The US coal industry's road to recovery must be paved with consolidation, wiser capital investments and clearer contracts, Jim McCaffrey, senior vice president of energy marketing at CNX Coal Resources, said Friday.
Speaking during the final day of the Eastern Fuel Buyers Conference in Orlando, Florida, McCaffrey said natural gas prices will rise, and coal will come back, hopefully with more than the 650 million-700 million st/year thermal demand some have predicted.
And to take better advantage of coal's recovery, the industry must downsize, McCaffrey said, noting a smaller industry will be a stronger industry.
"I think the focus needs to be on regional consolidation rather than national diversification," he said. "Obviously, we have companies that are bankrupt, we have companies that aren't. I like to say every company in the coal industry has reorganized. Some have done it with the help of the courts, some have done it without the help of the courts, and I think that reorganization will continue."
Producers will also need to spend their money wiser, especially with less capital and lending available. McCaffrey noted that the large billion-deal deals done during the industry's heyday years ago led to massive debt many companies couldn't cover, and that debt load caused major bankruptcies.
McCaffrey also urged both producers and utilities to improve their coal production and demand forecasting so the sides can create contracts that can meet committments.
"I know we have, I know my competitors have gone to great lengths to try to be as creative as possible with contracts, to provide as much optionality and flexibility and the ability to carry over; we need your help now," McCaffery said to the utilities in attendance.
"We need better forecasting," he said. "You struggle in your groups with your forecasting as well, but we got to get better because contracts need to mean what they say.
"We don't have enough flexibility to live outside our contracts, especially in this time where it's difficult to get capital and to continue forward operating with low margins."
