Consol sale shakes up coal industry

Consol Energy has announced the sale of its five steam coal producing mines, all in West Virginia.  Ohio-based Murray Energy is buying the mines and related assets in a deal worth $3.5 billion.

Consol is shifting its emphasis to natural gas production from the Marcellus and Utica Shale reserves.

This is far more than back page business news. When a company that has been in the coal mining business for 150 years announces it is shifting away from coal as its primary growth industry, you know the energy production landscape is changing.

“Getting out of the coal business would mark a historic pivot for the company,” reported the Wall Street Journal two weeks ago, “and would mirror a national trend toward greater reliance on cheaper, cleaner-burning natural gas.”

Consol President Nick Deluliis said on Metronews Talkline Monday that steam coal production is profitable and stable, “but it is not a growth story… in part because of regulations (and the) impact they may have on power plant retirements.”

The EPA’s attempt to address climate change by limiting carbon emissions from coal-fired power plants will make it virtually impossible to build such a plant in the future.  Also, the EPA is drafting regulations due out next year curbing CO2 at existing power plants.

Simultaneously, hydraulic fracturing technology is allowing drillers to reach enormous deposits of natural gas that were previously inaccessible.  That has driven down the price and encouraged utilities to switch from coal to gas.

Consol is under shareholder pressure for higher returns.  The stock has lost one-third of its value since 2011.  Deluliss says the company believes the shift away from coal to more natural gas production will answer investors’ demands.

“Natural gas is a growth outlet for the company, whereas the thermal markets for coal, although they are stable, they are not growth, at least they are not growth in the foreseeable future,” Deluliss said.

Coal industry officials want to look at the story as the glass being half-full. After all, the buyer of the Consol mines, Robert Murray and Murray Energy, must believe steam coal still has a future.

Additionally, Murray Energy is a privately held company, meaning it does not have to respond to the whims of investors who are focused on stock prices.

Also, Consol is quick to add that the transaction will be a net gain for West Virginia.  “We’re looking at $14 billion in cumulative capital investments [that] will go into that state in the next ten years,” Deluliss said.

Still, the Consol sale is a startling indication of just how much the coal industry is changing.

 

 

 

 

 





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