Jason Colodne Speaks with Emily Medine on the Future of the Coal Industry

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Over the last four years, the coal industry has witnessed an ongoing transformation on a global scale – from decreased demand in the US to growing fuel needs in Asia and rising concerns about climate change. A fuel source once viewed as a symbol of political strength and energy independence now carries a negative connotation as a result of how carbon emissions are impacting the environment. In this interview, Jason Colodne, Managing Partner at Colbeck Capital Management, speaks with Emily Medine, Principle in the coal practice at Energy Ventures Analysis (EVA), to discuss the historical changes in the industry, the challenges that the industry faces today, and where she finds hope for the future of the industry.


Emily Medine received her BA from Clark University, followed by her MPA (focus on Domestic Energy Policy) from Princeton University. Today, she works with EVA, an internationally recognized energy consulting firm that specializes in providing clients with industry leading energy consulting services and publications. As a Principal in coal practice, Ms. Medine is responsible for advising coal consumers on developing and implementing fuel procurement strategies. She also serves as an advisor for the sales and acquisition of coal-related assets and develops forecasts of U.S. and global solid fuel demand and prices for alternative coal types, coke, and market segments. She is known for her expertise in bankruptcy support, contract negotiation, procurement audits, investment analysis, and in-depth strategic studies.


Jason Colodne: You started working in the coal industry over thirty years ago. The landscape of the energy industry was very different then. Can you talk about what was happening in the world when you started your profession?

Emily Medine: I was attending graduate school at Princeton University from 1976 to 1978, where I was studying for my MPA. At this time, the problems in energy were relatively new. Just five years prior, we experienced the Arab Oil Embargo of 1973, which forced the US to reassess its dependence on Middle Eastern oil. During the seventies, and more particularly during the Carter administration, new policies were put forth to explore opportunities to utilize coal as the chief source of energy for the US, which would provide the US with the independence it wanted. Some of my early projects included consulting with the Department of Energy to determine whether an existing plant used to burn oil should be converted back to a coal plant.


As you can see, these were much different times, and the industry has changed drastically over the years.


Colodne: More recently, the coal industry has been faced with a multitude of new challenges. What do you believe are some of the toughest challenges the industry faces?

Medine: One of the most prevalent challenges that the coal industry faces is a decrease in demand, which is primarily caused by warming climates and the reduced demand for natural gas that follows. Over the last few years, we have seen global temperatures rise, making our winters milder. This has resulted in a decline in demand for power since consumers do not need as much fuel to warm their homes. Furthermore, the reduced need for heating power has reduced the need for natural gas in the residential, commercial, and industrial sectors, which has resulted in a decline in the price of natural gas, which has further displaced coal generation. Essentially, the change in temperature has had a domino effect on the demand for coal as natural gas became a cheaper source of energy.


Colodne: Where is the demand for coal today?

Medine: Not all economies are similar to the US, where demand for coal is declining. Last year, there were about 1.5 billion metric tons in the market of coal trading, which was not much of a decline compared to previous years. While we are seeing places such as the United States and Europe decrease demand, developing countries in Asia represent a rising annual demand. In Asia, there is still coal-fired power generation being built, and Vietnam hosts the largest new production facilities for blast furnace steel production, which is reliant on met coal.

The growing demand in Asia has actually offset the decline in the US demand as we increase our ability to grow our exports. In 2018, for example, the US exported over 120 million short tons of coal, and over 100 million short tons in 2019. All the same, we expect that Asian countries will eventually follow the path the west has taken and eventually will witness the same declines in demand.


Colodne: Has COVID-19 played a role in shifting coal demand in the US?

Medine: The coronavirus has exacerbated the existing problems. The virus, which has created a weakened global economy, has caused even more decline in demand. In addition, the US particularly is being hurt by the strength of the US dollar. Since all global trade is US dollar denominated, the stronger the dollar, the lower the global coal price. However, a strong US dollar also hurts our export capability because foreign consumers must pay more for US exports.


Colodne: Coal accounts for 23.5% of the electricity produced today. This marks a steep decline from 2014, when coal powered 39% of electricity. Do you anticipate this falling further?

Medine: This depends on a few factors. For one, we are currently seeing pretty flat demand for utility generation. But if there is successful penetration of electric vehicles in the market, then demand will grow. Second, there are dozens of nuclear plants with the intent to operate for eighty years – there is an expectation that they will not be able to continue operations that long, and the gap from the nuclear shortage will increase demand. And, third, it depends on the gas market. Gas prices are volatile and are impacted by international affairs.

So, I do see that there’s potentially a role for coal. There’s a lot of work going on through the Department of Energy in trying to figure out smaller coal plants that could be more nimble and behave more like gas plants in responding to the market. Ultimately, it comes down to what happens to the price of gas long-term.


Colodne: I have also heard that the market for financing has changed over the last ten years. Can you speak more to that?

Medine: Ultimately, there is no money available to the coal industry. Both large and small corporations are having difficulty attracting capital, and much of it ESG-related. ESG helps companies better determine the future financial performance of an investment by assessing three types of factors: environmental, governmental, and social. As a result of those assessments, we are seeing companies exit the industry on a global scale. In 2018, Rio Tinto closed their last mine; more recently, BHP, Angelo, American, and Glencore have also announced their intentions to reduce their presence in the industry. It is worth noting that there are more international companies exiting than US companies.


Colodne: You mentioned more international companies are exiting the market. What do you think is preventing more US companies from following suit?

Medine: First off, we have to look at where the capital is coming from that keeps the US operations alive. There are opportunistic companies that are looking to US coal producers and seeing future potential. This is primarily because some investors believe in met coal because it is currently valued much lower than it would be if coal prices were higher.

The real reason, though, has to do with mine reclamation, which is the process of retiring coal mines and restoring the land to a usable state.

When a company obtains a mine permit, it must also demonstrate to the regulatory board that it has a surety bond in the amount determined by the state. These bonds are expected to cover the reclamation liability amount. But when you stop mid-mine, the process becomes more complicated. The cost to reclaim the land is higher compared to what it would be if the mining was complete, so the surety bond does not necessarily cover the costs. Additionally, when a company must utilize a surety bond, their permit is forfeited. The caveat to this is that once you forfeit a permit, your company’s executives, board of directors, and owners who hold 10% or more stake in the company are placed in the applicant violator system, which prevents an identified party from obtaining a new permit or modifying an existing permit.

The consequences of reclamation inhibit companies in the US from proceeding with the act of closing down a mine; instead, companies continue to operate even when demand is not there. A prime example of this happening is the Powder Riven Basin, which produced over 500 million tons of coal at its prime and which today produces around 300 million tons. Even though demand has more than twice declined, operation continues because the reclamation liability is too much – companies in these situations find that it makes more financial sense to continue to operate and turn zero profit than it does to close their doors and pay the consequences.

I believe that the system in place needs to change. Mines need to be able to close responsibly so that the remaining companies in the market can be healthier.


Colodne: In the US, coal plants have been around for over forty years, while in some countries such as Indonesia and the Philippines, a new wave of plants is being built. What, if anything, can these newer operations learn from the US industry?

Medine: They can learn to focus on carbon capture. Historically, the industry has done a phenomenal job of dealing with traditional pollutants such as sulfur dioxide and particulate matter, but it had not considered the long-term impacts of carbon emissions.

We are even seeing this in the US today, where existing plants are undergoing retrofitting operations for carbon capture. In Texas, the old Parish #8 plant retrofitted a 240-megawatt carbon capture system and is now the largest carbon capture facility in the world. More recently, the Department of Energy provided grants to five plants, including Prairie State in Illinois, San Juan Generating Station in New Mexico, Dry Fork Station in Wyoming, the Gerald Gentleman plant in Nebraska, and the Young plant in North Dakota, which will allow them to complete retrofits to improve carbon capture.

In essence, we just need to start thinking forward. There is an enormous amount of coal generation globally, and any action to reduce its impact on our environment should be considered.


Colodne: What advice would you give to current investors?

Medine: We are in a unique market, and I believe there is opportunity. Investors have the ability to get in and buy low, particularly for met coal where prices could rise significantly. But they need to remember to look at the fundamentals of each company before committing to an acquisition. They need to ensure they are prepared for the future market swings.

Investors should also always consider the long-term controversial nature of coal and carbon and look for opportunities to invest in those companies that are taking steps to reduce their carbon footprints. This could be in the form of new plants or retrofitted plants that focus on carbon capture. But this could also be looking at those plants that are focused on resolving the carbon issues by offsetting it in another industry. People are getting creative, and instead of just looking at reducing emission, they are looking at positive actions they can take to offset the impact of their products – for example, building an ecosystem that mimics the carbon-capturing ability of the Amazon, or developing a technology that conducts carbon capture via direct air capture.


These creative innovations are what will allow the coal industry to progress while addressing the carbon emission problem. I really do hope that progress continues because we need to identify a global solution to the many challenges mentioned earlier.

Read more about Jason Colodne’s career on Prabook.