by steve fiscor, editor-in-chief
This time around it was unseasonably warm at the Bluefield Coal Show. The biannual event organized by the Chamber of the Two Virginias was held at the Brushfork Armory in Bluefield, West Virginia, during mid-September. Roughly 200 suppliers were on hand, exhibiting underground coal mining equipment and technology. Total attendance appeared to be 2,500 to 3,000.
The show opened with a Media and Exhibitor Appreciation Breakfast, which was sponsored by American Electric Power. Robert “Bob” Ramsey, president of Peters Equipment and Ramsey Industrial, and the chairman of the Bluefield Coal Show, presided over the breakfast. “We are so excited,” Ramsey said. “As you can tell, a lot of work has gone into organizing this event.” He recognized and thanked volunteers who help support the show.
The torch was passed to Ramsey last year after Charlie Peters died. A moment of silence and reflection was held to honor Peters, who started the event in 1976.
To honor him, the Chamber of the Two Virginias created the Charles A. Peters Excellence in Business Award. The award, Ramsey said, will be presented every two years at the show to an exhibitor that showcases excellence in business, professionalism in the mining industry and demonstrates service to its local community.
The first recipient of the award was AMR PEMCO, which supplies monitoring systems, circuit breakers and power centers from its facilities in the region. “AMR PEMCO embodies the spirit of this award and they have participated in all 23 Bluefield Coal Shows.” Jay Johnson, executive vice president, sales and marketing for AMR PEMCO, accepted the award. Johnson introduced the keynote speaker, Jimmy Brock, president and CEO, CONSOL Energy.
Jimmy Brock Delivers Keynote
Brock recapped CONSOL Energy’s recent transition for the audience. He explained how CONSOL Energy has a 150-plus-year history and has adapted over time. He also talked about how its former parent, CNX Resources (CNX) became involved in the natural gas exploration and production (E&P) business, which led to the foundation of CNX’s current E&P business. In November 2017, CONSOL Energy was spun out of CNX. “I’m very proud of our team,” Brock said. “What all this means is that we now have control of all the cash flow that is generated by the coal business and we are deploying it based on our own strategic priorities instead of funding E&P production growth. Right after the spin, we decided to reduce the debt that we took on to effectuate the spin transaction from our former parent. The top priority then was to create a very healthy balance sheet that can withstand the volatility of commodity and economic cycles. After that we started investing some of the capital back into the business to value enhancing projects. As we made significant progress to achieving some of these priorities, we pivoted to investing in growth projects such as Itmann low-vol metallurgical coal project and returning capital to our own shareholders.”
CONSOL Energy currently operates the Pennsylvania mining complex, which consists of three underground mines with five longwalls feeding the largest preparation plant in the country. The Bailey Central prep plant can process 8,200 tons per hour (tph) of coal. The rail loadout at the plant can load coal at 9,000 tph, Brock explained.
“They can load a unit train at 0.9 mph,” Brock said. “We also own the CONSOL Maritime Terminal in Baltimore. That’s critically important to us. We do not have ground coal storage capacity in Pennsylvania. The terminal has 1.1 million tons of ground storage and has the capacity to ship 15 million tpy. Last year was a record year for the terminal, which generated more than $65 million in revenue.”
Brock discussed some of the good news for coal and areas for concern, including coal’s affordability as a fuel, its growth in importance around the world, the current rhetoric regarding climate change and the upcoming elections, and the dangers of moving the U.S. power grid away from coal.
“There is a lot of negativity in the mainstream media regarding coal,” Brock said. “Media outlets are reporting that it’s a dying industry and I’m here today, telling you that’s not the case.”
Brock pointed to 400 gigawatts (GW) of new coal-fired capacity under construction or planned and he also mentioned that few companies are investing on the supply side to meet these needs. “Existing coal production will be more valuable moving forward,” Brock said. “Many countries do not have access to the low-cost energy coal provides and low-cost energy is the key to economic growth. People in developing countries want what we have here in the U.S — a better quality of life and unconstrained access to low-cost energy.”
Domestically, coal faces considerable competitive pressure from low-cost natural gas and Brock explained how that could change. “We see coal-fired power playing an important role when it comes to grid resiliency,” Brock said.
Six countries account for 56% of total global GDP, Brock explained. “Each of these derived at least 30% of their energy from coal-fired power in 2017,” Brock said. “The fastest growing economies, China and India, rely heavily on coal and they are building more coal-fired generation.”
Brock explained how U.S. coal competes with natural gas in the U.S. and Europe as well as coals delivered to the Asia Pacific region from Australia. “On a BTU basis, the value proposition of U.S. energy is unparalleled and that’s especially the case with northern Appalachian coals,” Brock said.
Worldwide, more than 7 billion tons of coal are mined annually. “The reports of coal’s demise are totally
untrue,” Brock said. “The growth rate has slowed, but this is not a cottage industry that is going to go away.”
He detailed 111 GW of coal-fired power currently under construction globally that should be commissioned by 2024. “Another 300 is currently being planned,” Brock said. “As a point of reference, the U.S. has approximately 240 GW of installed coal-fired capacity.”
Turning his attention to the seaborne coal market, he reminded the audience of the importance of this market, citing stats from IHS Markit that predicts global seaborne thermal coal demand to grow by 60 million tons in aggregate by 2030, net of declines in the Western world. He contrasted it with lack of production growth to meet that growing demand. “Glencore has already announced it’s not growing production,” Brock said. “This is a huge opportunity for U.S. operators to export more coal.”
Despite declining 40% domestically since 2001, coal-fired power generation has grown 78% globally over the same time period. Coal’s share of global generation has remained flat at 38% since 2001. “New coal-fired generation has been keeping pace with natural gas and renewables around the world,” Brock said. “The reason we have these conflicting trends in the U.S. is due to regulations. Regulatory overreach and subsidies for renewables have restricted innovation and driven capital to competing energy sources.”
He explained how transportation has surpassed the electric power sector in greenhouse gas emissions in 2017. “If you really believe in man-made climate change, the primary target should be the transportation sector,” Brock said.
The 2020 U.S. presidential elections are approaching quickly and many of the candidates have endorsed environmental initiatives, including the New Green Deal. “Before we go down that path, people need to know the facts,” Brock said. “The U.S accounts for 15% global CO2 emission from fossil-fuel combustion. Of that, 24% is attributed to coal. Total U.S. CO2 emissions from coal amount to 3.6% of global emissions from fossil-fuel combustion. Add natural gas to the mix and the number increases to 8%. According to WoodMackenzie, the transition to a 100% renewable grid would require a $4.5 trillion investment over the next 10 to 20 years to replace an existing grid.”
“That’s a big number,” Brock said. “That money could be spent on education, healthcare and other productive uses. It would pay off all student debt three times over.”
Developing Trends With Natural Gas
U.S. natural gas production has increased 50% in the last decade, Brock said. “The expansion drove prices lower and fundamental gaps are emerging that could impact the future price of natural gas,” he said. “There are various challenges on the supply side and we’re becoming increasingly reliant on an unstable industry. Natural gas storage capacity is largely unchanged. As demand grows, volatility will increase and we will see higher costs during the peak seasons. It’s becoming clear that E&P investors are looking for a capital return, not a production growth. This is setting up for an enormous price squeeze.”
Eight independent producers in the Marcellus and the Utica shales now contribute 17% of U.S. natural gas production — that’s a 42% increase from 2013 levels, Brock explained. “Despite the glut of additional production over the past five years, the market cap of these producers has fallen 77%,” he said. “Their shareholders no longer have the same belief in the business model. The reason is that the producers are not generating sustainable rates of return. If you look at returns of 4% over the last five years and the cost of capital is 8%, they are not covering their cost of capital. The shareholders are asking them to cut CAPEX and return money through share buybacks and dividends.”
Brock said the E&P industry has already seen several bankruptcies in the last two years and that trend could continue as their $150 billion in debt comes due in the next three to four years. Brock asked: “As a power consumer, how do you feel about basing your future on an industry whose sustainability is being questioned by their own shareholders?”
It’s also becoming difficult to connect supply with demand centers. Brock discussed the 600-mile Atlantic Coast Pipeline, which has been delayed two years. “This underground pipeline is a major construction project that will be funded by four energy companies: Duke Energy, Dominion Power, Southern Cos. and Piedmont. Similarly, the 300-mile Mountain Valley Pipeline is a $4.6 billion project that has secured full capacity for 20 years. Both projects have suffered delays due to regulatory issues and environmental opposition. How can utilities rely on emerging gas supply if there are no pipelines to connect them to it?”
The U.S. saw a precursor of this play out during the 2018 Bomb Cyclone (December 27-January 9), “which we simply call winter,” Brock said. “It was a cold snap and 65,000 PJM customers needed an incremental 1,400 kiloWatt-hours per day. Coal stepped up and supplied 57% of that need and oil accounted for 23%, but natural gas didn’t show. In times of high demand, coal-fired generation is always above 40% because it’s there; it’s on the ground. I’m not telling you we should not have natural gas. We absolutely should. We should use all of the resources available to, but power generation decisions need to be based on sound engineering and economics principles.”
The most important opportunity that confronts all of us the need to communicate with all stakeholders on the value of coal, Brock explained. “We need to speak with facts and discuss our accomplishments as far as safety and environmental stewardship,” Brock said. “We are the only ones who tell our story.”