Coal Age

JAN-FEB 2017

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20 January-February 2017 Forecast 2017 The Outlook for Coal Improves Optimism returns to an industry ravaged by hostile regulatory overreach by steve fiscor, publisher & editor-in-chief What a difference a year makes. A year ago, the outlook was incredibly bleak. Most of the news reverberating through the coal business were bankruptcies and notices of layoffs as U.S. coal production took a nose dive. The question was not whether 2016 would be a bad year for coal operators, but how bad? Utility coal consumption declined again in 2016 as coal continued to face stiff competition from natural gas. As the year wore on, the tide started to turn for the coal business. Even though the courts ruled against the Environmen- tal Protection Agency's (EPA) regulatory approach and the Clean Power Plan (CPP), the Obama administration, an adminis- tration that was hostile toward the coal business for eight years, placed a full-court press on the industry in its final months. A collective sigh of relief could be heard throughout the coalfields with the out- come of the election. The thought of four more years of regulatory overreach under a Democratic-led administration was simply too much to bear. The Obama administra- tion continued to lash out at the coal busi- ness until the 11 th hour, pushing through a stream protection rule even though it knew it would be reversed. Every January, Coal Age publishes its Annual Forecast based on a survey of its readership. The informal study gives an as- sessment of the current market situation, as well as the state of mind of coal operators. Based on that information and anecdotal in- formation from the leading coal companies and the Energy Information Administration (EIA), Coal Age attempts to identify trends. In last year's Annual Forecast, Coal Age could not fathom how far total U.S. coal production would drop. The industry had already sustained its largest drop since 1986 in 2015 (11%) to slightly more than 900 mil- lion tons. At the time, the EIA said it expected production to fall by 4% to 852 million tons in 2016. U.S. coal production actually dropped 17% to 743 million tons, the lowest level since 1978. Production in all major coal-producing regions dropped by at least 10%. Hopefully an increase in production in 2017 will end an eight-year decline from peak production in 2008. For that to hap- pen, however, a few things have to work in favor of the coal industry, and the recent political changes are a step in the right direction. Providing regulatory relief to ex- isting coal-fired utilities will help. Growing the economy and retooling factories will increase demand for electricity. In addition to supply and demand fundamentals, the survey also asked coal operators about their feelings, the amount of money they plan to spend this year, and how they intend to spend it. After waging war with Washington for the last eight years, they now feel a renewed sense of optimism. The American coal operator is more hope- ful now. They have money to invest in proj- ects and they are expecting production to grow in 2017 and more so in 2018. The survey also asked them to rank issues affecting the industry. A similar open-ended question, designed to gauge the reaction from the election, elicited an Figure 2 — Capital Expenditures How will the mine spend the money? What is the capital expenditure budget for 2017? Less than $10 million 32% $10-$25 million 20% $25-$50 million 11% $50-$100 million 13% More than $100 million 24% For 2017, will capital expenditures: Increase 40% No change 27% Decrease 33% 0 10 20 30 40 50 60 70 80 Mine Development 62% Permitting & Bonding 52% New Equipment 51% Equipment Upgrade 46% Used Equipment 36% Technology Upgrades 33% Exploration 26% Ventilation Systems 23% Quality Control 16% Plant Additions 15% Reclaim Systems 15% New Mine Startup 11% Other 7% New Plant Construction 3% Figure 1 — Production, Consumption and Attitude

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