Clean Energy Action, an anti-coal group, on Oct. 30 released a report claiming that America does not have 200 years in coal “reserves” as is often claimed by pro-coal supporters, and that the real figure could be as little as 20 year.
Notable is that the coal industry has known for years that the federal government claim of 200+ years of coal is something of a myth. Certain heavily mined areas, like Appalachia, especially Central and Southern Appalachia, have been tapped of their best coal reserves and has seen falling coal output in recent years. Northern Appalachia has some undeveloped, longwall-capable Pittsburgh seam coal reserves that could at least sustain that region’s current production over the next 10-20 years.
But, there are vast coal reserves in other places, like remote Alaska, that are too far from any major market to be viable. Also, in the highly-prolific Powder River Basin in Wyoming, there are billions of tons of coal reserves located under deeper cover to the west of existing mines that are not economic to mine, at least right now. The Montana end of the PRB also has huge coal reserves. The Gulf Coast and Montana-North Dakota regions also have huge lignite reserves, but that low-Btu coal can only economically move to nearby power plants.
Clean Energy Action (CEA) said that reserve estimates have been overstated since much of the coal that is now left in the ground cannot be mined profitably. The CEA analysis shows that the U.S. appears to have reached its “peak coal” point in 2008 and now faces a “rocky” future over the next 10-20 years of rising production costs, potentially more bankruptcies among coal mining companies, and higher fuel bills for utility consumers.
The bankruptcy reference is largely to Patriot Coal, the only major U.S. coal producer to be in bankruptcy protection in recent years. Patriot has reworked its finances and may emerge from Chapter 11 protection in the next few weeks.
The CEA report concludes: “The belief that the U.S. has a ‘200 year’ supply of coal is based on the faulty reporting by the Energy Information Administration (EIA) of U.S. coal deposits as ‘reserves.’ Most U.S. coal is buried too deeply to be mined at a profit and should not be categorized as reserves, but rather as ‘resources.’ The report recommends that decision makers at all levels should begin taking a hard look at coal cost and supply issues considering both geology and finance and begin thinking about scenarios that require moving the US beyond coal in significantly less than 20 years …. In short, the EIA’s reporting of over 200 billion tons of ‘Estimated Recoverable Reserves’ for US coal supplies has been like a ‘faulty fuel gauge’ for US coal estimates.”
The report claimed that significantly less than 20% of U.S. coal formations will likely be economically recoverable for mining purposes. Given the current financial strains affecting U.S. coal companies, it is unclear whether they will be able to support the increased capital and labor costs associated with mining coal that is more difficult to access, CEA added.
Report points to rising coal costs for power generators
The cost of coal used by electric utilities has been rising in almost all states at a rate of 6%-10% per year or 2-3 times faster than inflation over the last decade, CEA said. Since 2004, average U.S. delivered coal costs have increased at a rate above 7% per year. At a rate of more than 7% per year, coal costs will double in less than a decade, as they have done in a number of states since 2004, CEA said.
It added that the 12 states with the highest annual increases in the cost of delivered coal from 2004-2012 are (from highest to lowest): Mississippi (12.54%), Montana (11.64%), Nebraska (11.17%), Indiana (10.03%), Michigan (9.92%), Louisiana (9.68%), Maryland (9.59%), South Carolina (9.58%), Wisconsin (9.34%), New York (9.22%), Missouri (9.2%), and Pennsylvania (9.05%).
Leslie Glustrom, director of research and policy, Clean Energy Action, and author of the study, said: “Economically viable coal is a nonrenewable resource, and after examining currently available geological and financial data, there is good reason to believe we are rapidly reaching the end of US coal deposits that can be mined at a profit. If coal can’t be mined at a profit, not much of it will be mined.”
Tom Sanzillo, director of finance, Institute for Energy Economics and Financial Analysis, said: “The rising cost of production is THE sleeper issue for those who follow coal and energy markets in the United States.”
While it is unknown what the future holds for the U.S. coal industry, there could be significant disruptions in the next five to 10 years as several top U.S. coal companies have lost over 80% of their stock value and are facing debt payments in the next three-seven years that already have interest costs of 6% and above, CEA said.
As the cost to produce US coal increases, coal company profit margins have thinned and for some producers, profit margins have become negative – particularly from eastern mines, CEA added.
It added that utilities and investors have already made investments of hundreds of millions of dollars or more in coal plants that have either been lost or are likely to become stranded, including:
- the “legendary” investor Warren Buffett, who has written off over $1.3bn in investment in the heavily coal-dependent Energy Future Holdings of Texas;
- AES Eastern lost several hundred million dollars when two New York coal plants went bankrupt and were sold to bond holders for $240m while their original cost was approximately $550m;
- the decision by FirstEnergy to idle the huge Sammis coal plant in Ohio after investing over $1.8bn in pollution upgrades; and
- the recent decision by Energy Capital Partners to close the 1,500-MW Brayton Point coal plant in Massachusetts despite a recent investment of over $1 billion by a prior owner in plant upgrades.
Clean Energy Action is based in Boulder, Colo., and works at the local, state and national level to accelerate the transition to the post-fossil fuel world based on clean energy.