Consol CEO: ‘Unprecedented demand destruction’ in energy hits US coal hard

From a demand perspective, Consol Energy Inc. CEO and President Jimmy Brock said the second quarter was the worst he has seen in a coal career that spans over four decades.

The COVID-19 pandemic brought global economies to a grinding halt, causing unprecedented destruction in energy demand, Brock said on the company’s Aug. 10 earnings call. The Pennsylvania-based company was already dealing with weaker demand earlier in the year due to a warmer-than-usual winter.

“There is no sugarcoating how difficult the second quarter of 2020 was from a demand perspective,” Brock said.

The company recorded a net loss of $21.1 million for the second quarter, down from a net profit of $48.8 million in the same quarter a year ago. Second-quarter coal sales totaled 2.3 million tons compared with year-ago coal sales of 7.4 million tons.

“However, we were able to leverage our operational flexibility to help soften the impacts of these declining market conditions,” Brock said. “These solutions included partial contract buyouts and, in some cases, new future business.”

Brock said Consol’s focus on keeping mines well-capitalized while competitors have not could give the coal producer an edge if demand were to rebound.

“We believe the lack of investment across the coal space will limit the coal industry’s ability to quickly ramp back up to meet this demand,” Brock said. “This could be a very advantageous situation for us.”
Rising gas prices

The company began the year hoping to ship 9 million to 10 million tons of coal to export markets in 2020. They were on pace to accomplish that through the first quarter, but after the pandemic hit, the company shipped roughly 800,000 tons of coal in the second quarter, Brock said.

“This was entirely caused by the worldwide economic shutdown created by the COVID-19 pandemic,” Brock said. “It is important to note that these tons were not replaced by other tons or other fuels, they were lost due to unprecedented demand destruction.”

Brock said the company has started to receive inquiries about purchasing coal again, and Consol expects a steady recovery in the second half. So far, May has been the lowest point Consol has seen for coal demand.

For now, the company continues to “pull as many levers as possible” to strengthen its balance sheet and preserve cash flow, Brock said. Consol continues to be concerned about power plant retirements, but Brock said he remains confident in the strategy of focusing on supplying coal to plants identified as likely to continue operating.

“We believe that if we can have a normal summer followed by normal winter, maybe even followed by normal summer after that, and we can get these gas prices back up to acceptable levels, then we think we’re going to remain a part of that energy mix,” Brock said. “And we feel pretty good about where we are there with these customers.”

Brock also noted that Consol has largely deferred or stopped spending on Itmann, the company’s new metallurgical coal mine in West Virginia, to focus on other capital uses.
Source: Platts