The recent volatility and precipitous drops in energy and commodities prices have garnered headlines in both the industry press and the general media. The recent gasoline price spike and then collapse dramatically caught the attention of the general public, while short-term spot coal price behavior has turned the most even-keeled coal company planner schizophrenic.
But recent experience with our client base indicates most companies are viewing the current landscape as just that – a short-term situation. Most believe the longer-term market fundamentals remain favorable to the coal industry.
This situation presents the challenge of managing short-term cash flow while continuing to focus on long-term opportunities. Compounding this situation is the fact that certain coal mining operations are facing depletion, with the accompanying need to develop new operations simply to maintain existing output.
With this background, our experience with most clients suggests the exploration and project development cycle has slowed, but most clients are continuing with long-term planning and project development. This slowdown is particularly pronounced outside North America, where projects that were seriously being pursued may be marginally attractive at today’s lower coal pricing expectations.
This is not to say that projects have been entirely abandoned, but rather that previously aggressive project development and investment schedules have been scaled back in many instances.
Inside North America, we see a combination of planning for new mining operations to replace depleting mines – particularly in Central Appalachia – as well as development continuing on new projects, albeit at a somewhat slower pace. Certain areas are yet to achieve the promise previously expected by the industry, particularly production expansion in the Illinois Basin and coal-to-gas/coal-to-liquids projects, but a considerable amount of attention continues in these areas.
Additionally, the current economic climate has precipitated a renewed focus on operations optimization. This takes a variety of forms – from traditional cost reduction reviews to performance enhancement in mining operations and preparation plant performance.
The institutionalization of sustainable development principles by the vast majority of our clients has only strengthened in this challenging economic climate. It is noteworthy that we just experienced the safest year on record in US mining. Norwest believes this is a result of a renewed focus on safety that continues today.
Other industry efforts directed at environmental compliance and developing positive community relationships appear to us to be gaining momentum. We believe most coal companies, and industry in general, consider such an approach to be sound business practice and strategically vital to their long-term future.
What has this all meant to Norwest as a leading energy and mining consultancy? And how have we responded to the challenging demands of our clients?
Just as our clients have learned, we continue to be nimble in responding to the ever-changing industry landscape. Many of our project development engagements have continued unabated while our skill set and offerings have expanded in areas such as risk and loss control, business performance optimization, and environmental permitting and compliance.
In addition, we have applied our broad knowledge of the coal industry to areas of business up and down the coal value chain – from planning initial exploration work to permitting power transmission projects.