ANR Stock Retreats As Obama Wins Second Term

Alpha Natural Resources (NYSE: ANR) stock retreated by more than 12% on Wednesday following the US election results, reflecting the concerns that President Obama could enact stricter regulations on the coal industry. The President has been a staunch advocate of environmental protection and has a track record of being tough on fossil fuels.

Through the presidential race, both candidates talked of their ambitions of achieving  energy independence, however they had markedly different views on how to go about it. While Mitt Romney was a proponent of developing conventional resources like coal and oil resources, Obama had a pro-green energy stance, favoring higher regulations and reduced subsidies on conventional sources of energy.

US Coal Market On The Decline

The US coal industry is facing its worst downturn in decades. The reason for the coal’s decline is two-pronged: increased competition from cheap natural gas and the increase in costs of coal power plants due to environmental regulations. Based on data provided by the EIA, the US coal production has dropped by about 7% between 2008 and 2011 while consumption declined by about 10%. Although coal still accounts for a large chunk of the US electricity generation, its share has declined from 49% to 42% and is expected to decline to 37% by the end of this year. ^[1]

Regulations During First Term And Their Implications

Coal fired power has drawn much flak due to high carbon emission; it accounts for 20% of total US energy consumption but generates over 34% of carbon dioxide emissions. To counter this, the US Environmental Protection Agency (EPA) introduced new standards under the Clean Air Act. The Mercury and Air Toxics Standard targets cutting emissions of heavy metals like mercury and acidic gasses from power plants by up to 90%.

This rule has had profound implications on coal fired power plants. Many utility firms are choosing to shut older coal fired plants and replacing them with natural gas rather than complying with the regulations, which require fitting the plants with expensive pollution control equipment like scrubbers. The agency is also introducing a “Carbon Pollution Standard For New Power Plants,” which could drive up the costs of new coal-based power plants.

The President’s detractors have blamed the closures of coal-based power plants and coal mines on these new regulations. According to the American Coalition for Clean Coal Electricity (ACCCE), these regulations will lead to the closure of over 240 coal fired power plants leading to the loss of 36,000 MW of coal generation capacity and attrition of about 183,000 jobs per year through 2020.

During the President’s first term, the process of getting approvals for coal mines had become more burdensome. Certain coal rich areas like the Appalachia region in the eastern United States saw stricter permitting processes.

Outlook For Coal Industry And Alpha Natural Resources

We believe the President’s re-election means that the current legislative process will stay the course and could also see some impetus since the President will have a freer hand in his second term given the absence of electoral consequences.

ANR for its part has been de-risking its business, shifting its focus away from dirtier thermal coal varieties like eastern steam to concentrate on metallurgical coal which is used in steel plants and other cleaner varieties of thermal coal like Powder River Basin. The firm is also seeking to export thermal coal to international markets like Europe where coal commands better prices and is more competitive given the higher prices of natural gas in these regions.

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1. Role of Coal In The United States, EIA [↩]