Coal Finally Peaking In 2024; Challenges For Peabody Energy (NYSE:BTU)

I started writing for Seeking Alpha in 2014 and my first article concerned Peabody Energy (NYSE:BTU) “Peabody Energy Corporation CEO Says Coal Is Still On Top, But Is It?” Greg Boyce, Peabody’s CEO in 2014, claimed that coal’s difficulties were temporary and that the industry needed to push back from a “symbolic clean energy push”. Greg Boyce predicted that coal would remain the world’s leading fuel for the next decade. A lot has changed since 2014, including bankruptcy leaving small shareholders stranded while Peabody became an aggressive activist target and relisted in 2016. Since then renewables have proven to be a little more than a “fad”.

After reviewing Peabody’s Q1 2024 Earnings call, elements of Peabody’s 2014 view about the role of coal remain as I describe here. My take is that Peabody Energy is a company that investors might consider cautiously because it seems still to minimize the changes happening to its industry. I also comment on the reduced influence of Elliott Management on Peabody Energy with recent exit as a substantial investor and exit from the Peabody board.

US coal consumption

Jay14150 is an avid follower of coal industry data and I acknowledge Jay’s generous sharing of up-to-date information with me in the following summary figures I present here.

Peabody management positions a 15% decline in US coal consumption in Q1 2024 as being due to a warm winter and low gas prices (average $2.10). The Q1 figure for 2023 versus Q1 2024 shows a 49% year on year decline in power output by the US coal fleet. There must be more going on than a warm winter and cheap gas prices.

Analysis of annual US coal consumption since 2018 shows a double digit decline for every year except 2022 (where the decline was 6%). Over the past 5 years coal consumption in the US has declined by 38% and the decline is steady. It is hard to argue that the unusual issues in Q1 2024 are anything other being part of progressive exit from coal use in US electricity generation. The above data make it hard to claim that coal’s decline is anything other than dramatic.

European coal consumption

The story in Europe is one of exit from coal. In 2023 European coal power generation fell by a record of 26% (lowest ever), while renewables rose to a record 44%. The Russian invasion of Ukraine has not led to resurgence of coal and gas. Wind and solar are growing rapidly. In 2000 coal generated 52% of Germany’s electricity, but by 2023 coal generated just 26.8% of Germany’s power and wind power achieved 27.2% of German power generation.

The UK has had the fastest exit, with coal supplying 30% of UK power in 2014 and less than 1% in 2023.

China coal consumption

China’s coal consumption remains massive (more than half of global consumption) and still increasing (up 4.9% in 2023), but the development of renewable energy is off scale. In 2023 China commissioned as much solar PV as did the rest of the world and wind additions increased by 66%. China will achieve its 2030 target of 1,200 GW of renewable energy (solar and wind) this year and there is a suggestion that by 2030 China’s renewable energy capacity could reach 3,000 GW. In 2025 renewables are expected to replace coal as the world’s largest source of electricity. This has to impact coal consumption.

Indian coal consumption

India is the world’s second biggest coal consumer (14%) and in 2023 coal use in India increased by ~8%. While India’s renewables push is less ambitious than China’s, it has an aggressive program to decarbonize.

Australian coal consumption

Australia is heavily dependent on coal fired power, but the latest reports suggest that coal will have largely disappeared as a source of power in Australia by 2034.

Demand for coal by Australia’s largest coal importers looks challenging with China and India expected to largely rely on internally produced coal for their needs in the future. Other key markets for Australian (and Peabody) thermal coal (Japan, South Korea, Taiwan) are expected to reduce their need for Australian coal. Declining prices for thermal coal are expected to lead to a dramatic decline in Australian thermal coal sales from $A36 billion (FY 2023/2024) to $A21 billion (FY 2028/2029). Vietnam, the Philippines, Bangladesh and Pakistan are the only markets where demand is expected to increase but combined demand from these market are expected to account for only 5% of Australian 2023 thermal coal exports.

Overall outlook for coal

The IEA concludes that 2023 is likely to be the year when coal consumption peaked.

The above summaries provide a picture of what is happening for coal in the international community. An outcome of the recent COP28 climate meeting was a proposal agreed by 133…