Coal mines have operated in the Illinois Basin since the 1800s, but cheap US shale gas and the rise of renewables now cast doubt over this key industry
The Illinois coal basin is one of the oldest and most productive in the US, but as the coal market continues to slump and mines continue to close, many are beginning to wonder whether the industry can overcome this latest challenge. World Mining Frontiers writer Heidi Vella looks into the current market and the future outlook for the Prairie State’s coal.
Coal was first mined along the 400-mile-long Illinois coal basin, which covers parts of Illinois, Indiana and western Kentucky, by settlers in the 1800s.
According to the Illinois Coal Association (ICA), coal was being mined in at least 52 of the region’s 102 counties by the 1900s, nine of which produced more than one million tonnes a year. Overall, it’s thought that more than 7,400 mines have operated in Illinois.
The basin, which has the second-largest coal reserves in the US, is known for producing cheap, sulphur-rich, bituminous coal.
In recent years, this soft, highly polluting type of coal has lost much of its market due to emission restrictions put on US power plants under the Obama administration. Between 2010 and the beginning of 2019, more than 546 coal-fired power units have closed, according to the US Energy Information Administration (EIA).
Despite investments in new mines and increased production announced by mining companies Foresight Energy, Peabody and Alliance Coal in 2012, and later the election of Donald Trump – who promised to ‘put coal workers back to work’ – the Illinois coal-mining industry continues to be plagued with challenges, and even tragedy.
Coal mines in Illinois were impacted by 2019 ‘bomb cyclone’ weather event
Amid already challenging market conditions, historic flood levels in early 2019 caused by a so-called “bomb cyclone” battered the Rocky Mountains with snow and the Midwest with rain, impeding Illinois-operating coal companies’ ability to move their product along the Mississippi River.
“Logistically, the floods have taken a toll on miners and producers, particularly those trying to reach the export market,” says Ellie Potter, energy and mining reporter at S&P Global Market Intelligence.
Several months later, miners are still feeling the impacts of the floods, she says, with some having to reroute their usual course.
In July, the industry was shaken further by the death of Illinois ‘King of Coal’ Christopher Cline, a billionaire coal tycoon and founder of Foresight Energy. Cline, who was well known for his efforts to revive Illinois’ mining industry, tragically died in a helicopter crash in the Bahamas, along with his daughter Kameron and five others.
Foresight Energy, which Cline founded in 2006 to manage his Illinois Basin coal rights, published losses in its last-quarter earnings in August 2019. The company highlighted one of the biggest challenges facing Illinois miners today – weakening demand due, in large part, to an influx of cheap natural gas in the market.
Coal facing competition from cheap US natural gas
Gas now accounts for a third of the US energy mix, compared with around a quarter for coal. Renewables are also gaining traction, with the EIA noting earlier in the year that renewable power had, for the first time ever, provided more power to the US grid than coal. However, despite gas eating into coal’s market share, its proponents insist it is competitive with natural gas.
But while coal might often seem cheaper or on par with gas, its competitiveness depends on its location in the market, says Matt Preston, director for thermal coal at market analysts Wood Mackenzie.
“Illinois basin coal (ILB) is favoured with some of the lowest-cost mines in the US; however, in southern Illinois, for instance, ILB might be delivered to a nearby plant for about $1.82 per million British Thermal Unit (mmbtu).
“In that same region, natural gas might be $1.55 per mmbtu [adjusted for the greater efficiency of a gas-combined cycle] and Powder River Basin (PRB) coal could be $1.87 per mmbtu,” he explains.
“ILB would seem to be slightly more competitive, but the cost of cleaning up the very high sulphur means firms will favour PRB as the most competitive, but still behind natural gas.”
US coal miners looking to export markets amid weakening home demand at home
Miners are now looking further afield to export markets, such as Asia and South America.
Foresight Energy CEO Robert Moore said recently that export demand “remains strong”, and that it will continue to provide an “economical outlet” for a significant portion of its 2019 production. It expects to export six million tonnes of its projected 19.5–20.5 million tonnes of coal.
However, in November, Foresight announced the suspension of tracking on the New York Stock Exchange due to low trading price levels.
Even the export market is proving challenging. “The fact is, global economies have slowed while coal supply has been stable to increasing, and the surplus of coal supply is depressing international prices,” says Preston.
Potter adds that some producers have benefitted from an increase in exports to growth markets such as India and South East Asia, because it has effectively reduced supply to the local market, which has been good for non-exporting companies.
However, declining international prices mean this is likely to be short lived.
“Experts have told me they expect some of that tonnage may be returned to the domestic sector, which could lead to more competition in the Illinois basin and potentially depress prices domestically,” she explains.
Closures and consolidation becoming the norm
The challenging market conditions have seen mine closures and major miners in Illinois diversifying away from coal.
Alliance Coal, which has seven mines in the region, has shifted some of its focus to oil and gas, for example, and in August the company announced it would cease coal production at its Dotiki Mine, citing “weak market conditions” as the reason.
In early August 2019, Peabody Indiana Services announced the closure of its Somerville Mine, costing 120 jobs.
Given the mine closures, falling demand and weak market conditions, experts believe it likely there will be more consolidation in the market. Foresight Energy’s Moore said earlier in the year that he expects this to happen.
However, as long as there is a market for coal, there will “likely always be a place for ILB producers,” says Preston. “In Florida, for example, ILB is the most competitive coal, even against natural gas.”
Alliance president and CEO Joseph Craft said in 2018 he believes there is adequate demand from utilities for “the tonnage we’re bringing on”, adding that thermal exports will grow another 10% or so overall, with most coming from the Illinois Basin.
Furthermore, President Donald Trump, for whom 14 coal-producing counties in Illinois overwhelmingly voted, has effectively killed former President Barack Obama’s Clean Power Plan (CPP), which would have been the final nail in the coffin for coal.
Trump has “stopped the bleeding”, by repealing the CPP, Phillip Gonet, president of the ICA, has said. However, he added that this is not going to bring back the coal plants that have shut down, but merely maintain the existing fleet.
Regardless, Preston says market forces are “doing the CPP’s job for it”. “As it turned out, market forces, [for example] low natural-gas prices, have achieved the same, or better, coal displacement than envisioned in the CPP,” he adds.
However, he notes that if Trump’s Affordable Clean Energy (ACE) Act becomes the governing regulation, coal could regain some market share if gas prices were to rise.
“There is also the possibility that the efficiency improvements envisioned in ACE compliance could result in very modest gains for coal burning generally,” he explains.
Coal mines in Illinois face an uncertain future – but location gives them an edge
The Illinois coal industry is unlikely to see a renaissance, but it remains stable – for now.
For coal’s longevity, Gonet doesn’t see renewables as a threat because the electricity storage it needs is “insanely expensive and years away” – and, he says, while natural gas prices are low, it often has problems with siting pipelines.
“Coal and nuclear are the only baseload sources that are resilient, and resiliency is an important issue – and coal can compete per British Thermal Unit (btu),” he says.
But he concedes that it is unlikely the industry will ever reach the levels of demand it saw before, and that consolidation and mine closures could happen across the country.
Its position beside the Mississippi River, however, gives Illinois coal an advantage because it can be “transported almost anywhere”, he says, with exports making up around 25% of sales in recent years.
Preston, however, doesn’t share Gonet’s positivity. He says the coal industry could “eke out a relatively stable level at current volumes”, but overall, the prospects for the industry at large are “not good”.
“Domestic demand will continue to be challenged by low natural gas prices and the steady incursion of renewables, and technological solutions to lower CO2 emissions from fossil plants are costly and years from becoming commercial,” Preston says.
“Furthermore, international markets are fickle, with the US being typically the last-in, first-out coal choice.”
Overall, it seems that the trend for decline seen in Illinois is set to continue.
This article originally appeared in the winter 2019 edition of World Mining Frontiers. The full issue can be viewed here.