The decline in US thermal coal demand would accelerate under policies promulgated by Democratic presidential candidate Joe Biden, ratings agency Moody's Investors Service said.
But regardless of who wins the presidential election, thermal coal demand will remain in secular decline over the next decade, Moody's said. Persistently lower natural gas prices, increased renewables' penetration and long-term regulatory uncertainty will primarily drive the decline, the ratings agency's analysts said in a report released yesterday.
President Donald Trump, if reelected, may make more regulatory changes that benefit coal companies, but they will not be enough to reverse a decline that started in the late 2000s, energy market experts say.
The Trump administration's efforts so far have been "insufficient" in combating the forces that have driven US coal demand lower, the report said. State regulations also play an important role in influencing thermal coal demand.
"However, we expect the energy policy under a Biden administration would accelerate the decline of thermal coal," the report's authors said.
The Democratic platform, which places "greening the economy" at the center of growth, would have "substantial negative implications for the thermal coal industry," the analysts said.
The centerpiece of Biden's climate and energy plans is a strategy to achieve carbon-free electricity by 2035. That would also likely include creating energy efficiency and clean electricity standards, as well as tax credits and a clean-energy credit trading program.
The plan would hit coal-fired power plants harder and more quickly than other fossil fuels, including natural gas, Moody's said. Unregulated power generators with coal-fired units would be more directly exposed to the market effects of tighter environmental regulations since they cannot recover increased compliance costs from ratepayers, Moody's said.
The ratings agency kept its global outlook for the coal sector stable "based on modest improvement in business conditions expected in 2021."
But that will not be enough to alleviate pressure on US thermal coal producers, "which face a variety of unique challenges compared with producers in other regions and remain highly vulnerable to further economic weakness," Moody's said.
Most US coal companies, including all thermal coal producers, were downgraded or faced other negative rating actions in 2020 following diminished demand for electricity and steel brought on by the Covid-19 pandemic. Companies with significant thermal coal production and negative rating outlooks by Moody's include Alliance Resource Partners, Arch Resources, Consol Energy and Peabody Energy.
The expected economic recovery next year will help with a recovery in coal consumption, but high coal inventories at power plants will temper demand for the fuel, Moody's said.
The US Energy Information Administration projects coal consumption by the electric power sector to rise to 522mn short tons (445mn metric tonnes) in 2021 from an estimated 433mn st this year. Moody's forecasts coal use to increase to 438mn st next year from 413mn st in 2020.
This article is reproduced at argusmedia.com
