Staying power

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Technology is at the center of CONSOL Energy’s world-class operations

The key for the future of coal-powered electricity lies in technology. Modern tech is helping make coal production more responsible and is central to making coal-based electricity generation more sustainable.

While the electricity mix will continue to evolve to include greater contributions from renewable energy sources, this transition won’t happen overnight. There will still be a need for baseload, dispatchable generation sources such as coal to provide a reliable, resilient and stable supply of electricity, especially important as the developing world continues its quest to provide a good standard of living for its people.

As we transition toward the use of electric vehicles that will create increased reliance on electric power, as well as the continual energy required to power our cloud-connected planet, the world will need more coal.

“With access to capital shrinking for coal producers, I think you could argue that coal supply is a greater concern than coal demand in the near term,” said Jimmy Brock, President and CEO of CONSOL Energy. “We’re seeing signs of this in the marketplace right now, with coal prices at record highs based on supply concerns.”

The Canonsburg, Pa.-based producer and exporter of high-Btu bituminous thermal and metallurgical coal operates the largest underground coal mining complex in the United States: the Pennsylvania Mining Complex (PAMC), which consists of three longwall mines and the Bailey Central Preparation Plant and has the capacity to produce up to 28.5 million tons of coal annually.

The publicly traded producer (NYSE:CEIX) sells its bounty to a portfolio of top-performing domestic power plant customers. On the export side, they supply metallurgical, industrial, and power plant customers on five continents.

Exports and Other Essentials

Export markets have been a key area of growth for the firm and will continue to be as developing countries increase their demands for the high-Btu coal used in industrial applications such as brick and cement to meet their growing infrastructure needs.

Through the first nine months of 2021, CONSOL sold 48% of their PAMC production to export markets compared to 32% in 2017.  Moreover, approximately 39% of PAMC’s total production during January-September 2021 went into the non-power generating industrial and metallurgical markets, a jump from just 18% in 2017.

As a result of this continued growth in the export markets, coupled with more sustained demand in the domestic power generation markets, CONSOL has recommenced development of the fifth longwall at PAMC to ramp up production in late 2022.

Although CONSOL Marine Terminal (CMT) is a smaller piece of the financial pie than the PAMC, it is of equal strategic importance for the firm as it is the gateway for PAMC coal to access international growth markets. The world-class facility is the only coal export terminal on the U.S. East Coast to be served by two Class I railroads. While some third-party coals are transloaded at CMT, CONSOL is the biggest customer at the terminal.

Controlling the facility gives them a distinct logistical advantage over many of their peers: the opportunity to directly manage the storing, blending, and shipping of coals to meet seaborne customers’ specifications, and to ensure that there is sufficient capacity to meet export needs.

“We also generate meaningful EBITDA, with relatively low maintenance capital intensity, while we’re at it,” Brock said. “We’re very pleased with the way CMT has performed over the past several years as the export business has ramped up, and we expect to put its 15 MM ton nameplate capacity to the test going forward as the seaborne business continues to grow.”

Pipeline Projects

At present, CONSOL is developing the Itmann mine, a new low-vol metallurgical coal mine in Wyoming County, West Va. Itmann will have a lifespan of over 20 years and is expected to produce nearly a million tons of coal per year.

“We started development mining at Itmann in April 2020 and are now in the process of relocating an existing coal preparation plant to the Itmann site, which will have capacity for processing both our own coal and other third-party coals mined in the region,” Brock noted. Start-up of the prep plant is planned for the second half of 2022, and the mine will ramp up to its full production rate shortly thereafter.

“We anticipate that Itmann coal will be highly sought after in both the domestic and export metallurgical markets,” he added. “The project will be a meaningful step in diversifying us into non-thermal coal markets and is expected to generate healthy returns over its 20-plus-year life.”

CONSOL continually evaluates a pipeline of opportunities in both coal mining and tangential industries. “We currently have several intriguing technology initiatives underway that could create future growth platforms,” he revealed.

One such play is a multimillion-dollar investment in the U.S. Department of Energy-sponsored 21^st Century Power Plant project, which is evaluating the viability of constructing an advanced pressurized fluidized bed combustion bed power plant at or near the PAMC. The facility, which the company projects could be ready for the market by 2030, would be fueled by waste coal from the PAMC and equipped with biomass co-firing and carbon capture and storage to achieve net neutral or negative carbon dioxide emissions.

CONSOL is also working to develop technologies that use coal as a source of carbon for making building products and advanced materials, such as coal-plastic composite deck boards and high-performance carbon foams for military, aerospace, and construction applications. “There is still work to be done, but if successful, we believe these types of initiatives could open a whole new future for CONSOL and the coal industry at large,” Brock stressed.

“At the end of the day, our growth and diversification pathway will be informed by our sustainability, technology, and financial strategies, and we will continue to be opportunistic in taking steps that add shareholder value and position the company for a strong future.”

All Eyes on ESG

“Your company is facing pressures from investors, regulators, shareholders, customers and employees to transform your business with an environmental, social and governance (ESG) lens on all you do.” This take from KPMG on the importance of ESG as a driver of corporate growth and sustainability reflects the challenges faced by many firms in the energy sector today. For CONSOL, that umbrella term simply reflects their longtime commitment to excellence.

“Although ESG has recently evolved as a business designation and trend, we like to say that ESG comes naturally to us at CONSOL because of our long-term commitment to be among the most responsible coal operators in the world,” said Brock. “We also believe that far too often the ‘E’ in ‘ESG’ cancels out the critical ‘S’ and ‘G’ components that are so important to the business.”

From the governance perspective, CONSOL’s commitment to safety and environmental stewardship begins with a strong corporate governance framework, starting with the board of directors. This is further supported by the commitment to deploy robust and internationally recognized operating frameworks, including the National Mining Association’s Core Safety Framework and the Bettercoal Code of Operating Principles, and by the commitment to disclosure, engagement, and transparency.

“Since becoming an independent company in 2017, we’ve released four corporate sustainability reports detailing our performance against KPIs for ESG aspects of critical importance to our stakeholders, the environment, and CONSOL,” he said.

On a global scale, reliable and affordable access to electricity is an essential requirement for modern life and is critical to achieving global social objectives such as ending poverty, eliminating hunger, and advancing health and well-being. Coal’s role in expanding access to electricity and advancing economies is undeniable.

“Under all plausible scenarios, we believe coal will continue to be a vital part of the global energy mix for the foreseeable future,” Brock stressed. “At the same time, we emphasize the ‘S’ in ESG at the local level, including the commitment to the workforce and the communities in which we operate.”

From an environmental perspective, CONSOL’s longstanding environmental policy statement guides their goal of avoiding, minimizing, and mitigating impacts associated with coal production operations while striving to maintain an exemplary environmental compliance record.

“Ultimately, we believe that technology and innovation are at the intersection of global electricity demand, social goals, and environmental goals,” he explained. “We also understand that economy-wide, global action is required to reduce greenhouse gas emissions in support of global environmental goals.”

With that intersection in mind, the company recently set a goal to reduce its direct greenhouse gas operating emissions by 50% within a five-year period, and to achieve net zero direct greenhouse gas operating emissions by 2040. “Our Forward Progress sustainability initiative creates a framework for putting the ESG approach into action and also exemplifies management’s and the Board of Directors’ commitment to continuous improvement.”

In 2012, a group of European coal producers allied to create Bettercoal, whose purpose is to create a globally responsible coal supply chain. Companies that align with the organizations’ code of behavior are granted Bettercoal Supplier status, and CONSOL is one such supplier.

“We believe our commitment to deploy robust ESG operating practices will help ensure that we carry out this role responsibly and sustainably,” he said. “We will remain intentionally focused on leveraging innovation while maintaining our stated financial priorities to create sustainable value for the company and its stakeholders.”

CONSOL Culture

Safety, compliance, and continuous improvement are CONSOL’s core values and have been the heart of the culture for years, regardless of business conditions. “For us, safety and compliance are a way of life and not a project or priority,” Brock said. As a result, in 2020 the employee recordable incident rate at the PAMC was 60% below the national average for underground bituminous coal mines. And, for the eighth consecutive year CONSOL’s environmental compliance record exceeded 99.9%.

Nevertheless, they are constantly striving to do better. Their critical objectives include eliminating all life-altering incidents on the safety front; executing on the recently announced Scope 1 and 2 greenhouse gas emission reduction targets; and continuing to invest in the communities in which they operate.

Achieving a culture of safety and compliance requires a perpetual focus on the details. “Just like anything else, when people pay attention to the details, we not only achieve positive safety and environmental results, but we get the added benefit of excellent cost management and productivity,” he said. “So, we see the pathway to great financial results being completely aligned with great safety and environmental performance.”

“We were just voted one of the top 100 companies to work for in Pittsburgh. Our employees are very skilled and embrace technology and innovation, which will be the keys to our future and quite frankly, our existence,” he added. “We manage and lead daily based on the core values of safety, compliance, and continuous improvement, and we are a company that embraces diversity, inclusion, and environmental sustainability.”

Created in 2018, the CONSOL Cares Foundation is a giving vehicle that allows the firm to participate in a positive way in the communities in which it operates. The company’s strong commitment to social responsibility centers on ensuring that the company is aligned with stakeholder priorities, has a strong social license to operate, and is fostering positive opportunities and boosting morale in the communities in which its employees and their families live and work.

“We view the CONSOL Cares Foundation as an investment in the future of the communities where we live and operate,” Brock said. “ESG aside, and more fundamentally, it’s simply the right thing to do. From small contributions like sponsoring a youth baseball team to larger ones like providing the seed funding for community centers, the contributions make us a powerful force for good in these communities.”

Leadership for Tomorrow

For Brock, the most important component of being an industry leader is communication centered on openness and transparency with employees, investors, and all stakeholders. “My two largest responsibilities are allocation of capital dollars for the highest rate of return, and motivating the team for execution of plans,” Brock disclosed. “We must continue to recruit top talent for the industry, and that is very challenging with the negative press that coal unfairly receives.”

The public perception of coal mining as dirty, dangerous manual labor is not the image of today’s coal production business. On the whole, the industry is embracing modern technology to eliminate safety hazards, reduce physical labor for its employees, improve environmental performance, and enhance productivity, and CONSOL is one of the leaders in that regard.

“I believe our assets, our people, and our willingness to innovate and embrace change are what set us apart from the competition,” he said. “We have well-capitalized assets that allow us to maintain a very low-cost structure in reliably producing a high-quality product that is sought out globally for power generation, industrial, and metallurgical applications.”

Unsurprisingly, CONSOL regards its talent pool as one of the best in the world and boasts a low turnover rate and a workforce that takes great pride in the company’s success. “As a leader, it is my responsibility to create a safe work environment and a place where everyone is excited to report to work. These employees need to know they have a future and can support their families with good pay and benefits, all of which we provide.”

In a mature industry such as coal, CONSOL strives to constantly think in a way that is progressive, innovative, and visionary. Thinking outside the box is a mindset that has been embedded in the company’s ethos since its beginnings in 1864.

“CONSOL has long been a leader among the coal industry in R&D and technology development, and we believe our efforts in areas such as coal-to-products, beneficial use of mine tailings, and the 21^st Century Power Plant project hold good potential to create new, valuable opportunities for us going forward,” he affirmed.

Achieving those goals will require material changes in the way industry executives think, operate, and allocate capital, but in Brock’s estimation CONSOL’s world-class asset base will continue to be relied upon for the foreseeable future to meet the world’s electricity and infrastructure needs.

“Going forward, we expect to continue to grow and diversify the company while serving out our role as a responsible supplier of coal to meet global electricity and infrastructure needs, support social objectives, and catalyze economic progress,” he said. “We remain intently focused on doing this in a way that is sustainable – ultimately creating value for our shareholders, customers, and the communities and societies that rely on us.”

CONSOL intends to continue its long history of leading through innovation and sound decision-making to navigate change and create sustainable value for its stakeholders and society at large for many years to come. “We have world class assets in the Pennsylvania Mining Complex and CONSOL Marine Terminal, but it is the employees, through their work ethic, creativity, and unwavering commitment to our core values, who are our greatest asset and will continue to be the key to our success,” Brock concluded.