Interior leasing review worries US coal industry

Argus Media reports the US coal industry is concerned the federal government may change how it determines the value of coal reserves leased on federal lands in a way that could raise producers’ costs.

Coal producers and other industry members are evaluating an advanced notice of proposed rulemaking the Department of the Interior released on 27 May, questioning how a possible restructuring of the department’s coal valuation process could affect leasing costs.

Interior is requesting public comments and suggestions on ways to change how it determines the royalty value of coal tracts before leasing, saying regulations “have not kept pace with the significant changes that have occurred in the domestic coal market during the last 20 years.”

Argus Media reports:

“Nothing is on the table now,” agency spokesman Pat Etchart said. The department wants feedback on whether to use a method of evaluating coal value based on $/mmBtu and if so, how that should be applied, and also if there are published index prices such as ones provided by Argus or other price reporting agencies that could be used to reflect the market value of coal.

The current valuation process is based on coal sales, ideally “arm’s length” sales in which the parties are not affiliated with each other and have opposing economic interests. But increasing vertical integration in the industry and a growing number of coal cooperatives have added a number of non-arm’s length coal sales into the mix, which do not necessarily reflect the fair market value of the lessee’s coal, Etchart explained. The department also takes washing and transportation costs into account, which requires additional analysis by regulators.