Between 2010 and 2019, the total production of thermal coal from Arch’s operating subsidiaries declined from 163 million tons to 85 million tons, precipitating a significant drop in carbon dioxide emissions. We expect Arch’s subsidiary thermal output to continue to decline as the corporation intensifies its strategic focus on metallurgical markets, and as demand for thermal products shrinks both in the U.S. and internationally. In the past three years, Arch has directed nearly 80 percent of its capital spending towards its metallurgical portfolio, and in 2020 we expect more than 90 percent of all capital expenditures to be made at our metallurgical operations.
Arch’s metallurgical products are essential to the primary production of steel. While the production process is carbon-intensive, steel is a highly recyclable resource supported by a well-developed logistics chain and recycling infrastructure. We expect primary steel to play an essential role in the revitalization of the global economy following the current, health-driven contraction, as well as a critical role in the construction of a new, lower-carbon economy supported by mass transit systems, wind turbines and electric vehicles.
In its legacy thermal business segments, Arch remains focused on generating free cash flow as opposed to future growth. Since October 2016, when the company emerged from a restructuring process, its thermal segments have generated nearly seven times more segment-level EBITDA than they have expended in capital. In this way, Arch is systematically monetizing the value of its thermal assets in what it views to be the most value-creating manner for its shareholders. Moreover, Arch views this monetization process as the most orderly and responsible process for its other stakeholders as well, including the employees at its thermal operations, the communities in which those employees live and work, and the electricity consumers who rely on this low-cost fuel source to help maintain affordable and stable electricity prices.
Declining Greenhouse Gas Emissions
reduction in greenhouse gas emissions
In addition to the structural shift in our business strategy, our operating subsidiaries are sharply focused on reducing energy intensity. Nearly every one of our subsidiary mining operations has an on-site rail-loading facility that allows for the movement of their products to their customer base in a highly energy-efficient manner. The one exception — the Viper mine in Illinois — is only 20 miles from its primary customer. In addition, Arch’s Wyoming subsidiary makes extensive use of capital-intensive conveyor systems to reduce truck haul distances, which in turn reduces both energy consumption and diesel requirements. In total, Arch’s Wyoming operations produce products that provide 200 times more energy than is consumed in the mining process.
Arch’s core metallurgical business segment is comprised of large underground mines that rely principally on electricity as their energy source. In each instance, the primary production equipment at these subsidiary operations — as well as the preparation and loading facilities — are electric-powered. In addition, these mines liberate only modest amounts of methane.
As part of their overall efficiency efforts, Arch subsidiaries employ a variety of demand management methods and equipment to reduce their need to draw electric power from the grid. These efforts include the use of variable frequency drives (VFDs) on large-capacity and electric motor-driven equipment; power correction capacitors; voltage regulators; and demand timing measures.
The use of variable frequency drives (VFDs) on belt conveyors, pressure pumps and mine fans allows motor torque to be matched with output demand, resulting in reduced power draw during times of reduced need. Matching output to demand reduces the overall electrical usage required to operate the mine, and reduces the mine’s draw of power from the national grid.
Further, Arch subsidiaries rely on automatic-switching and power-factor-correction capacitors. These capacitors keep the mines’ power factor between 95 and 96 percent, versus a more typical 88 percent. As an example of what this means from an energy savings perspective, the Leer mine’s power demand for a typical month — at a 95 percent power factor — is 24,000 kVA. Without the capacitors, the kVA demand — at an 88 percent power factor — would be 25,909 kVA. In other words, the use of the capacitors facilitates an 8 percent reduction in power demand, and thus an 8 percent reduction in associated carbon emissions.
In 2019, Arch and its operating subsidiaries acquired 6.3% of their aggregate consumed electricity from renewable sources. Likewise, over the past five years, Arch and its operating subsidiaries have acquired 6.3% of their electricity needs on average from renewable sources.
Emissions reduction efforts at the West Elk mine
Arch’s only subsidiary operation with relatively high methane levels is the West Elk mine in Colorado. As an underground mine, West Elk must ventilate the mining space to reduce methane concentrations to safe levels for miners. The mine employs a combination of forced air ventilation and boreholes drilled from the surface to extract the methane from the mine works as operations progress. West Elk’s intensive and focused efforts have led to a significant reduction in methane emissions over the course of the past decade.
In addition, West Elk has captured and concentrated some of the methane gas generated from within the mine for the past 10 years, utilizing it for heating the ventilation air during cold winter months. This heated air improves equipment efficiency as well as worker safety and comfort, and the combustion of the methane serves to reduce emissions significantly.
Currently, West Elk is working with an outside specialty contractor, in coordination with the state of Colorado, to fabricate and deploy specialized flares designed to combust the methane emitted from the boreholes. These flares should reduce mine methane emissions still further through the elimination of more than 90 percent of borehole emissions.
West Elk has also worked diligently over many years to reduce energy consumption through electrical demand and utility initiatives. These initiatives include:
- The use of capacitor banks and high voltage regulators that enable the mine to normalize the rate of energy draw from the local utility, thus improving overall energy efficiency.
- The deployment of a compressed air system and time-of-use practices, including controls that automatically shut off equipment and conveyors between system demands and during idle times.
- The installation of a blowing fan that has reduced energy requirements by approximately 33%.
In 2019, these efforts resulted in a reduction in energy usage at the mine of more than 2.5 million kilowatt-hours.
Arch is investing between $360 million and $390 million in a high-quality, highly efficient metallurgical mine in West Virginia in a coal seam with very low levels of methane. As an underground longwall mine, it will use electricity as its primary energy source, and its high-quality products will facilitate a reduction in the emissions profile of its customer base. Perhaps most significantly, it will contribute to Arch’s transition from a producer of high-volume, lower-quality products to a producer of low-volume, higher-quality products, which will facilitate the ongoing reduction in the company’s overall GHG emissions. Arch’s transition towards metallurgical mines is accompanied by a transition towards a greater reliance on electricity, which is increasingly reliant on renewable resources. As a result, Arch’s subsidiary operations are systematically increasing the percentage of renewable energy in their aggregate energy use mix. In 2019, Arch’s electricity providers sourced 6.3 percent of their power generation from renewable resources.
Greenhouse Gas Emissions
Arch has been tracking carbon emissions from its subsidiary operations for more than 10 years. The company tracks Scope 1 and 2 emissions — including power purchases, materials usage, fuel utilization, and anthropogenic sources — across its operational fleet to calculate the direct or, in the case of purchased power, indirect functional emissions generated in the mining and transferring of resources. While acquisitions and divestitures, as well as other factors, have caused significant swings in emissions levels on a year-to-year basis, the company’s combined Scope 1 and Scope 2 emissions have declined by 52 percent since 2013 and are expected to fall further as production levels at its subsidiary thermal operations continue to decline over time.
Arch Greenhouse Gas Emissions