

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  • R Jensen on December 14 2015 said:
    The ONLY reason there is all this climate hysteria, with coal being one of the biggest bogeymen, is that the originators promoting the hysteria hate humanity. These are billionaires who want to turn the world into a global feudal state where energy use is limited for 99% of the population, after 90% are killed off. This is the endgame.
  • PDD on December 14 2015 said:
    R Jensen: You're making bold claims! Citation needed.

    You also don't think that green house gasses trap heat, I assume?
  • Ron Wagner on December 14 2015 said:
    Excellent article. Coal is pretty much done in the long run. How to speed the process is the problem. Natural gas is the answer.
  • JHM on December 14 2015 said:
    Let's not forget that wind and solar are pushing into prices well below $60/MWh on an unsubsidized basis. This puts enormous price pressure on both coal and natural gas not to let their prices exceed $3/MMBTU. This is why the coal industry can cut its production, but find little relief in prices. As wind and solar are installed, it triggers a permanent reduction in demand for both coal and gas. When fuel prices above $3/MMBTU, it will only accelerate this permanent demand destruction.

    Yes, it is time to get out. There will be no sustainable price recovery for either coal or natural gas.
  • David Hrivnak on December 14 2015 said:
    Not sure about that R Jenson. Do you burn coal? My guess is not because there are much better alternatives. Personally I much prefer my roof top solar than to shovel in coal and the the coal ash.
  • Synapsid on December 14 2015 said:
    We keep hearing about the US shipping coal to China. According to the EIA, in 2014 the US shipped more coal to Europe than to all of Asia, China included.

    More US coal went to Morocco than to China.
  • Synapsid on December 14 2015 said:
    Further on coal:

    China has seen some decline in consumption, perhaps, and now requires higher-quality coal than had been used and imported. Good news.

    In other news, China is building or has agreed to build 92 coal-fired power plants in other countries--27 others, including Vietnam which (memory here) will have 14 of them. Bid prices on projects are lower, and have a better chance of being accepted, if scrubbers and such-like expensive things are not included in the project.

    I'm not optimistic.
  • mulp on December 14 2015 said:
    The only reason fossils have been and are cheaper is thanks to lower labor costs than non-fossil fuel solutions, but when oil monopolists managed to limit the rate of pillage of natural capital, the fossil fuels in the ground, the price far exceeded labor costs, draining money from the pockets of consumers and putting it in the pockets of the wealthy who could not consume more labor produced goods, so they bid up prices of existing assets.

    The most profitable did not invest in faster pillage because that would eliminate the monopoly pricing power, but others were willing to invest to bring new production on line from private land which was not restricted by the monopolists in the labor investment. The new competitors poured money into labor costs driving up labor prices and increasing the supply of fossil fuels, eliminating the monopoly pricing power.

    Now we see prices falling to labor costs and the fossil fuel industry is trying to cut the pillage rates to regain pricing power. But the interactions between oil and gas in fracking led to gas prices so low that coal became too expensive based on labor costs, and thus it needs to do major harm to others to cut labor costs, but decades of legal battles have finally succeeded in forcing the coal industry to do more to cut mercury pollution, and the labor costs for those scrubbers just gives the cost advantage to gas cogen and wind. Add in the looming legal battles over green house games which even if delayed will limit coal burning in two decades, and investing in labor costs building new coal production with four decade lifetime is just too risky when gas cogen has a breakeven of less than a decade at current gas prices.

    The advocates of coal are only the people who hate labor and want to drive labor costs generally into the toilet. But that means consumers will have less money to spend unless government welfare increases a lot, also opposed by conservatives.

    On the other hand, wind and solar and battery capital investments allow zero monopoly profits so revenue goes almost entirely to time shifted labor costs, plus a reward for deferring consumption and paying labor to build capital assets - return on equity. Tax and gasp has capital asset labor costs paid in 7-10 years for big projects, revenue that can be invested in more labor to build more capital, capital that will last typically three decades yielding returns even if economies of scale reduce the labor cost of replacement capital. So, no monopoly pricing and profits, but labor costs and revenue are in sustainable balance. Economies of scale will only increase capital investment driving out more and more fossil fuel investment which frequently will not even pay a return on equity at the margin, shrinking supply and keeping alternatives producing returns on decades old assets.

    Coal is today where the marginal returns and losses are, and a bit of strength in gas pricing will increase gas which will increase oil, instead of the high oil prices driving gas surpluses. The more capital investment shifts from coal to gas cogen, the worse the coal market gets.
  • R Klargar on December 15 2015 said:
    Clean Coal is not going to ever take off it is too expensive, Coal puts more Mercury into our environment than any other source . Over time that will probably be the final blow for thermal Coal.
  • John on October 31 2016 said:
    Well we'll probably never see coal on top again and likely never in an advanced society. There is good news for coal miners (im a UK mining engineer grad) the coal isnt going anywhere and there is still good reserves that are easily gotten. Coal is an insanely high-energy "rock" that will eventually be needed. Oil, gas and coal are finite so when the previous goes coal will have its day. At the worlds current energy consumption pace,; some experts estimate 55-85 years remaining before a drastic change in the uses of fossile fuels must happen. Thats not long...maybe coal will make a comeback then

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