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Coal Giant Peabody Energy Declares Bankruptcy

ARI SHAPIRO, HOST:

The biggest private coal company in the world is declaring bankruptcy. Peabody Energy started as a delivery service in Chicago in the 1880s. Now, it's a giant in the industry, with mines from Australia to the United States. Taylor Kuykendall reports on the coal industry for S&P Global Market Intelligence and joins us now. Welcome.

TAYLOR KUYKENDALL: Thank you for having me.

SHAPIRO: What does it all mean?

KUYKENDALL: Well, so this is - just to put this in context a little bit, they own one mine that produced 109.3 million tons of coal last year. That's, you know, out of a little under 900 million produced in the whole U.S., so this is a behemoth of a coal company. It's really an iconic filing because, even though we've had a lot of coal bankruptcies in the past couple months, this is kind of the main company that I think a lot of coal's opponents have been gunning for. And to see it go into bankruptcy is just really a milestone in kind of the way that the industry's moving forward.

SHAPIRO: So you say it's been a main target of environmentalists, and it's the latest in a string of coal companies filing for bankruptcy. What's going on?

KUYKENDALL: Yeah, so it's a lot of things, and it varies by company. Of course you've got a lot of pressure from utilities that are trying to buy coal. We've regulations that threaten the company - even the threat of future relations. But there's also super-low natural gas prices, which is really what's behind a lot of coal's main problems right now. But they also have some other things that a lot of people don't talk about. For example, the past two winters have been pretty warm, so we're not burning a lot of coal. But the one that really is getting these companies is what's happened to the metallurgical coal market. Metallurgical coal is a little bit higher energy than most other coals. It's used to make steel. And basically, a lot of these companies went billions into debt, where they were betting huge on China to continue growing. And as you know, China stopped growing.

SHAPIRO: You know, we've all seen lots of airlines go through bankruptcy. And today, there are more commercial airline flights than ever. Are we seeing an actual change in the makeup of the global energy portfolio, or are we just seeing a business strategy by coal companies going through hard times?

KUYKENDALL: Right. So we're seeing a little bit of both. You're not going to see, say, for example, all of Peabody's coal go offline and not be sold to any utilities. What we're probably going to see is maybe a Peabody that comes out on the other side a little bit smaller than it is now, which makes sense because one of the biggest problems kind of plaguing the industry is that, as the demand shrank for coal, these companies didn't stop producing at the speed that they probably should have. In West Virginia, Kentucky, they continued to mine coal even when it wasn't really profitable to do so because it's expensive to shut down a coal mine. So I think what we're going to see here is not really a dramatic change, but I think you are going to see a lot of players like Peabody and others start to pull back on their production to kind of rationalize the supply and demand that's out there right now for coal in the U.S.

SHAPIRO: The company said in a statement that it expects coal demand to stabilize and continue well into the future. Do you think that's a reasonable forecast?

KUYKENDALL: The problem with forecasts is that they rely on a lot of things that we don't know about. We - whenever you see government forecasts of electricity use or fuel use, those are kind of if nothing else happens. It doesn't account for technological change or a huge new regulation or, say, like, the Sierra Club winning some victory over a coal plant. They're not accounting for those. So I think a lot of agencies might be projecting more coal use, but that also is kind of under a pretty rosy scenario and also really involves natural gas prices going back up, which I think a lot of reasonable analysts will tell you might be, you know, a few years off.

SHAPIRO: Taylor Kuykendall is a reporter with S&P Global Market Intelligence. He joined us from the studios of WVTF in Charlottesville. Thanks a lot.

KUYKENDALL: Thank you so much. Transcript provided by NPR, Copyright NPR.