August 13, 2023
On the same day the U.S. Environmental Protection Agency accepted its last public comment on a sweeping proposal to regulate carbon emissions from the nation’s powerplants, Cecil-based Consol Energy Inc. told investors its bottom line is increasingly driven by other nations.
A healthy majority of its revenue — 78% during the past three months — now comes from shipping the coal it mines in southwestern Pennsylvania to customers in India, Egypt, Indonesia and China.
Five years ago, about 64% of Consol’s revenue came from contracts with U.S. powerplants.
Now, that number is down to 23%.
It’s been a concerted shift in strategy for the company, one of the last large miners in the state.
“We’re not going to obviously abandon our core customers here in the domestic market,” CEO Jimmy Brock said during a call with analysts on Tuesday. “I still personally think that coal-fired generation is going to be here for quite some time.”
But, he said, “we’re looking for the highest arbitrage.”
A machine cuts slabs of coal inside Consol Energy’s Bailey Mine in southwestern Pennsylvania. (Consol Energy Inc.)
So while the already shrinking coal fleet in the U.S. turns its attention to proposed regulations that could accelerate its demise, customers in Asia and South America beckon.
“The largest industrial market we serve is the Indian cement market,” Consol’s President and CFO Mitesh Thakkar told investors.
Over the past decade, he explained, the cement capacity in India has grown by 50%.
“Furthermore, due to rapid urbanization and higher government spending on infrastructure and housing, our customers in India are expecting to continue to grow their installed capacity,” he said. “This is exciting for us.”
Mr. Thakkar said the company is also making inroads with international customers looking to phase out Russian coal.
It helps that Consol operates a marine terminal at the Baltimore port, which is the second biggest in the country for coal traffic. It has invested in increasing capacity there and can now send up to 20 million tons of coal through the facility annually. Most of the coal that ships from there belongs to Consol, but the company also ships product from other companies.
When an analyst asked Mr. Brock if there is an upper limit to how much coal it can export and if the company has reached that limit, the CEO responded:
“I really don’t know what the ceiling is, but I do know that we will continue to grow that business, because that’s where the growth is.”
The EPA’s proposed rules are a kind of do-over of the Clean Power Plan, which was enacted in the final months of the Obama administration, repealed during the Trump administration, and endured years of legal challenges, with the Supreme Court eventually ruling last year that the EPA didn’t have the authority to set caps on CO2 emissions from powerplants under the Clean Air Act. The current effort was shaped by the restrictions of that decision. It essentially prescribes what kind of technology powerplants must use to abate emissions.
Under the new rules, coal plants would have 10 years to either retire or install equipment to capture nearly all of their carbon emissions.
Many coal-fired power stations have already shut down or announced plans to do so this decade, forced out of favor by competition from other energy sources and increased environmental compliance costs.
Homer City in Indiana County took its last coal-dusted breath on July 31. Cheswick has already been demolished.
In comments to the EPA, the National Mining Association predicted that the rule would have “unprecedented impact on the coal fleet by forcing widescale premature retirements, which in turn directly impacts the coal supply chain and the livelihood of our coal mining members.”
Several grid operators, including PJM Interconnection, which coordinates the flow of electricity in 13 eastern states including Pennsylvania, wrote that forcing fossil fuel plants to retire prematurely — before large scale batteries and transmission lines could reshape the way electricity is stored and delivered — would likely have serious consequences for the reliability of the electric grid. They also worry that having an impending shutdown date might disincentivize power plant owners from putting money into capital repairs and maintenance, endangering their ability to serve the grid reliably even in the short term.
Consol also submitted comments to the EPA but declined to make them available before they are publicly posted on the agency’s website.
Of all the coal that Consol sent to domestic powerplants so far this year, about a quarter went to plants with an impending expiration date, according to data from the Energy Information Administration.
Mr. Brock told investors that of “the customers that we’ve targeted, domestically at least, none of those have announced retirements prior to 2028.”
The company clarified that such plants are part of Consol’s “desired target list.”
Consol is by far the largest Pennsylvania supplier to power plants, with Iron Senergy’s Cumberland Mine in Greene County a distant second.
Alliance Resource Partners, which operates the Tunnel Ridge mine in West Virginia and under portions of Washington County, also talked up exports during its call with investors on July 31, but signaled greater confidence in coal’s future in the U.S.
“Many of our customers are projecting significant growth in electricity demand as record numbers of new manufacturing facilities are being announced to come online over the next several years,” said CEO Joseph Craft. “The increased electricity demand should lead to slowing the premature closing of coal-fired power plants in the Eastern United States.”
Mr. Craft said that a slate of new projects aimed at exporting natural gas should lift gas prices, which is good for coal because cheap natural gas has been its main foil on the electric grid.
He anticipated that the EPA’s proposed rules would likely be delayed by litigation.
“We’re getting input from customers just saying that we need you to continue to maintain your production level, you know, for the next decade.”