A new report outlines how Central Appalachia coal production has declined in recent years, production costs have climbed as remaining coal seams get thinner and how the region is increasingly dependent on the high-priced metallurgical coal market for survival.
The report, dated May 14, is from Downstream Strategies LLC of Morgantown, W.Va. Downstream Strategies says it offers environmental consulting services that combine sound interdisciplinary skills with a core belief in the importance of protecting the environment and linking economic development with natural resource stewardship.
An old adage in the coal industry about coal reserves, that at the current time the industry is mining “the best of what’s left,” applies particularly in Central Appalachia, which has been supporting major coal production for basically the whole Industrial Age.
Central Appalachia includes eastern Kentucky, southern West Virginia, southwestern Virginia and northeastern Tennessee. Among the report’s findings were:
- Central Appalachian coal production has declined significantly in recent years and will continue to decline – Production reached an all-time peak of 294 million tons in 1990 and peaked a second time at 291 million tons in 1997. Since then, it has declined by 55% in Tennessee, 44% in eastern Kentucky, 37% in Virginia and 29% in southern West Virginia. As of 2011, regional coal production amounted to 185 million tons—17% of total U.S. coal production. Underground mining has declined substantially, and surface and underground mining now produce about the same amount of coal – The share of regional coal produced by surface mining increased consistently from 1985 through 2007, as surface mining increased while underground mining decreased. Since 2007, surface and underground mines have each accounted for roughly half of regional output, and production from surface and underground mines has declined relatively equally.
- Labor productivity has declined virtually every year since 2000 – Because so many of the thickest seams and easiest-to-access coal reserves have already been mined, more miners are required to produce each ton of coal. Even as coal demand grew from 1985 to 1990—and then again from 1993 to 1997—the number of coal mining jobs decreased, the report noted. This was the result of improvements in labor productivity, which reflected a shift toward greater mechanization of the mining process. At the same time, production was shifting toward surface mining, which requires less labor to produce each ton of coal than underground mining. Another implication of a decline in labor productivity is that CAPP coal mines are more expensive to operate compared with those in other basins and require higher coal prices in order for mines to be economical to run, the report pointed out.
- Employment and tax trends will not necessarily follow production trends – In recent years, employment has grown—despite the continuing decline in production. In 2011, direct mining employment totaled 37,800 jobs. Even as coal production declines in the future across the region, coal mining jobs are projected to increase due the drops in labor productivity. Also, if future coal prices continue to increase, coal-related tax revenues may also increase in some states. However, as a result of the overall decline in coal output, the job and revenue benefits will not be spread evenly across all counties.
- Met coal exports have had a substantial impact on regional coal demand – Foreign exports of Central Appalachian met coal increased by about 16.3 million tons since 2008, and met coal accounts for virtually all regional coal exports, the report said. Because demand for relatively expensive Central Appalachian steam coal is in decline, met coal increased from approximately 13% to 26% of total demand from 2008 to 2011. Without met coal exports, the decline in CAPP coal production would be considerably greater, the report said. The four Central Appalachian states have a different reliance on exports. West Virginia accounted for most foreign exports of regional met coal from 2008 through 2011 (nearly 70%), followed by Virginia (20%) and eastern Kentucky (10%). Tennessee did not export any coal over this time period. Central Appalachia is the nation’s primary domestic source for met coal, accounting for over 80% of all coal shipped throughout the United States for metallurgical purposes between 2008 and 2011.
- Average mine prices and transportation costs for CAPP coal are the highest among the four major coal basins – While the average mine price of CAPP coal used to be similar to those for Northern Appalachian and Eastern Interior coal, it is now noticeably higher. The price differential between Central Appalachian and Powder River Basin coal, mostly out of Wyoming, is big. These differences are due in part to greater production costs in Central Appalachia, but are also related to the increase in met production and exports because met coal commands a higher price than steam coal, the report said. Transportation costs for Central Appalachian coal have been highest among these four regions since at least 2001. The delivered price of CAPP coal—which incorporates the cost of mining and transporting the coal—also continues to be highest in the U.S.