May 1, 2017 - A West Virginia native who is now a coal analyst says while there has been some rebound or the U.S. coal industry, it’s still fragile.
“What I see now is the opportunity for the coal industry to at least maintain the status quo for now and for the jobs that exist now have a chance to maybe recapture some market share form gas,” said Matthew Warder, Director of Research and Product Development for Energy Capital Research Group. “But it’s hard to see a full fledged comeback in the cards right now.”
A tiered severance tax system, as proposed by the Justice Administration budget, would only add to the difficult rebound for the industry according to Warder.
“Most of these businesses are coming out of bankruptcy, so cash flow is really important right now,” he explained in an appearance on MetroNews Talkline.
Governor Jim Justice proposed the tiered severance system which would increase severance tax rates when times were good, and adjust them downward when times are bad. Warder said the problem is the transition period.
“At a $120 bench mark, which is within the realm of plausible outcomes this year, the cost of a low vol mine is $75 on average which equates to $78 at the port, so you’re making a $3 margin,” he explained. “If you double the severance tax, which is about $4, then all of a sudden it puts those mines into negative profits and that puts jobs at risk.”
Two key events in recent months are credited for the resurgence in the price of met coal in the United States according to Warder. A cyclone shutdown a key coal shipping port in Australia and a policy change in China shortened the number of working days in a year reducing China’s coal productivity by 20 percent. The Chinese are picking up that slack with imports. The result has been a price of met coal nearing $300 a ton, but Warder said it’s uncertain how long that price will last.
Natural gas remains the biggest obstacle for steam coal. Warder doesn’t believe gas prices will remain at their historical low levels much longer, which could give steam coal a chance to regain some of the market share lost in the past decade. However, in the long term, the infrastructure favors gas.
“I think there will be some room for improvement over the next couple of years, but it will be modest. It will be where gas prices are high enough that coal can regain some market share specifically at southeastern utilities,” he said. “But when you think longer term, it still costs $2 billion to build a coal plant and $1 billion to build a gas plant.”