US coal lease changes could greatly boost revenue: CEA

  • : Coal, Coking coal
  • 16/06/22

The US could bring in substantially more revenue by changing the federal coal leasing system, a report released today by the White House Council of Economic Advisors (CEA) showed.

CEA studied four scenarios, all of which showed that state and federal coffers would be at least several hundred million dollars richer in 2025 than they would be if the leasing program did not change at all. Moderate production declines as a result of the changes would be more than offset by increased collection rates and potentially higher coal prices.

The report comes in the early stages of the Interior Department's review of its federal coal leasing program and supports the notion that significant changes need to be made. According to the CEA, loopholes in the existing program have limited competition for available tracts and have resulted in a lower average royalty rate on leases.

"There is a strong case for reform here," CEA chairman Jason Furman said today.

CEA cited a 2012 Government Accountability Office report that showed the effective royalty rate on revenues from federal leases averaged 11pc that fiscal year, and in some cases was as low as 5.6pc. The current royalty rate for surface coal mines on federal land is supposed to be 12.5pc,while the rate for underground mines is 8pc.

The difference between what the government is supposed to collect and what it actually does can be traced to a number of factors. Companies may receive waivers and suspensions that lower the rates. Royalties are based on the first point of sale, and in some cases producers have sold coal to subsidiaries at a reduced rate, lowering the royalties to the government.

Companies can also deduct self-reported costs for washing and transporting coal.

By changing the program, "the potential to bring in additional revenue to the public is quite substantial," CEA said.

Three of the four options analyzed by CEA kept the 12.5pc royalty rate but used a per-Btu market delivered price, rather than the self-reported per-ton basis now used. The first option, which would assess royalties off of regional delivered coal prices, would put revenue in 2025 as much as $290mn higher than the current program with only a 3pc reduction in coal production on federal land.

The second and third options — basing rates off of either a nationwide average coal price or natural gas prices — would lead to as much as as $730mn in additional royalty revenue in 2025 with only a 7pc decline in federal coal production. But the volatility of natural gas prices could make basing royalty rates for coal on natural gas also more volatile and subject to market forces, Michael Greenstone from the University of Chicago and Brookings Institution senior fellow Adele Morris said. The two spoke at an event sponsored by Resources for the Future where CEA's report was presented.

The final option, which would increase royalty rates until revenues peaked, would bring in as much as $3.1bn more revenue in 2025, but coal production on federal lands would be 53pc lower.

The National Mining Association criticized the report as "political malpractice."

"There is no legitimate rationale for freezing coal leases and raising royalty rates on federal coal leases that are already valued above market," NMA said. "Discouraging production from federal lands and from further investment in this valuable energy resource will put at risk Americans' most reliable, abundant and affordable source of energy."

But decreased production from federal lands would be at least partially offset by gains from private property, CEA said. The increased royalty rates would prompt producers to raise prices for coal produced on federal land and that would support nationwide price increases, CEA said. It estimated that eastern coal production, including in the Illinois basin, could increase by 1pc-25pc, depending on which scenario is used.

None of the options outlined in the report are policy proposals, CEA senior economist Kenneth Gillingham said. The CEA is an agency within the executive branch that provides advice and empirical research about economic policy to the president.

Interior put a moratorium on new coal leases in January, with some exceptions, while it reviews how to change the federal coal leasing program. The complete review process is expected to take about three years.


Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

24/05/03

US met coal suppliers expect belated supply tensions

US met coal suppliers expect belated supply tensions

London, 3 May (Argus) — US coking coal prices have so far brushed off any impact of the collapse of the Francis Scott Key bridge in Baltimore on 26 March and the subsequent disruption of vessel traffic via the Port of Baltimore. Suppliers such as Arch Resources and Blackhawk that utilise the Baltimore shipping route have sought effective alternative arrangements so far and buyers have been largely comfortable despite some delays in laycans. Other suppliers such as Northern Appalachia's largest producer, Consol Energy's Bailey mine , which is a key supplier to Atlantic end-users, have faced more challenges, market participants suggest. The decline in fob Australia coal prices from last year's highs amid improved supply availability has also weighed on prices. The Argus assessed premium low-volatile coking coal fob Australia price was at $242.80/t on 3 May, largely unchanged from $254/t on 26 March after reaching a low of $224/t on 8 April. The US east coast prices have followed a similar trajectory, with low-volatile fob US east coast at $215/t today down from $220/t on 26 March after falling to a low in April. Low European demand has been one of the reasons behind the tepid response to coking coal shipment delays from the US. But with expectations of at least some recovery in the second half of 2024 and still no firm date on when the Baltimore traffic will return to normal, some US suppliers suggest coking coal prices may face some upward pressure later this year. Luxembourg-based steelmaker ArcelorMittal has kept its apparent steel demand outlook in Europe unchanged for 2024, expecting a growth of 2-4pc on the year . European steel association Eurofer downgraded its apparent steel consumption outlook for 2024 again , to 3.2pc from a previous forecast of 5.6pc, owing to worsening geopolitical tensions, economic uncertainty, energy prices, inflation and higher interest rates. But this would still be an improvement from a 9pc fall in steel consumption in 2023. There is also optimism among US coal suppliers that Brazil may be a source of renewed demand in the coming months with domestic steel production expected to improve. The Brazilian government is due to increase taxes for some imported steel products after facing pressure from the domestic steel industry to apply tariffs on imports, in particular on Chinese steel. Taxes will be increased to 25pc on 11 steel products — mainly flat rolled — contingent on such import levels exceeding prescribed quotas, the trade ministry's committee on foreign commerce, Gecex/Camex, said. Brazil's crude steel output reached 31.9mn t in 2023, down by 6.5pc on the year, World Steel Association data show. In the US, the fall in seaborne met coal prices also points to potential consolidation in the sector and the possibility of supplies tightening down the road. Industry participants highlight that some of the small and mid-sized mining operations that have emerged in the past two years amid a strong price environment are struggling. Bens Creek Group, which operates the Bens Creek Mining project in West Virigina with around 30,000-35,000st (27,200-31,800t) per month of coking coal output, filed for Chapter 11 bankruptcy in April. The year-to-date average price of high-volatile A for 2024 stands at $242.62/t fob Hampton Roads and is estimated to be above production costs for some of these mines. In 2022, high-volatile A prices averaged $347.81/t fob Hampton Roads, driven by a combination of market concerns over the Russia-Ukraine conflict and supply disruptions in Australia. While Russian coking coal remains available and competitively priced in the market, in particular a key supply source for China, US sanctions will continue to put pressure on major coal importers such as India and South Korea to reduce their Russian imports. The US announced fresh sanctions against Russian coal producer Sibanthracite's group of companies earlier this week. By Siew Hua Seah Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Canadian rail workers vote to launch strike: Correction


24/05/02
24/05/02

Canadian rail workers vote to launch strike: Correction

Corrects movement of grain loadings from a year earlier in final paragraph. Washington, 2 May (Argus) — Workers at the two major Canadian railroads could go on strike as soon as 22 May now that members of the Teamsters Canada Rail Conference (TCRC) have authorized a strike, potentially causing widespread disruption to shipments of commodities such as crude, coal and grain. A strike could disrupt rail traffic not only in Canada but also in the US and Mexico because trains would not be able to leave, nor could shipments enter into Canada. This labor action could be far more impactful than recent strikes because it would affect Canadian National (CN) and Canadian Pacific Kansas City (CPKC) at the same time. Union members at Canadian railroads have gone on strike individually in the past, which has left one of the two carriers to continue operating and handle some of their competitor's freight. But TCRC members completed a vote yesterday about whether to initiate a strike action at each carrier. The union represents about 9,300 workers employed at the two railroads. Roughly 98pc of union members that participated voted in favor of a strike beginning as early as 22 May, the union said. The union said talks are at an impasse. "After six months of negotiations with both companies, we are no closer to reaching a settlement than when we first began, TCRC president Paul Boucher said. Boucher warned that "a simultaneous work stoppage at both CN and CPKC would disrupt supply chains on a scale Canada has likely never experienced." He added that the union does not want to provoke a rail crisis and wants to avoid a work stoppage. The union has argued that the railroads' proposals would harm safety practices. It has also sought an improved work-life balance. But CN and CPKC said the union continues to reject their proposals. CPKC "is committed to negotiating in good faith and responding to our employees' desire for higher pay and improved work-life balance, while respecting the best interests of all our railroaders, their families, our customers, and the North American economy." CN said it wants a contract that addresses the work life balance and productivity, benefiting the company and employees. But even when CN "proposed a solution that would not touch duty-rest rules, the union has rejected it," the railroad said. Canadian commodity volume has fallen this year with only rail shipments of chemicals, petroleum and petroleum products, and non-metallic minerals rising, Association of American Railroads (AAR) data show. Volume data includes cars loaded in the US by Canadian carriers. Coal traffic dropped by 11pc during the 17 weeks ended on 27 April compared with a year earlier, AAR data show. Loadings of motor vehicles and parts have fallen by 5.2pc. CN and CPKC grain loadings fell by 4.3pc from a year earlier, while shipment of farm products and food fell by 9.3pc. By Abby Caplan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Japan's trading firms see metals prices cutting profits


24/05/02
24/05/02

Japan's trading firms see metals prices cutting profits

Tokyo, 2 May (Argus) — Major Japanese trading houses are expecting lower profits from their metals businesses during the April 2024-March 2025 fiscal year, mostly because of lower prices of commodities such as iron ore and coking coal . Japanese trading house Mitsui forecast profits for its metal and natural resource business falling by 14pc on the year to ¥290bn ($1.87bn) during 2024-25, primarily because of lower iron ore prices. Mitsui plans to cut iron ore output by 0.3pc on the year to 60.9mn t at its mining projects where the company owns production ri ghts or a production stake during 2024-25 . This includes the joint venture project Robe River in Australia with Australian iron ore producer Rio Tinto. Japanese trading house Sojitz also expects profits from its metal and natural resource business to decline to ¥35bn, down by 20pc on the year, mostly because of a bearish coking coal market. The company said its overall coal business can cut production costs during 2024-25, partly because it plans larger-scale output at the Gregory Crinum coking coal mine in Australia, without disclosing further details. But Sojitz said it cannot generate higher profits because of lower coking coal prices. The trading house expects the average coking coal price to fall to $230/t during 2024-25, according to the company's chief financial officer Makoto Shibuya, down by $57/t from a year earlier. The company reiterated that the price is not necessarily their selling price. Sumitomo expects profits from its natural resource business would remain flat at ¥72bn on the year, mostly as its nickel production in Madagascar recovers from the output cuts in 2023 , with an aim to produce 19,000t of nickel during 2024-25, up by 9.8pc on the year. A rebound in nickel production could offset possible losses from coal and coking coal prices falling to $266/t and $133/t respectively in the ordinary market, down by $21 and $9, according to the trading house. Sumitomo plans to increase coking coal production by 9.1pc to 1.2mn t but reduce coal output by 4.8pc to 4mn t during 2024-25. By Yusuke Maekawa Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US southbound barge demand falls off earlier than usual


24/05/01
24/05/01

US southbound barge demand falls off earlier than usual

Houston, 1 May (Argus) — Southbound barge rates in the US have fallen on unseasonably low demand because of increased competition in the international grain market. Rates for voyages down river have deteriorated to "unsustainable" levels, said American Commercial Barge Line. Southbound rates declined in April to an average tariff of 284pc across all rivers this April, according to the US Department of Agriculture (USDA), which is below breakeven levels for many barge carriers. Rates typically do not fall below a 300pc tariff until May or June. Southbound freight values for May are expected to hold steady or move lower, said sources this week. Southbound activity has increased recently because of the low rates, but not enough to push prices up. The US has already sold 84pc of its forecast corn exports and 89pc of forecast soybean exports with only five months left until the end of the corn and soybean marketing year, according to the USDA. US corn and soybean prices have come down since the beginning of the year in order to stay competitive with other origins. The USDA lowered its forecast for US soybean exports by 545,000t in its April report as soybeans from Brazil and Argentina were more competitively priced. US farmers are holding onto more of their harvest from last year because of low crop prices, curbing exports. Prompt CBOT corn futures averaged $435/bushel in April, down 34pc from April 2023. Weak southbound demand could last until fall when the US enters harvest season and exports ramp up southbound barge demand. Major agriculture-producing countries such as Argentina and Brazil are expected to export their grain harvest before the US. Brazil has finished planting corn on time . unlike last year. The US may face less competition from Brazil in the fall as a result. Carriers are tying up barges earlier than usual to avoid losses on southbound barge voyages. Carriers that have already parked their barges will take their time re-entering the market unless tariffs become profitable again. The carriers who remain on the river will gain more southbound market share and possibly more northbound spot interest. By Meghan Yoyotte and Eduardo Gonzalez Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

G7 coal exit goal puts focus on Germany, Japan and US


24/05/01
24/05/01

G7 coal exit goal puts focus on Germany, Japan and US

London, 1 May (Argus) — A G7 countries commitment to phase out "unabated coal power generation" by 2035 focuses attention on Germany, Japan and the US for charting a concrete coal-exit path, but provides some flexibility on timelines. The G7 commitment does not mark a departure from the previous course and provides a caveat by stating the unabated coal exit will take place by 2035 or "in a timeline consistent with keeping a limit of 1.5°C temperature rise within reach, in line with countries' net-zero pathways". The G7 countries are Italy — this year's host — Canada, France, Germany, Japan, the UK and the US. The EU is a non-enumerated member. The announcement calls for accelerating "efforts towards the phase-out of unabated coal power generation", but does not suggest policy action. It calls for reducing "as much as possible", providing room for manoeuvre to Germany, Japan and the US. Coal exports are not mentioned in the communique. Canada and the US are net coal exporters. France, which predominantly uses nuclear power in its generation mix is already scheduled to close its two remaining coal plants by the end of this year. The UK will shut its last coal-fired plant Ratcliffe in September . Italy has ended its emergency "coal maximisation plan" and has been less reliant on coal-fired generation, except in Sardinia . The country has 6GW of installed coal-fired power capacity, with state-controlled utility Enel operating 4.7GW of this. The operator said it wanted to shut all its coal-fired plants by 2027. Canada announced a coal exit by 2030 in 2016 and currently has 4.7GW of operational coal-fired capacity. In 2021-23, the country imported an average of 5.7mn t of coal each year, mainly from the US. Germany Germany has a legal obligation to shut down all its coal plants by 2038, but the country's nuclear fleet retirement in 2023, coupled with LNG shortages after Russia's invasion of Ukraine, led to an increase in coal use. Germany pushed for an informal target to phase out coal by 2030, but the grid regulator Bnetza's timeline still anticipates the last units going offline in 2038. The G7 agreement puts into questions how the country will treat its current reliance on coal as a backup fuel. The grid regulator requires "systematically relevant" coal plants to remain available as emergency power sources until the end of March 2031 . Germany generated 9.5TWh of electricity from hard-coal fired generation so far this year, according to European grid operator association Entso-E. Extending the current rate of generation, Germany's theoretical coal burn could reach about 8.8mn t. Japan Japan's operational coal capacity has increased since 2022, with over 3GW of new units connected to the grid, according to the latest analysis by Global Energy Monitor (GEM). Less than 5pc of Japan's operational coal fleet has a planned retirement year, and these comprise the oldest and least efficient plants. Coal capacity built in the last decade, following the Fukushima disaster, is unlikely to receive a retirement date without a country-wide policy that calls for a coal exit. Returning nuclear fleet capacity is curtailing any additional coal-fired generation in Japan , but it will have to build equivalent capacity to replace its 53GW of coal generation. And, according to IEA figures, Japan will only boost renewables up to 24pc until 2030. The US The US operates the third-largest coal-power generation fleet in the world, with 212GW operational capacity. Only 37pc of this capacity has a known retirement date before 2031. After 2031, the US will have to retire coal-fired capacity at a rate of 33GW/yr for four years to be able to meet the 2035 phase-out deadline. By Ashima Sharma Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more