The U.S. coal industry already took one hard hit this month, when federal regulators appointed by President Donald Trump turned down a request to protect aging coal power plants. Now the President is poised to deal a knockout blow to beleaguered coal stakeholders. Trump is widely expected to pull the country out of NAFTA, the North American Free Trade Agreement, a move that is all but certain to lower the cost of natural gas and kill the market for coal power generation in the US.
With friends like these…
The first blow was a January 9 decision by FERC, the Federal Energy Regulatory Commission.
FERC is composed of five commissioners, four of whom are Trump appointees. On Monday January 9, they voted unanimously to turn down a new rate structure proposal from Energy Secretary Rick Perry. The proposal was tailored to protect aging coal and nuclear energy plants, even if more economical alternatives are available.
The FERC decision effectively yanked away one of coal’s last remaining lifelines.
More economical alternatives — low cost natural gas and renewable energy — are already available. Natural gas has been knocking scores of coal power plants off the charts in recent years, and renewables are also beginning to compete in some markets.
NAFTA on the chopping block
If Trump decides to pull the U.S. out of NAFTA, coal would lose another lifeline: the export market for natural gas.
This one is a little more complicated than the FERC decision, but bear with me.
The Bush administration touched off a boom in U.S. shale gas production when it created a gaping loophole in federal water safety regulations. Even though Obama’s EPA struggled to close the loophole, the boom has continued.
The result has been a flood of inexpensive natural gas in the domestic energy market. Aside from enabling gas to roll over coal for power generation, the low cost makes gas an attractive product for export.
Gas stakeholders successfully lobbied the Obama administration to begin relaxing restrictions on natural gas exports. The effect has been to prevent domestic gas prices from falling further.
In sum, gas exports are one of the few remaining factors that enable the U.S. coal industry to compete for power generation. Cutting the flow of gas out of the U.S. would set coal back on its heels.
Our friends over at eenews.com provide a good rundown on the natural gas export issue. Do read the piece for full details. For those of you on the go, reporter Peter Behr makes this point:
U.S. natural gas pipeline exports have doubled since 2009, according to the U.S. Energy Information Administration, almost all the growth taken in by Mexico, which is relying on U.S. gas to power its increasing electrification…
Behr also notes that although NAFTA is credited with an across-the-board $64 billion trade deficit with Mexico in 2016, the U.S. actually came out ahead in the energy sector.
That includes refined petroleum products as well as natural gas. As TriplePundit’s Jan Lee described last fall, a NAFTA pullout would harm all three fossil fuel stakeholders: coal, petroleum and natural gas.
Behr also describes how U.S. gas stakeholders are gearing up for a significant hike in production. According to one analyst, a glut fueled by NAFTA withdrawal could send gas prices spiraling below $3.00 per thousand cubic feet, pushing more coal power plants out of the picture.
The President has been threatening all year to pull out of NAFTA, and a consensus is building that he will do it, at least partially.
Reuters scooped the news on January 10:
Canada is increasingly convinced that President Donald Trump will soon announce the United States intends to pull out of NAFTA, two government sources said on Wednesday…
The ripple effect, Reuters reports, is already spreading to Mexico:
Mexico will leave the NAFTA negotiating table if U.S. President Donald Trump decides to trigger a 6-month process to withdraw from the trade pact, three Mexican sources with knowledge of the talks told Reuters on Wednesday.
NAFTA critics have pointed to a number of shortcomings since its inception in 1994. However, for all its faults NAFTA has been the way of the world for more than 20 years, and U.S. companies have adjusted to work within that framework.
Almost nobody is in favor of a NAFTA pullout, and Trump would have ample support from both sides of the aisle if he stays at the negotiating table.
On the other hand, Trump’s recent decision to open up the Atlantic coast to offshore drilling is a clear demonstration that he intends to stick to his campaign promises, if only in a temporary and superficial way.
After all, shortly after announcing the new offshore drilling policy, Trump’s administration granted an exemption to Florida.
The U.S. coal industry still exports a relatively large amount of coal to Mexico and Canada, so perhaps Trump will engineer a NAFTA carve-out for coal as well as natural gas and petroleum.
Based on his presidential track record, though, the picture looks gloomy. In addition to coal power plant closures on Trump’s watch, the industry has suffered another bankruptcy announcement and at least one coal mine closure.
Image (screenshot): US Department of Energy.