The third largest coal company in the country filed for Chapter 11 bankruptcy on Friday, another sign of cheaper resources phasing out the once-thriving resource, according to analysts.
Cloud Peak Energy, headquartered in coal-rich Wyoming was one of the last remaining coal mining companies to have not yet filed for bankruptcy, Wood Mackenzie senior analyst Gregory Marmon told Utility Dive. The company currently operates three coal mines — two in Wyoming and one in Montana, which export almost 60 million tons of coal to power plants across the country.
The largest potential impact on the power sector would be if any of the company's mines were to shut down, according to Marmon, which is not "immediately" expected.
The coal industry continues to take hard hits as the formerly competitive resource becomes less so compared to natural gas and renewables.
Cloud Peak's filing follows the bankruptcy of Alpha Natural Resources, Peabody Energy and Arch Coal, all within the last four years. Because Cloud Peak was one of the last of the industry players that had not yet shed its debt, it's plausible the company was having trouble competing in a market where most everyone else had, noted Marmon.
Eight to 10 years ago, there was a "boom in coal prices" and coal companies put themselves in deep debt buying up coal reserves, Matt Preston, North American coal market research director at Wood Mackenzie, told Utility Dive.
It "seemed like a smart thing at the time, but turned out not to be so smart," he said.
Natural gas burst into the scene and as its price dropped and was anticipated to remain low "a lot of coal to gas switching occurred," said Marmon. Most plant owners "just stopped buying coal," he said. "Either their capacity factors had fallen significantly or they just were tired."
Similarly, Cloud Peak purchased large amounts of metallurgical coal reserves, a low ash, low sulfur, low phosphorus form of coal, and "there was an expectation there would be a lot of export" but "that never materialized," said Preston.
Now, utilities whose coal plants have long term contracts with Cloud Peak will need those contracts reviewed by the bankruptcy court and could be canceled if it's determined those contracts are out of money, said Marmon. That process will occur over the next several months.
The Cordero Rojo mine was flagged by the company as not turning a profit, said Marmon, so that's one area where the company could see change, but power companies, depending on their contracts, could renegotiate or find an alternative coal source, said Preston.
The mine is one of the two in Wyoming and ships lower BTU coal in an already "very limited market," said Preston, but there's still a chance another company will come along and pick it up.
"There's a considerable amount of ongoing liabilities with these operations," he said. "So even if they're sold for a penny, it's probably better for the company in the long run."