That’s the question at the heart of a letter sent today to the CEO of Kiewit and the President of its mining subsidiary as this major construction company considers whether to bid on the Hay Creek II coal lease next week. The Bureau of Land Management has scheduled the lease of 167 million tons of publicly-owned coal for September 18th, in response to a Kiewit subsidiary’s application to expand its Buckskin coal mine in Wyoming. But the demand for coal has weakened dramatically since the company requested the expansion in 2006, as this dirtiest of fossil fuels is replaced by cleaner and cheaper forms of energy. This is having a real impact on Powder River Basin coal mines right now – last month, a coal lease received no bids for the first time in Wyoming history and earlier this year, another coal mine from a Kiewit subsidiary halted construction before shipping any coal at all.

Coal lease sales like Hay Creek II are coming under increased scrutiny because of the enormous quantities of carbon pollution they unlock, impacts to the land and water, and concerns that taxpayers are being cheated out of proper revenues, especially as the coal industry aims to export our coal abroad. By moving forward with new coal leasing, the Bureau of Land Management also reveals that it is clueless about the shifts in the domestic coal market. Groups are calling on Interior Secretary Jewell to establish a moratorium on new federal coal leasing. In the meantime, diversified companies like Kiewit would be wise to extract themselves from the process.

The full letter is here and below:

Climate Solutions – CO-FORCE – Greenpeace – Sierra Club – WildEarth Guardians – Clean Energy Action

September 11, 2013

Bruce Grewcock, CEO, Peter Kiewit Sons Inc

Tony Ritter, President, Kiewit Mining Company

Mr. Grewcock and Mr. Ritter,

On September 18th, the Bureau of Land Management has scheduled a coal lease sale for the Hay Creek II tract, containing an estimated 167 million tons of federal coal. Since your subsidiary, Buckskin Mining Company, applied for the tract to expand the Buckskin Mine in 2006, coal market conditions have shifted and concerns about climate change have grown. We urge you to heed the growing financial, environmental, and reputational risks of expanded coal mining and decline to bid for the Hay Creek II tract.

Thermal coal mining is a small fraction of Kiewit’s portfolio, and it is becoming an increasingly risky and outdated business. Coal continues to stockpile at mines and power plants throughout the country, struggling to compete with renewable energy, natural gas and energy efficiency. New federal health and environmental standards will accelerate this transition.  As the domestic coal market shrinks, new leases like Hay Creek II risk becoming stranded assets.

Your company has experienced this risk first hand. In April, Kiewit stopped construction on its Haystack mine before a single ton of coal shipped. According to company spokesperson Tom Janssen, the decision “was driven by the challenging coal market conditions that have affected virtually the entire industry.”[i] This followed layoff announcements at the Buckskin mine in 2012, also in response to weak coal demand.

More recently, Cloud Peak Energy declined to bid on a 148 million ton coal tract in Wyoming, citing “current market conditions and the uncertainty caused by the current political and regulatory environment towards coal and coal-powered generation… In combination with prevailing 8400 Btu market prices and projected costs of mining the remaining coal, we were unable to construct an economic bid for this tract at this time. ”[ii]

Coal contained in the Hay Creek II tract has an average quality of 8,287 btu/lb, lower than Cloud Peak’s rejected Maysdorf lease, and on the lower end of all coal produced in the Power River Basin.[iii]

As climate change fueled droughts, storms, and wildfires wreak havoc on communities, new coal assets will come under increasing scrutiny. Analyses from Carbon Tracker have warned that money invested in expanding fossil fuel reserves represent wasted capital as it becomes increasingly clear that most of the world’s fossil fuels are unburnable[iv]. Coal reserves are at particular risk of becoming stranded assets because coal is easily replaced by cleaner, cost effective alternatives. And as the most polluting fossil fuel, any serious action to reduce carbon pollution will dramatically reduce coal consumption.

In light of these risks, Kiewit could follow the lead of BHP Billiton and Glencore Xtrata, diversified mining companies that are taking coal assets off the books in the face of changing markets and environmental constraints. The head of BHP’s coal division, Marcus Randolph, echoed Carbon Tracker’s thesis,  telling the Australian Financial Review: “In a carbon constrained world where energy coal is the biggest contributor to a carbon problem, how do you think this is going to evolve over a 30- to 40-year time horizon? You’d have to look at that and say on balance, I suspect, the usage of thermal coal is going to decline. And frankly it should.”[v] Kiewit could also look to its former subsidiary Level 3 Communications, which sold its coal mine assets to Australian coal start-up Ambre Energy in a savvy effort to exit a non-core part of its business.  Although the company sold the mines for only $5 million (AUS), Level 3’s financial documents reported a $72 million gain from the sale, as the mines’ long term liabilities were taken off the balance sheet[vi].

On the other hand, companies like Peabody, Arch and Alpha that have failed to diversify beyond coal mining have suffered major losses in recent years, while several smaller coal mining companies have gone bankrupt. And as the heavy toll on community health, the environment, and our climate become clear, companies involved in the mining, transport, and burning of coal are increasingly challenged by communities and activists.

The outlook for thermal coal is increasingly bleak. Now is the time to step away from this risky and outdated business. We urge you to decline to bid on the Hay Creek II coal lease sale.

Sincerely,

Kelly Mitchell, Senior Climate and Energy Campaigner, Greenpeace USA

Jeremy Nichols, Climate and Energy Program Director, WildEarth Guardians

Ross McFarlane, Senior Advisor, Business Partnerships, Climate Solutions

Gina Hardin, CO-FORCE

Nathaniel Shoaff, Associate Attorney, Sierra Club

 RJ Harrington, Executive Director, Clean Energy Action


[i] http://trib.com/business/energy/new-coal-mine-stalls-in-southwest-wyoming/article_9b4f3abd-3e19-5fc2-9e74-55a82a87faf8.html

[ii] http://online.wsj.com/article/PR-CO-20130821-909326.html

[iii] Federal Register Volume 78, Number 153, FR Doc No: 2013-19169

[iv] http://www.carbontracker.org/wastedcapital

[v]http://www.afr.com/p/business/companies/climate_change_influences_bhp_decision_glrd7CXIhP5SyQtDEzDpvK

[vi] Level 3 Communications 10K filing, December 21, 2011.

http://www.sec.gov/Archives/edgar/data/794323/000079432312000003/lvlt-123111_10k.htm