Peabody Energy and Arch Resources will not appeal a decision to block its proposed joint venture in … [+]
Peabody Energy and Arch Resources cannot carry through with their plan to form a joint venture in a vast coal mining region in Wyoming and Colorado, a judge for the U.S. District Court for the Eastern District of Missouri ruled today.
The two companies had argued that combining their operations in the Powder River Basin, the source of nearly half of the coal mined in the U.S., would allow them to achieve the economies of scale necessary to stay competitive in an energy market where abundant natural gas has pushed prices lower and lower. Both Peabody and Arch, as well as scores of other coal mining companies, have already gone bankrupt once and they have hinted they could go bankrupt again unless courts permit the industry to consolidate.
“We are deeply disappointed with the court’s decision as the intense all-fuels competition is clearly apparent to us,” said Peabody Energy’s C.E.O., Glenn Kellow. “Our focus now is on continuing to be the low-cost [Powder River Basin] coal provider to best compete against natural gas and subsidized renewables.”
The Federal Trade Commission intervened in February 2020 to stop the proposed joint venture on February 26th, 2020, voting 4-to-1 to seek a preliminary injunction. The Commission, which is charged with ensuring U.S. markets remain competitive, argued that any Peabody-Arch joint venture in the Powder River Basin would control the vast majority of its coal production, allowing it to undercut rival producers and giving it enough market power to raise the prices of the coal it sells to utilities and power plants without fear of losing market share. Such price increases would ultimately force utility companies to sell power at higher costs and translate into higher household electricity bills, the FTC had said.
Peabody and Arch Resources will not appeal the decision, Arch said in a statement.
Arch said it would pivot away from producing thermal coal, which is burned by power plants to make electricity and accounts for most Powder River Basin production, to focus instead on metallurgical coal, which is used in the production of steel. The market metallurgical coal is far smaller than the one for thermal coal, but it is seen as longer-lived because the steel-making process is hard to decarbonize.
A rising tide of natural gas unleashed by the “fracking” revolution over the last decade in states like Texas and North Dakota, combined with the growing cost-competitiveness of wind and solar power, has made much of the coal industry unprofitable. Between 2009 and 2019 coal’s share of the nation’s electricity generation fell from nearly 50% to just above 20%.
