CASPER — A terrible economy curbed energy demand throughout the United States in 2009, slowing coal production in Wyoming for the first time in more than a decade.
After posting a record 467.2 million tons of coal in 2008, statewide production fell about 7 percent to 433.5 million tons in 2009, according to a Casper Star-Tribune estimate. The U.S. Energy Information Administration estimates Wyoming production slipped even further, to 427.4 million tons — close to 2006 levels.
“It’s in line with what we were saying last year. We knew we were going to be down,” said Marion Loomis, executive director of the Wyoming Mining Association.
Wyoming’s coal production closely followed the national trend. Total U.S. coal production was down about 7.8 percent, according to EIA figures. Industry officials say much of the downturn is because of the down economy and slack demand for electrical power, particularly in the manufacturing and industrial sector.
“Across the board, there’s been a decrease in demand,” said Janet Gellici, CEO of the American Coal Council. “There’s been some switching from coal to natural gas in particular (electrical generation) markets, in the southeast and Texas.”
Gellici said flush stockpiles of coal and natural gas helped drive prices downward in 2009, particularly for natural gas. Prices, along with anticipation of federal regulation of carbon dioxide, inspired some electric utilities to switch from coal to natural gas.
Although coal has traditionally fueled the bulk of U.S. electrical generation (50 percent), the nation’s utilities actually have more generating capacity dedicated to natural gas.
However, natural gas may not maintain its modest gain in the utility market. The EIA, in December, forecast that natural gas’ share of electrical generation could slip from 22 percent to 21 percent this year.
“If you go on past experience, the price of natural gas has been extremely volatile. Natural gas spikes, and it’s not unanticipated that that will happen in the future,” said Gellici.
Despite experiencing its first off year in more than a decade, Wyoming’s coal industry is well-positioned to remain strong. Layoffs were minimal. In fact, the industry added about 144 workers statewide during the first three quarters of 2009.
The additional manpower is a matter of increasingly difficult logistics. Wyoming’s 20 active surface mines must chase coal seams deeper and deeper into the earth.
Loomis said he doubts whether the industry can continue to maintain its current level of employment if production continues to slip. But the industry — from shovel to train to power plant — remains bullish on Powder River Basin coal.
Although Arch Coal’s Black Thunder mine idled one of its draglines in 2009, it remained onsite and well-oiled for future use.
Early in 2009, Arch Coal signed a $764 million deal to purchase Rio Tinto Energy America’s Jacobs Ranch mine. When the deal was approved in October, Black Thunder was merged with the adjacent Jacobs Ranch mine, creating the largest coal complex in the world with an annual capacity of more than 140 million tons.
That’s more than 12 percent of U.S. coal production.
Arch’s investment followed several years in which BNSF Railway and Union Pacific poured hundreds of millions of dollars into upgrading their coal carrying facilities — particularly in the Powder River Basin. Industry official estimate that the Powder River Basin is equipped to dial up production to 500 million tons per year, if the market demands.
Also in 2009, Warren Buffett paid $34 billion for BNSF Railway, helping to inject confidence in the long-term future of the nation’s coal industry. Buffett called the railroad purchase an “all-in wager on the economic future of the United States.”
“Warren Buffett is not a dumb guy. And the second-largest source of income for BNSF is coal,” said Schaefer.
Challenges pile up
If the EIA’s estimate of 3.6 percent growth in manufacturing comes to fruition this year, electrical demand in the industrial sector could grow by 1.1 percent. A modest economic recovery could stem declining electrical demand and push total electricity consumption upward 1.6 percent, according to the EIA.
That could be enough to shift Wyoming coal production back into a growth mode.
But industry leaders say there are too many political uncertainties afoot to have much confidence in a stable future.
The U.S. Environmental Protection Agency came down hard on mountaintop removal mining in Appalachia in 2009, and the Obama administration suggested the Office of Surface Mining begin reviews of all state-level mine permits.
The EPA is also in the midst of retooling its standards for mercury, ozone and sulfur dioxide emissions. That’s in addition to moving forward with the regulation of carbon dioxide as a pollutant under the Clean Air Act.
“We’re not looking at a coal-friendly administration here. Not at all,” said Thomas Canter, executive director of the National Coal Transportation Association.
The administration did back off from an idea to demand all coal “bonus bids” be paid up front rather than the typical five-year payment period. That would have been a major expense for Powder River Basin operators where bonus bids — a competitive bid to win the right to develop a federal coal tract — range in the hundreds of millions of dollars each.
However, the industry still feels it is under political pressure on more fronts than ever before.
“It’s all political,” Canter said.
Loomis said there’s new pressure and delays when it comes to leasing federal coal tracts. The whole process from nomination to competitive bid to permitting and finally production can take more than seven years. So any delay is a huge source of concern.
“There are just so many unknowns right now,” Loomis said. “You don’t know if there’s a demand increase, and will it be met with natural gas or coal?”
Contact Dustin Bleizeffer at email@example.com or 307-577-6069.