Economy

Kentucky is hit hard as its coal suffers a slow burn

An aerial view of a surface mine a few miles from Sassafras/Vicco in Knott County, Kentucky, can be seen, June 12 2013. (Charles Bertram/Lexington Herald-Leader/MCT)
An aerial view of a surface mine a few miles from Sassafras/Vicco in Knott County, Kentucky, can be seen, June 12 2013. (Charles Bertram/Lexington Herald-Leader/MCT) MCT

Although the national rate of shuttered coal mines slowed this year, struggles in Central Appalachia continued, with Kentucky leading the nation in the number of coal mines being taken off-line.

Central Appalachia’s problems have come even as the United States sharply increases imports of coal, taking advantage of cheap mine labor in Colombia.

Sixty-four coal mines were idled nationwide in the first half of this year. That’s about half as many as in the final six months of last year, according to data compiled by the energy research firm SNL Financial.

Analysts said this year’s reprieve for coal had to do with the rise in prices for its biggest competitor, natural gas, as well as a frigid winter that produced an unprecedented energy demand.

Even with upcoming federal environmental rules aimed at air pollution and global warming, U.S. coal production is forecast to go up both this year and next.

But Central Appalachia – which comprises Eastern Kentucky, southern West Virginia and southwest Virginia – still has struggled, representing the majority of the idled mines in the first half of the year and nearly 76 percent of the resulting drop in coal production.

Twenty-one of the idled coal mines were in Kentucky, according to SNL, although most were relatively small. Eastern Kentucky’s coal production rose sharply from April 1 through June 30, leading to optimism for a potential rebound, but long-term forecasts for the area aren’t encouraging.

“The region continues to be assaulted from all sides,” SNL Financial said in an analysis.

That includes from South America. At the same time the Central Appalachian mines were being shuttered, U.S. imports of coal jumped 43 percent in the first six months of this year, according to the federal Energy Information Administration.

Cheap foreign coal and problems shipping U.S. coal by rail within the country “made imports an attractive alternative to domestic coal, especially to power plants located in the eastern part of the country,” Energy Information Administration head Adam Sieminski said in a statement.

American rail companies are increasingly shipping oil, which is far more profitable than coal, as the country pumps more of it. The competition with oil for rail cars has led to problems for U.S. coal companies in getting their product delivered to power plants.

Nearly three-quarters of U.S. coal imports are coming from Colombia, where mining labor costs are cheaper. The Colombian coal is brought on ships to power plants along the Gulf of Mexico and the Atlantic coast, avoiding competition with oil for rail space.

Colombia increased its coal production 16 percent in the first half of the year, according to research firm IHS Energy.

Meanwhile, the cost to mine Central Appalachian coal has been rising steadily as miners have to go deeper and deeper to get to the coal seams. That helps give Colombian coal an edge, said Elias Johnson, coal analyst for the Energy Information Administration.

“Appalachian coal has been mined for quite a while. The lower-hanging fruit, the cheaper coal, has been mined there already,” he said.

The century-old industry in Eastern Kentucky has undergone a major decline in the last several years, he said, with mine closures and thousands losing their jobs.

Foreign coal remains a small part of U.S. consumption, but Central Appalachian coal is especially vulnerable to the competition as it loses market share to natural gas and coal from elsewhere in the United States.

“We’ve seen a decline in expensive eastern coals and we’ve seen a rise in production in cheaper western coal basins like the Powder River Basin and particularly the Illinois Basin,” said James Stevenson, the director of North American coal analysis for IHS Energy.

The nation’s fastest-growing coal region is the Illinois Basin, which produces coal that’s cheaper than Appalachia’s and burns hotter than coal from the Powder River Basin of Wyoming, which enables it to provide more electricity. The basin extends from Illinois into the western parts of Indiana and Kentucky.

Illinois Basin coal was long overlooked because it tends to be high in sulfur, which produces acid rain. But environmental regulations have forced utilities to install scrubbing technology to remove contaminants.

The Illinois Basin’s share of U.S. coal production is forecast to grow from 13 percent to 20 percent by 2040.

  Comments