The Wall Street Journal
May 08, 2015
By Dr. Ariel Cohen
Although many in the U.S. and around the world are trying to do in coal, it remains an important energy source in the 21st century. The 2016 presidential election will be about the future of U.S. coal.
It is especially important because the coal industry employs more than 83,000 people while providing the cheapest electricity per kilowatt. This number only includes direct jobs. 107 million tons of coal exports contributed 141,270 jobs to the U.S. economy. Important swing states, such as West Virginia is where many of these jobs are. The Obama administration emissions goals will jeopardize these mines.
The U.S. electricity-generation sector still relies heavily on coal. Its share in the total generation is 39%, according to the U.S. Energy Information Administration. Coal has higher energy density and lower logistics-related costs than its closest competitor–natural gas. Yet, it has been constantly losing its share in generation since the beginning of the shale boom.
One of the opportunities for the U.S. coal producers to survive and keep providing many thousands of jobs is the expansion to foreign markets. Europe is a top candidate. European consumers are looking to substitute Russian gas with a less weaponized fuel.
Another market for the U.S. coal companies is Ukraine. With Donbas, its major coal-producing region is under control by pro-Russian forces, and with U.S. coal cheaper than Ukrainian, this might be a good opportunity for U.S. coal. However, European markets are not a long-term solution for the U.S. producers, due to the expansion of emissions regulations by the EU.
The lack of stability in Eastern Europe has not improved the corporate bottom line just yet. The expectations of the major American coal producers including Peabody, CONSOL Energy and Alpha Natural Resources to increase their stock values on the wave of worsened relations between Russia and the West were not sustained by the markets. The Dow Jones U.S. Coal Index (DJUSCL) has lost around 42.21% of its value since May 2014.
Asia is a major energy market. However, U.S. companies are facing harsh competition in Asia from Australia. It is currently the world’s second largest exporter of coal after Indonesia. Shipping coal from a U.S. mine to a customer in Asia adds $50 of shipping costs. Australian producers can get coal from their mines to China for half that.
A more promising destination for American coal might be energy-starved India. India is preparing to hook up the 400 million consumers without electricity to the grid in the next five years. Most of the new power plants to satisfy the needs of these new consumers are going to be coal fired. A new market for American coal is about to emerge as U.S.-Indian relations improve. It is too early to write coal off.
Presidential candidates should keep that in mind.
Ariel Cohen, PhD, is Senior Fellow at the Atlantic Council, Principal, International Market Analysis Ltd, a political risk advisory, and Director, Center for Energy, Natural Resources and Geopolitics at the Institute for the Analysis of Global Security (www.arielcohen.com)