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Murray’s move to metallurgical coal marks industry shift

April 3, 2019

West Virginia’s largest producer of coal for power plants is moving into the metallurgical coal market.

If that’s not an indication of change in the industry, what is?

Last week, Murray Energy Corp., which is based in St. Clairsville, Ohio, announced it was the successful bidder for three met coal mine complexes in West Virginia and Alabama formerly owned by Mission Coal Co.

Murray has formed a new subsidiary company called Murray Metallurgical Holdings LLC with Javelin Global Commodities to own and operate the mines. Murray will be the majority owners of the LLC. The sale must be approved by the bankruptcy court handling the Mission bankruptcy.

“Murray Energy’s acquisition of the Mission Assets provides a significant entrance into the metallurgical coal market, allowing for diversification of its portfolio of quality mining assets,” Murray Energy said in a statement announcing the acquisition. “The Mission Assets will benefit from Murray Energy’s best-in-class longwall mining and operational expertise that will further enhance the value of these high quality metallurgical coal properties. Additionally, this acquisition leverages Javelin’s existing global marketing platform, bringing further value to these newly acquired assets.”

Murray Energy was founded on the strategy of acquiring coal mines near power plants. As coal has fallen out of favor for generating power, Murray has had to change its strategy.

Figures released recently by the Energy Information Administration show how much coal’s share of the energy market has diminished. In 2008, power plants purchased about 463.9 million tons of bituminous coal, the kind mined in West Virginia. By 2018, that amount had fallen to 205.1 million.

The price has likewise fallen for thermal bituminous coal, from $59.92 per ton in 2008 to $39.27 in 2017. Numbers for 2018 were not available, according to the EIA.

Meanwhile, power plants’ use of natural gas increased from 7.8 trillion cubic feet to 10 trillion in that same time, with the price dropping from $9.26 per thousand cubic feet in 2008 to $3.49 in 2017. Industry analysts say gas is more competitive than coal for power generation when it’s in the $3 to $3.50 range, which is where it’s been since 2015. Perhaps by coincidence, 2015 saw a large number of older, smaller, less-efficient coal-fired power plant retirements.

In West Virginia, coal still dominates the power generation market, but it’s the exception in this region. All five of our neighboring states have seen the amount of electricity generated by coal decrease by 50 percent or more while they have increased their generation from natural gas.

Although West Virginia has increased its electricity production from natural gas in the past decade, the state produces more power from hydroelectric plants and wind farms than it does from gas, despite the amount of gas produced in the Marcellus shale fields in the northern part of the state.

West Virginia, Pennsylvania and Ohio have increased their production of power from wind, while Maryland, Virginia and Kentucky lag behind. None of these states produces significant amounts of power from solar sources, although North Carolina does. This goes back to the weather and topological features of the states, among other things.

It’s been known for years that thermal coal is not the future of the coal industry. The met coal market can change, but right now it’s where the action is. Murray Energy’s shift in strategy should let us know where the money is going.

People who expect thermal coal to carry the state in the future should plan accordingly.