Peabody Energy, the biggest coal company in the US, announced that it might file for bankruptcy. Many other coal companies have recently been swallowed up by a wave of bankruptcies. Declining coal prices and the Obama administration’s commitment to the Paris agreement are putting immense pressure on coal companies. John Dyer reports from Boston.
America’s biggest coal company is teetering on the edge of bankruptcy. The St. Louis-based Peabody Energy notified the U.S. Securities and Exchange Commission that it might voluntarily seek protection under chapter 11 of the U.S. bankruptcy code.
“We may not have sufficient liquidity to sustain operations and to continue as a going concern,” the company wrote on Wednesday.
Peabody operates 26 mines in the US and Australia. It has lost money in the last nine quarters and posted a USD 2 billion deficit last year. The company currently owes USD 6.3 billion to creditors.
Bad gamble in Australia
Peabody now has a 30-day grace period on its debt payments. But if that grace period ends without a deal with its creditors, Peabody will go into default.
Some of those payments are connected to the company’s purchase of the Australia-based Macarthur Coal for USD 5.1 billion in 2011. That buy has proven to be disastrously timed. Peabody acquired Macarthur when Chinese demand for coal for steel production was high, but that demand has slumped markedly in the past year.
Peabody was hoping to hold onto the Australian mines until the Chinese economy rebounds by selling three mines in the American west. But the potential purchaser, Bowie Resource Partners, pulled out last month due to the drastic decline in coal prices.
Less steel means less coal
Peabody is not the first American coal mining company to face serious trouble. Alpha Natural Resources, Arch Coal Patriot Coal Corporation and Walter Energy are all winding their ways through federal bankruptcy court now.
The pressure on coal companies is manifold. The price of coal has plummeted 62 per cent since 2011, according to the U.S. Energy Information Administration. Waning global steel production and growing concerns about coal’s role in climate change has led customers and governments alike to seek out cleaner alternatives.
Obama committed to Paris agreement
President Barack Obama is now waging a court fight to implement his plans to cut carbon emissions from American coal-fired plants to comply with climate change agreements reached in Paris last year.
On Sunday, during a Democratic Party presidential nomination debate, nominee frontrunner Hillary Clinton said her goal of boosting renewable energy would also require a plan to help coal-mining communities in Republican-leaning states like Kentucky, West Virginia and Wyoming.
“We’re going to put a lot of coal miners and coal companies out of business,” she said.
The US now generates around a third of its electricity using coal. But the U.S. Energy Information Administration on Wednesday released a report that said natural gas-fired plants – many converted from coal – would produce slightly more than coal-fired generators this year. In 2008, coal provided half of the US’s electricity.
In an e-mail to the press, Peabody Chief Executive Glenn Kellow said he was sure the company would continue to operate in the future. “Coal will continue to be a fundamental part of the energy mix for many decades to come.”
The U.S. Environmental Protection Agency figures suggest otherwise. It predicts that coal miners would haul 770 million metric tonnes this year, down from 990 million metric tonnes in 2015. While it’s not much of a decline, it does indicate a downward trend – and one that environmentalists hope will continue.