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Market conditions keeping Alliance from bringing 5 million st of coal online: CEO

Poor market conditions are preventing Alliance Resource Partners from bringing online nearly 5 million st of thermal coal this year at several operations, including its new Gibson South underground mine in southern Indiana, according to Joseph Craft III, the company's president and CEO.

"Production is pretty much flat because of current market conditions," Craft told the National Association of Publicly Traded Partnerships conference in comments webcast Friday from Orlando, Florida. "We have investments at the new Gibson South mine that we haven't brought to full capacity. We have 4.7 million [st] we could bring online that the market has not allowed and we had anticipated doing this year."

Gibson South is located near Princeton in Gibson County.

Craft disclosed during Alliance's first-quarter earnings call April 29 that it would cut production by about 700,000 st for the remainder of 2015 to more closely align output with continuing weak demand.

At the time, Craft said his Tulsa, Oklahoma-based company expects production to range from 40.2 million st to 41.2 million st this year, with sales ranging from 40.75 million st to 42.65 million st.

It is not just the domestic thermal coal market that concerns Craft. Alliance, he told the Orlando conferees, "anticipated an export market that would be more robust." But US coal exports are down, he said, "due to the strong dollar."

On a brighter note, Craft said he believes there are "continued opportunities to invest in the coal business because it will continue to be the dominant supplier of fuel to the electric utility industry."

But thousands of megawatts of coal capacity are being retired by utilities to comply with US Environmental Protection Agency regulations, including its new Mercury and Air Toxics Standards rule that took effect in April.

Alliance has closely analyzed the baseload coal plants that are expected to survive, he said.

"In terms of what plants that will be left, we know we have the opportunity to supply those plants for at least 15 to 20 years," he said. "The primary issue going forward now will be the economy and natural gas prices."

Alliance believes EPA's proposed rule governing greenhouse gas emissions will not have much impact on coal "for at least the next decade," he said.

Gas prices recently have hovered around $2.50/MMBtu, resulting in some coal-to-gas switching by utilities. Craft predicted gas prices eventually will increase, improving coal's competitiveness.

"We can compete at $3 to $3.50 [/MMBtu] gas very well," he said. At that price, "coal can pick up another 20 [million] to 50 million [st] of production," perhaps as early as 2016.

According to Craft, an estimated 20 million st of Pittsburgh No. 8 seam coal production will deplete in the next five years. In the high-sulfur Illinois Basin where Alliances mainly operates, an estimated 10 million to 20 million st "will deplete or is not economic at the price curve that operators will participate."

By late this year or early 2016, reserves at the Elk Creek underground mine near Madisonville, Kentucky, operated by Alliance's Hopkins County Coal subsidiary, are expected to run out. Then, Alliance plans to move three of Elk Creek's continuous miner units to its River View underground mine in nearby Union County.

River View, he noted, is the largest underground continuous miner operation in the country, turning out more than 9 million st of high-sulfur thermal coal annually.

source: http://www.platts.com