Deadlock may continue
The Republican majority in Congress can create trouble for President Obama’s projects. These projects include an immigration bill, Obamacare, and a quest for cleaner energy. But Obama has vowed to use his executive powers to make way for some of these bills. With the next presidential elections two years away, we may see a policy deadlock on key issues. This could further weaken Obama, who has faced criticism for being weak.
Not the only issue
The Republican majority in Congress could help existing power plants get a long deadline to comply with proposed EPA rules. But the troubles for the industry don’t stop there.
Stagnant electricity demand and minuscule new coal-fired capacity additions have effectively capped the upside for coal consumption. Falling coal mine productivity will eventually mean higher production costs. If natural gas prices stay subdued, power plants will switch to gas voluntarily. Lower gas prices will continue to keep coal prices down. Inefficient coal operations and producers out of business. No wonder producers (KOL) like Alpha Natural Resources (ANR), Arch Coal (ACI), Peabody Energy (BTU), and Cloud Peak Energy (CLD) are trying hard to save costs.
Apart from the factors you’ve seen throughout this series, coal producers—especially in Appalachia—are fighting competition from Illinois Basin producers. You can’t ignore these regional dynamics. For more details, read the Market Realist series Must-know: US coal regions and producers with the best prospects.
The Republican majority in Congress and the possible extension to EPA rules are certainly positive factors for the troubled coal industry in the U.S. But they won’t flip the industry’s outlook 180 degrees. All Republicans can do is ensure a few more years of demand from existing coal-fired power plants, which are unlikely to switch to natural gas. So producers in the Powder River Basin may gain more than Appalachian producers.