Big Oil and Coal Can Ignore Climate Change, But Not the Coinciding Financial Consequences

After years of experts warning against the environmental repercussions of the consumption of natural resources, the big businesses they were trying to appeal to may now be facing the consequences, but from a financial standpoint.

According to the International Business Times, the price of crude oil leveled out to a 12-year low of about $30 per barrel this past week. The news of this price plateau comes only one day after several United States investment firms warned the Wall Street Journal that national oil companies are at an increasing risk for bankruptcy as a result of the continued plunge of oil prices over the past year.

With U.S. oil and gas companies losing an estimated $2 billion per week combined, investment banks, such as Morgan Stanley and Goldman Sachs, warn that oil prices could fall as low as to $20 per barrel.

Some have even described the situation as worse than the 1986 crash in oil prices, which left prices at a measly $10 per barrel.

Between high oil production in the Middle East and overproduction as a result of the U.S. shale boom, as well as low demand from developing nations such as China, have left the price of crude oil plunging since 2014.

In an attempt to allow the market to even out, large oil companies are requesting a temporary price cap, but the Organization of the Petroleum Exporting Countries (OPEC) have refused, saying that it would fix itself overtime.

However, some investors believe they can still profit off of this downswing in the market by purchasing cheap shares in energy companies hoping they will eventually recover.

“Every time you hit new lows there’s the potential for profit taking, and as people try to pick the bottom of the market,” Richard Mallinson, a geopolitical analyst at Energy Aspects, told Reuters.

But oil companies are not the only businesses finding themselves lumped in with the other millions of bankruptcy filings in the United States; there were as many as 1,071,932 just in 2013.

A prolonged downturn in the coal industry has caused the second-largest U.S. coal miner Arch Coal to file for Chapter 11 bankruptcy protection with a set plan to cut $4.5 billion of debt, as reuters.com reports.

Since their acquisition of International Coal Group, Arch Coal has suffered from a sharp drop in coal prices, more extensive pollution controls, an increasing competition from natural gas, as well as a decreased demand from China, just like the oil companies.

Over the past several years, a confluence of economic challenges and regulatory hurdles has hobbled the coal industry,” Chief Financial Officer John Drexler said in a filing with the U.S. Bankruptcy Court in St. Louis on Monday.

Arch Coal’s debt-for-equity agreement will offer control of the majority of the company to senior lenders, which includes Eaton Vance Management Inc, Tennenbaum Capital Partners and Highland Capital Management.

Arch will also be receiving $275 million in debtor-in-possession financing, with another estimated $600 million in cash and short-term investments. Supposedly this should be enough to fund their operations during the restructuring of the company.

While Arch Coal says their shipments will continue uninterrupted, about 25% of U.S. coal producers are currently in their own bankruptcy filings, according to a 2013 estimate of the market’s production.