{"id":33824,"date":"2016-04-15T08:39:00","date_gmt":"2016-04-15T08:39:00","guid":{"rendered":""},"modified":"2020-10-20T09:02:50","modified_gmt":"2020-10-20T09:02:50","slug":"8824-peabody-s-downfall-a-cautionary-tale-for-energy-investors","status":"publish","type":"post","link":"https:\/\/dialogue.earth\/en\/business\/8824-peabody-s-downfall-a-cautionary-tale-for-energy-investors\/","title":{"rendered":"Peabody\u2019s downfall a cautionary tale for energy investors"},"content":{"rendered":"<p dir=\"ltr\"><span id=\"docs-internal-guid-612348ad-15a4-515e-bf9d-a0b563395ba7\">The world\u2019s largest privately owned coal producer, Peabody Energy, has <a href=\"https:\/\/www.vox.com\/2016\/4\/13\/11420882\/peabody-energy-bankruptcy-coal\">filed for bankruptcy<\/a> in the US, providing yet another sign that much of the world\u2019s production of the fossil fuel <\/span>\u2013\u00a0and others including\u00a0oil \u2013\u00a0could be economically unfeasible.<\/p>\n<p>Peabody, who five years ago was valued at US$20 billion, filed for Chapter 11 bankruptcy on April 13 after a sharp drop in coal prices left it unable to service a US$10 billion debt which funded its Australian expansion.<\/p>\n<p>It becomes the 50th coal producer, and the largest,\u00a0to file for bankruptcy in the US in recent years.\u00a0<a href=\"https:\/\/mashable.com\/2016\/03\/25\/peabody-coal-bankruptcy-divestment\/#HJ8t06iGViqa\">Divestment campaigners<\/a> have seized on Peabody&#8217;s demise, pointing out that it is\u00a0another huge setback for an energy source that is the main cause of climate change, and could prompt more financial institutions to <a href=\"https:\/\/gofossilfree.org\/commitments\/\">ditch investments<\/a> in the fuel.<\/p>\n<p>The news of Peabody\u2019s collapse had been predicted after its debt troubles began to intensify last year following a forced US$700\u00a0million\u00a0writedown on its Australian metallurgical coal assets, mainly because of a huge surplus of\u00a0steel in China.<\/p>\n<p><strong><a href=\"https:\/\/dialogue.earth\/en\/energy\/9264-china-stokes-global-coal-growth\/\">See also: China stokes global coal growth\u00a0<\/a><\/strong><\/p>\n<p><img decoding=\"async\" style=\"width: 560px; height: 371px;\" src=\"https:\/\/chinadialogue-production.s3.amazonaws.com\/uploads\/content_image\/content_image\/1080\/unnamed-2.jpg\" alt=\"\" \/><br \/>\n<span class=\"caption\">Graphic from Greenpeace<\/span><\/p>\n<p dir=\"ltr\">Analysis from Greenpeace\u00a0says Peabody got it\u00a0&#8220;completely, fantastically wrong&#8221; on\u00a0China\u2019s coal demand.<\/p>\n<p>&#8220;A few short years back, the company was projecting a doubling of China\u2019s coal imports from 2011 to 2016 \u2014\u00a0in reality, the imports are likely to fall back to 2011 levels or below this year, diving more than 40% below their peak in 2013.\u00a0The difference in the value of the Chinese market is about US$10 billion,&#8221; Greenpeace&#8217;s coal expert\u00a0Lauri Myllyvirta said in a <a href=\"https:\/\/energydesk.greenpeace.org\/2016\/04\/15\/peabody-why-the-worlds-largest-private-coal-miner-went-bust-in-one-graph\/\">blog<\/a>.<\/p>\n<p dir=\"ltr\">Demand for thermal coal burnt in power stations has\u00a0slowed sharply in recent years, adding to a major supply glut that hammered <a href=\"https:\/\/af.reuters.com\/article\/commoditiesNews\/idAFL8N16A592\">futures\u00a0prices<\/a> down to 13-year lows around US$36 a tonne in February.<\/p>\n<p dir=\"ltr\">&#8220;The demise of\u00a0Peabody\u00a0Energy highlights the fundamental structural change which is rapidly reshaping world energy markets as human-induced climate change bites,\u201d said Ian Dunlop, former chair of the\u00a0Australian Coal Association.<\/p>\n<p>For decades, Peabody was one of the most active in trying to delay, dismantle or prevent climate action, and has been\u00a0hobbled by two big trends that have made fossil fuels an increasingly risky investment.<\/p>\n<p dir=\"ltr\">Huge\u00a0oversupply, partly because of <a href=\"https:\/\/www.bp.com\/en\/global\/corporate\/energy-economics\/statistical-review-of-world-energy\/coal-review-by-energy-type\/coal-production.html\">major\u00a0expansions<\/a> in the past decade\u00a0of mines and infrastructure\u00a0in countries such as Australia, China, Colombia\u00a0and Indonesia, has driven down prices to below break-even for many producers, particularly\u00a0in the US.<\/p>\n<p dir=\"ltr\">Meanwhile,\u00a0environmental\u00a0legislation in countries including\u00a0China, EU member states and the US\u00a0to cut carbon emissions and\u00a0particulates, which cause smog, has prompted closures of power stations and industrial plants that burn coal.<\/p>\n<p>Peabody\u2019s demise could also be regarded as an early example of the financial destruction and \u2018stranded assets\u2019 predicted by Bank of England governor <a href=\"https:\/\/www.theguardian.com\/environment\/2014\/dec\/01\/bank-of-england-investigating-risk-of-carbon-bubble\">Mark Carney<\/a> if the world shifts decisively towards low carbon energy.<\/p>\n<p>The global <a href=\"https:\/\/www.carbonbrief.org\/carbon-briefing-making-sense-of-the-ipccs-new-carbon-budget\">\u2018Carbon Budget\u2019<\/a> \u2013 the level of emissions that must not be exceeded to limit global warming to 2C, implied by\u00a0estimates from the UN&#8217;s climate science arm\u00a0\u2013 amounts to between a fifth and a third of the world\u2019s proven reserves of oil, gas and coal.<\/p>\n<p>\u201cThe exposure of UK investors, including insurance companies, to these shifts is potentially huge,\u201d\u00a0Carney said last year.<\/p>\n<p>US ratings agency <a href=\"https:\/\/www.moodys.com\/research\/Moodys-lowers-Peabodys-PDR-to-D-PD-will-withdraw-all--PR_347267\">Moody&#8217;s<\/a> believes that the current coal market downturn which has hastened Peabody\u2019s decline is structural in nature, with weak conditions likely to persist.<\/p>\n<p>\u201cThis ends a period of elevated prices that prompted expensive investments,\u00a0which now look ill-advised,\u201d said a spokesperson from Moody\u2019s Investors Service, adding that some major banks are now refusing to finance coal projects.<\/p>\n<p><span id=\"docs-internal-guid-612348ad-15a4-515e-bf9d-a0b563395ba7\">Goldman Sachs has said that coal will <a href=\"https:\/\/af.reuters.com\/article\/commoditiesNews\/idAFL5N11T01420150923\">&#8220;never gain enough traction again to lift it out of its slump&#8221;<\/a>.<\/span><\/p>\n<p>But many coal assets, particularly in some developing countries,\u00a0will remain profitable\u00a0even at these lower prices, ammunition for those who claim that its\u00a0death has been exaggerated.<\/p>\n<p dir=\"ltr\">However, even if mines in countries such as India and Indonesia remain profitable, many companies elsewhere\u00a0face an uphill struggle to stay in business.<\/p>\n<p>\u201cCoal will have to innovate in ways that it has not done before. That means smaller markets and fewer mines,\u201d said Tom Sanzillo, director of finance from the Institute for Energy Economics and Financial Analysis (IEEFA).<\/p>\n<p>US coal producers face some of the toughest problems as domestic gas prices have fallen sharply, making the cleaner burning fuel more profitable for power generation.<\/p>\n<p>Government legislation is also a factor.<\/p>\n<p>\u201cYou also have quite an aggressive stance against coal in the US driven by <a href=\"https:\/\/www.c2es.org\/federal\/executive\/epa\/q-a-regulation-greenhouse-gases-existing-power\">Obama<\/a> and various environmental agencies\u00a0that have also encouraged us to use gas or alternative energy sources where possible,\u201d Hunter Hillcoat, mining analyst at Investec Securities in London, told <em>chinadialogue<\/em>.<\/p>\n<p><span id=\"docs-internal-guid-612348ad-15a4-515e-bf9d-a0b563395ba7\">US producers, such as Peabody, haven\u2019t been able to take advantage of weaker currencies enjoyed by other exporting nations, while demand for imported coal in countries such as China and India has been weakening. <\/span><\/p>\n<p dir=\"ltr\">The big question now is whether many developing countries, which still plan to build lots of new coal-fired power stations to speed up economic growth, will stand aloof from trends\u00a0assailing western producers of coal.<\/p>\n<p dir=\"ltr\">Moreover, there are predictions that <a href=\"https:\/\/www.reuters.com\/article\/peabody-energy-bankruptcy-breakingviews-idUSL2N17G1XZ\">big oil<\/a> could go the same way as king coal, particularly if electric vehicles become the norm and a gush of oversupply from the Middle East\u00a0keeps\u00a0prices low.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The world\u2019s biggest private coal company and longtime lobbyist against climate action goes bankrupt<\/p>\n","protected":false},"author":2204,"featured_media":58643,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[758,757],"tags":[520,544,547,556],"hashtags":[],"country":[],"class_list":["post-33824","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-energy","tag-coal","tag-finance","tag-fossil-fuels","tag-infrastructure"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.0 (Yoast SEO v26.0) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Peabody\u2019s downfall a cautionary tale for energy investors | Dialogue Earth<\/title>\n<meta name=\"description\" content=\"The world\u2019s biggest private coal company and longtime lobbyist against climate action goes bankrupt\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, 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