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The Twilight of the American Coal Industry May Be Nigh

St. Louis-based Arch Coal is the fourth US coal company to file for bankruptcy since July, as coal production slides to its lowest level in 30 years.

by Eva Hershaw
Jan 11 2016, 7:35pm

Photo by Nati Harnik/AP

Arch Coal, the second largest coal producer in the United States, filed for bankruptcy Monday, citing market challenges and regulatory hurdles that the company claims have "hobbled the coal industry."

With an estimated 4,600 employees and more than 5 billion tons of proven reserves, the St. Louis-based company has become the fourth major coal producer to file for bankruptcy since July, after Walter Energy Inc., Alpha Natural Resources Inc., and Patriot Coal.

Despite the announcement, company leadership has maintained that operations and shipments will continue uninterrupted throughout the restructuring process, with CEO John Eaves calling the decision to file under Chapter 11 bankruptcy protection a "significant step in our ongoing efforts to position the company for long-term success."

'This is the final nail in the coffin for what is a doomed project.'

But for Tom Sanzillo, the director of Institute for Energy Economics and Financial Analysis, the company has failed to recognize the writing on the wall.

"Like most of the coal industry, Arch's outlook continues to be unrealistic, avoiding hard questions," Sanzillo said, in response to the filing. He believes that Arch and other coal producers continue to mine an excess of coal, regardless of an energy landscape that has shifted away from heaviest-polluting fossil fuel. "The problem for Arch is not only debt reorganization," he said. "The problem is in deciding what kind of company it will be going forward."

Domestic coal production is at its lowest level since 1986, according to the US Energy Information Administration. 

In a company declaration, CFO John Drexler cited a competitive operating environment compounded by decreased coal consumption and weak international and domestic economies. He noted that the availability of inexpensive natural gas, in addition to stringent environmental regulations, had prevented the coal industry from operating to capacity in recent years.

Under the Chapter 11 filling, Arch Coal and its wholly owned domestic subsidiaries have put forth a plan to eliminate more than $4.5 billion in debt from its balance sheet. The company currently maintains $5 billion in outstanding debt and approximately $360 million in annual debt services, which the company says it is unable to maintain in the current, depressed market for coal. During the 2014 calendar year, the company sold an estimated 134 million tons of coal, but registered a 2.5 percent dip in revenue and a net loss of $558 million.

Related: Here's Why US Coal Companies Can't Tap Asian Markets

The coal industry has vehemently opposed President Barack Obama's Clean Power Plan, which requires a 32 percent reduction in US carbon emissions by from 2005 levels by 2030. According to some estimates, cited by Arch Coal, the plan could reduce demand for coal in the US by 650 million tons annually, which would mark a 30 percent decline from 2014 estimates.

Nearly 80 percent of Arch Coal's operations are centered in the Powder River Basin, stretching across southeast Montana and northeast Wyoming, though they also have operations across Appalachia, and in Southern Illinois.

The company is pushing for an export terminal in Washington State, valued at between $650 and $1 billion, that would allow it to ship its supplies to markets in Asia. Opposition to the terminal in Washington State has been strong and advocates for clean energy policy in the state see the bankruptcy announcement as another mark against the project.

"This is the final nail in the coffin for what is a doomed project," said Ross Macfarlane, a senior advisor with Climate Solutions, a non-profit pushing clean energy development. Arch Coal, he explains, was engaging in a "huge spending spree" under the assumption that the coal market would continue to expand and that prices would continue to rise.

While he said that local opposition to the export terminal in Longview, Washington cannot claim to have contributed to an overall decline in global coal markets, he said it could "probably take credit for saving the company from having even more mass amounts of debt."

Mcfarlane hopes that Arch Coal and bankrupt coal companies will be held accountable, both for the environmental damage they have already imposed across the country, and for the employees to which they hold pension obligations. 

Related: It's Been a Very Bad Year So Far for the US Coal Industry

The Sierra Club and other environmental organizations are calling on the company and local politicians to extend help to communities long reliant on the coal industry as they transition away from fossil fuel production, according to Mary Anne Hitt, director of the Sierra Club's Beyond Coal Campaign. 

"We have seen a significant number of bankruptcies, but the fact that this is the second largest coal company in the US makes it a big, notable development," she said. "The coal industry is definitely not giving up without a fight, and at the same time, we have a lot of communities, places, and people who are hanging in the balance. What we need for those communities is political leadership in the region to acknowledge that coal is going away and not coming back."

With the bankruptcy announcement by Arch Coal, another company has come into the focus of clean energy advocates: Peabody Energy, whose share prices slid quickly on Monday.

"The only company left is Peabody," said Hitt. "And all eyes are on that company now."

Follow Eva Hershaw on Twitter: @beets4eva

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