May 14, 2019 - In yet another sign of steep decline and restructuring across the coal sector, Cloud Peak Energy, the fourth-largest U.S. coal mining company in 2018, filed for bankruptcy on May 10. It is the second largest coal producer to do so in less than a year, following Westmoreland Coal, which was the 10th-largest U.S. coal producer in 2018 (now called Westmoreland Mining after emerging from bankruptcy in March).
Cloud Peak’s three mines—Antelope Coal, Cordero Rojo and Spring Creek—are all located in the Powder River Basin (PRB), the country’s most productive coal region, which straddles eastern Montana and Wyoming. But this area, which produced more than 40 percent of all U.S. coal last year, is also facing serious and growing economic challenges and technological competition that will likely alter the industry fundamentally in coming years (see our March report, Powder River Basin Coal Industry is in Long-Term Decline).
The decline of PRB mining has been rapid, and is set to accelerate. Only a little more than a decade ago, in 2008, output at PRB mines reached 496 million tons —nearly 80 percent of all coal mined in the Western U.S. and 42 percent of the record 1,172 million tons produced in the U.S. that same year.
But that production peak came just as generation from wind and solar was starting to take off; the boom in natural gas from fracking was getting under way; a decade of flat demand for electricity was on the horizon; and power customers both large and small were beginning to demand cleaner sources of energy.
The result of all these trends? Coal’s market share for power generation halved, from close to 50 percent in 2008 to a projected 24 percent this year.
This dramatic decline is significant to the coal industry, since the vast majority of American coal is burned to generate electricity. Utilities retired coal-fired power plants at a record pace last year and have been using many of the remaining coal units less and less frequently, a trend likely to continue, and one that will perhaps even speed up. As a result, analysts at the Energy Information Administration (EIA), part of the U.S. Energy Department, expect total U.S. coal production to fall to just 638 million tons by 2020—a decline of 120 million tons in just two years, down 534 million tons from the 2008 peak. Coal consumption is forecast to fall even further, by nearly 130 million tons, to 560 million tons in 2020.
U.S. Coal Production
This year alone, American coal production will fall by 7.2 percent, by EIA’s latest assessment.
The economics of burning coal for power generation are weakening, a trend driven by several forces and made obvious across a host of metrics. Among them:
These and many other factors are pointing to momentum in the national shift in electricity generation that is leaving coal behind. With demand constantly shrinking and the number of customers dwindling, it is unlikely that Cloud Peak’s bankruptcy, like Westmoreland’s before it, will be the end of the stark restructuring that the sector is facing.