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Coal Prices Surge With Demand

Coal is seeing a dramatic spike in demand just as several major miners are hit with production problems, sparking a surge in prices from China to Europe and the U.S.

Prices for the dirtiest fossil fuel are soaring as sweltering temperatures in North Asia increase air-conditioning needs, adding to already strong demand due to the industrial recovery from the pandemic. Mine safety issues in China and heavy rainfall in Indonesia, meanwhile, are constraining output.

The price spike comes amid an existential crisis for coal, with climate policies making it increasingly difficult to invest in new projects. The squeeze might not change that, but it's providing miners with a windfall while it lasts.

 

Stacker-reclaimers operate next to stockpiles of coal at the Newcastle Coal Terminal in Newcastle, New South Wales, Australia, on March 26, 2021.

CREDIT: Bloomberg photo by Brendon Thorne

"We could have strong prices into the fourth quarter," said James Stevenson, lead researcher for coal, metals and mining at IHS Markit Ltd. in Houston. "But this isn't structurally strong demand. You're probably best optimized enjoying the higher revenue than investing it in new production."

As is often the case with coal, the story begins in China, which mines and burns half the world's supply. As the first major economy to rebound from covid-19, factories there have been running hot for a while, and that's recently been given an extra boost as the recovery takes off elsewhere. However, a spate of deadly mining accidents has spurred Beijing to crack down on unsafe practices.

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WV Senator Joe Manchin, Energy Secretary Jennifer Granholm Tour West Virginia; Capito Continues Negotiations 

Energy Secretary Jennifer Granholm wrapped up day two of tours of West Virginia’s coal, natural gas, and clean energy research industries with U.S. Sen. Joe Manchin, as U.S. Sen. Shelley Moore Capito continued to negotiate on an infrastructure package with the White House.

Manchin and Granholm spent the day Friday in Morgantown touring the National Energy Technology Laboratory and the West Virginia Water Research Institute at the National Research Center for Coal and Energy in Evansdale.

There, Manchin and Granholm met with companies working on alternative uses for coal and natural gas that allows those fossil fuels to still be used while mitigating their greenhouse gas emissions. Afterward, they met with research students working on ways to extract rare earth minerals used in the manufacturing of electric vehicle batteries from acid mine drainage. Later, the two toured a coal mine.

Energy Secretary Jennifer Granholm and U.S. Sen. Joe Manchin, D-W.Va., learn about alternative uses for coal in manufacturing at the National Research Center for Coal and Energy in Morgantown. 

Photo by Steven Allen Adams 

“It’s been a great two days,” Manchin said. “A lot of people think fossil fuel is done; you can’t use coal any more, or gas. Coal and gas are going to be the future building products for America if they’re used in the proper form and carbon-free. That’s what we’re learning and that’s what we know can be done.”

“Thank you, Senator Manchin, for bringing me around, opening my eyes to see, first of all, that this is a state that is willing to embrace a decarbonized future, that they see an opportunity,” Granholm said.

There’s a sense of urgency of making sure that we understand the importance of decarbonized fossil investment, as well as renewable energy.”

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West Virginia County Will Suffer Economic Hardship If Mitchell Plant Closes, Officials Testify

Local officials told the West Virginia Public Service Commission this week a potential closure of the Mitchell Power Plant would be economically devastating to Marshall County and the surrounding communities.

The public service commission heard testimony Wednesday regarding Appalachian Power’s request to raise rates 1.5 percent to pay for upgrades to the Mitchell Power Plant, which would make it compliant with federal environmental regulations. The work also would take place at the Amos Plant in Winfield and the Mountaineer Plant in Letart.

Two proposals for construction and upgrades have been set forth by Appalachian Power. The first costs $317 million and keeps all three plants open until 2040. The second costs $286 million, keeps the Amos and Mountaineer plants open until 2040, but keeps the Mitchell Plant open only until 2028.

Among those providing comments to the PSC were U.S. Rep. David B. McKinley, R-W.Va.; Delegate Charlie Reynolds, R-Marshall; Delegate Lisa Zukoff, D-Marshall; and Marshall County Commissioner Mike Ferro.

McKinley said the PSC today is faced with two options — to approve the upgrades and rates required to keep the plant operational through 2040 or allow the Mitchell Plant to close by 2028.

“Others will reinforce this message that the Mitchell Plant is a significant economic driver in the region and prematurely retiring the plant would have ripple effects throughout West Virginia’s economy, jobs would be lost, tax revenue needed to fund schools and first responders would disappear, businesses like machine shops, barge operators, coal mines, railroad workers and restaurants would suffer, the (CertainTeed) gypsum plant that’s supplied by Mitchell would fold, neighboring communities would be devastated and the reliability of our electric grid would decrease,” he told the PSC.

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WV Rep. McKinley Questions Biden Administration Environmental Justice Report

A report last month from a White House advisory group on ways to invest in disadvantaged communities affected by climate change and fossil fuels received praise from one Appalachian group, though 1st District Congressman David McKinley is more concerned about what the report recommends against.

The White House Environmental Justice Advisory Council’s report gives recommendations on several environmental justice initiatives, including “Justice40,” an effort to make sure that 40 percent of federal investments in climate change mitigation plans benefit minority and disadvantaged communities.

Council co-chairs Richard Moore and Peggy Shepard summarized the group’s recommendations in a May 21 letter to Brenda Mallory, chairwoman of the Council on Environmental Quality. They also encouraged President Biden and cabinet officials to begin implementing Justice40 immediately.

Justice40 anticipates sunsetting investment in fossil fuels, plastics, dangerous chemicals and nuclear energy, and replacing them with renewable energy sources by 2030.

 

Rep. David McKinley

For McKinley, R-W.Va., ranking Republican member of the House Energy and Commerce Committee’s Subcommittee on Environment, it is the part of the Justice40 report listing “examples of the types of projects that may benefit a community” that cause him concern.

This is a bizarre approach toward dealing with the environment,” McKinley said. “This is a dangerous approach, and we’re more concerned that this is showing the underbelly of the President’s vision for how he wants to deal with fossil fuels.”

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It’s Time to Reform and Refocus the AML Program

When Congress considers reauthorization of a program or a fee on an industry, it’s a moment for review and analysis. Is the program working as intended, does the structure and funding meet the moment or need to reflect changing facts on the ground? These are important questions that often come with enormous price tags that can also have huge implications for the competitiveness of industries and the jobs those industries support. That’s certainly the case with the latest debate over the future of the Abandoned Mine Land Reclamation Program (AML) and fee.

While there is industry and bipartisan support for continuing the program, views diverge on just how it should move forward. Some members of Congress would like to see the program go ahead just as it is, while others recognize need for reform to address the 40-plus years of mission creep that has increasingly diverted program funds to purposes other than those initially intended at the program’s inception. However well-intentioned, the program has become a slush fund for community programs, economic diversification and extraneous purposes better served by other existing federal programs. Coupled with the high administrative costs of the program, just one in three dollars spent by the fund has gone to priority coal projects that the fund was intended to rehabilitate.

Companion pieces of legislation in both chambers introduced by the Wyoming delegation, Senators Lummis and Barrasso and Representative Cheney, provide the right path forward. Their bills ensure the AML program focuses on the important work of cleaning up legacy mine sites, recognize the need for better oversight of the fund, and acknowledge how drastically the market has changed since the current fees were set.

The Industry Can’t Afford to Throw More Good Money After Bad   

Since 1977, the coal industry has paid nearly $12 billion into the AML fund to reclaim legacy abandoned mines. Unfortunately, much of that money has simply disappeared, lost in rising administrative fees or siphoned off for projects far outside the program’s original intended purpose.

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