Coal's Losses to Cheap U.S. Shale Gas Are About to Get Bigger

  • Consol sees `brutal' market as Virginia coal prices collapse
  • Peabody is advancing potential sales of ``non-core assets''

America’s coal miners have spent recent years battling each other in a rapidly shrinking market. That war only stands to escalate.

For the second month in a row, natural gas beat coal as the main source of U.S. electricity generation, accounting for 35.2 percent of supplies in August, a government report showed Tuesday. That same day, miner Peabody Energy Corp. said it expects U.S. power plants to burn even less coal next year, Alliance Resource Partners LP snapped a 29-quarter streak of increased dividend payouts, and Arch Coal Inc. terminated a private debt exchange that it hoped would reduce its debt burden.

Consol Energy Inc. Chief Executive Officer Nick DeIuliis called the environment “brutal.”

Miners are struggling in the sector’s worst downturn in decades as the thermal coal used by power plants is undermined by tougher emissions standards and cheap natural gas, which on Tuesday traded below $2 per million British thermal units for the first time since 2012.

Metallurgical coal is at its cheapest in a decade amid a global glut and slowing demand from China. Average third-quarter prices for the steelmaking component at Consol’s Virginia operations are down 36 percent from a year ago.

“These are undoubtedly difficult, if not unprecedented, times for the coal sector,” Peabody Chief Executive Officer Glenn Kellow said on the company’s earnings call Tuesday.

Asset Sales

The price rout has Peabody looking to sell “non-core assets and certain operating mines,” the largest U.S. coal miner said in a statement Tuesday. The St. Louis-based company, which also operates in Australia, posted its eighth-straight quarterly loss.

Its shares plunged on Tuesday by $4.73, or 22 percent, to settle at $16.93 in New York trading. Arch Coal was down 23 percent. Consol and Alliance Resource Partners also fell.

Potential Rebound

“The Arch termination of its private debt offers is flowing through to the entire space, and dragging the whole space down,” Jeremy Sussman, an analyst with Clarksons Platou Securities Inc., said in an e-mail Tuesday.

Looking ahead, Peabody said it expects U.S. thermal coal demand to rise “over the next few years,” tracking a gain in gas prices. Gas is trading near a three-year low amid a glut of the power plant and heating fuel driven by shale production.

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