Coal and the Energy Transition

If Charles Dickens were to write a classic on U.S. power generation fuels (why wouldn't he?), we think he would likely call it 'A tale of Two fuels' and it would start something like this: It is the best of times—for natural gas-fired generation; it is the worst of times—for coal-fired generation. This version could even have its own Bast(ille): the Best Available Sustainable Technology. Renewable proliferation and the inevitable advance of regulations would have stormed coal, with shale powering the revolution that overthrows king coal's reign. And at the end, a modern day Madame Lafarge—perhaps a hard-core environmentalist?—would sit knitting beside the guillotine while a polluting, inefficient, uncontrolled coal generation unit wonders if it is going to a far, far better rest than it has ever known.

China's voracious appetite for coal may be nearing its peak consumption level, but the country's love affair with one of the cheapest fuels is unlikely to end anytime soon, despite Beijing's efforts to turn the skies of Asia's biggest energy consumer blue.

Although China's energy mix will continue to evolve, with coal's share expected to fall gradually over the coming years, the relatively slow rate of decline in coal consumption will likely mean that China's influence on world coal prices will remain for many years to come.

Global coal power generation is expected to decline in 2019, but that is unlikely the start of a lasting trend as demand for the fuel will remain stable due to rising demand in India and other Asian countries offsetting declines in the United States and Europe, wrote the International Energy Agency in its latest analysis of coal markets.

Coal miners in the United States and Colombia will likely struggle due to the collapse of European Union coal imports and competition from Russian producers as investments in coal mining assets in general face strong headwinds. Chinese coal demand, which accounts for roughly half of the world's coal consumption, is expected to increase slightly and then plateau around 2022, but the forecasted demand from the country is sensitive to potential future policy measures.

The market capitalization of five of the top 10 U.S. coal companies was sliced by more than half from early January to mid-November.

Those top 10 producers' market value totaled about $4.42 billion as of Nov. 22, a 59.4% drop from $10.88 billion as of Jan. 8, according to data compiled by S&P Global Market Intelligence. The group of companies saw double-digit percentage declines in market capitalization from Jan. 8 to Nov. 22 as domestic demand waned and the seaborne market weakened. Rhino Resource Partners LP, which rounded out the top 10 as of Nov. 22, saw the smallest percentage decline between the periods, with its value falling 18.6% to $11.4 million.

The number of insurance companies withdrawing coverage for the coal sector doubled in 2019, activists behind a campaign to drive a wedge between coal producers and insurers reported.

U.S. insurers continue to lag peers in Europe, but a movement embracing policies that would exclude coal producers continued to gain steam in 2019. About 46% of the reinsurance market and 37% of the insurance industry's global assets fall under plans to exit involvement in the coal sector, the Unfriend Coal campaign wrote in a new scorecard of the insurance industry.

Weakened U.S. coal demand, reduced seaborne pricing and a wave of insurers and financial institutions announcing plans to exit the coal arena have been dominant themes in 2019.

Coal producers may have more difficulty accessing capital as institutions increasingly move away from coal financing. The Unfriend Coal campaign, which seeks to distance coal producers and insurers, wrote in a recent report that the number of insurance companies turning away from coal coverage doubled in 2019.