Wednesday, April 13, 2016

World’s Largest Coal Company in Bankruptcy

Fossil fuel producers thought they would be safe for a few more decades while sustainable energy sources ramped up slowly. They were right about the slow pace of sustainable energy coming online. Solar power, for example, is only 1 percent of U.S. electric production, and solar probably will not reach 10 percent before 2020. That is little consolation, though, to fossil fuel producers in the middle of an unprecedented string of bankruptcies.

Today it was the turn of the world’s largest coal producer, Peabody Energy, to file for bankruptcy protection (press release PDF). Besides its mining interests, Peabody Energy is involved in coal trading, and it is harder to be a trader in a commodity whose value is steadily declining. The company has been operating at a loss for more than a year and has no realistic prospect of paying the debts it took on to buy many of its coal mines. If the public interest is considered in bankruptcy, the creditors will get only a token payment while the coal mining assets are preserved to pay the inevitable costs of mine decommissioning.

Peabody Energy had tried to sell some of its coal mines to improve its liquidity, but those deals fell through when prospective buyers could not arrange financing. Banks in general are no longer willing to fund purchases of coal mines, and the largest U.S. banks are already overextended in the energy sector and facing losses from nonperforming loans. It was when the pending sales fell through that Peabody Energy declared bankruptcy.

Coal mining will continue for decades to come in the United States but is not likely ever to return to the rapid pace of extraction seen a couple of years ago.