Energy security concerns and surging prices could give coal industry a new lease on life

The chief executive of an American coal company couldn't find the words to describe how commodity prices in his industry have increased to sky-high levels.

The value of coal has increased 10-fold, from about $50 US per tonne to $500 over a two-month span, said Ernie Thrasher with Xcoal Energy & Resources, while on stage at the CERAWeek energy conference in Houston last week.

"There's just not enough to go around," he said. 

"People are scrambling."

The Russian invasion of Ukraine has had an impact on many commodities, from oil to wheat, but the ripple effect may be the most substantial for the coal industry. The surging price and energy security concerns around the globe could provide a new lease on life for the least-liked fossil fuel.

European countries, in particular, are desperate for energy as they try to reduce their reliance on imports of Russian commodities.

Thermal coal, which is burned in power plants to produce electricity, was already experiencing a comeback of sorts last year with prices and consumption on the rise. The Russian invasion in recent weeks has resulted in an extra jolt to the sector.

For many years, there has been a lack of investment into the industry as a whole, said Thrasher, CEO of Xcoal. That's affecting production at mines as well as the availability of other equipment, like coal-carrying train cars.

"Everything we read about is: 'coal is not going to be here in 10 years,'" he said.

"I don't want to be jocular about this, but if you have 'coal' in your company name, you have a hard time opening a bank account to put money in the bank, let alone taking money out of the bank."

Trasher said the industry often has to borrow money at high interest rates from private equity firms and other sources of financing.

One of the goals of the UN climate conference in November was to "consign coal to history" because of its high levels of pollution.

The amount of coal-fired electricity declined three per cent in 2019 globally and by 4.6 per cent in 2020, according to the International Energy Agency (IEA). However, the trend reversed in 2021 as coal generation was up 15 per cent in the first half of the year.

Rising natural gas prices were one reason for coal's reversing fortunes in 2021. Now, prices are surging primarily because of energy security concerns in Europe.