Regional State of the State: Association Leaders Look to the Future
Recently, I spoke with the leaders of four of the nation’s state coal associations and asked them to discuss their experiences over the past few years, to assess the current status of the industry in their states and regions, and to share their views of the industry’s future strengths and opportunities.
Those interviewed included Phil Gonet, president of the Illinois Coal Association; Rachel Gleason, executive director of the Pennsylvania Coal Alliance; Bill Raney, president of the West Virginia Coal Association; and Travis Deti, executive director of the Wyoming Mining Association.
Headley: Prior to 2008-2009, what was your state’s level of coal production and employment? Has it recovered since the change in administrations?
Phil Gonet – Illinois may be the only major coal state that experienced production growth during the Obama years from 2008 to 2016. Illinois coal production increased over this time period by 32.2 percent compared to a decline of 37.9 percent in U.S. production.
In order to describe the current state of the Illinois coal industry and potential for the near term, it’s important to review the impact of the Clean Air Act amendments of 1990 on the industry. This federal law required power plants to drastically reduce sulfur dioxide (SO2) emissions.
Illinois coal is high in sulfur content. When the SO2 emission limits took effect, most of the investor-owned utilities with coal generation in Illinois switched to using low sulfur coal from Wyoming’s Powder River Basin (PRB) instead of installing scrubbers to use Illinois coal. Since the early 1990s, more than 50 million tons of PRB coal have been transported over 1,000 miles to be used each year in Illinois power plants.
From 1990 to 2003 Illinois coal production was cut in half and the industry lost two-thirds of the workforce. Illinois coal operators had to find markets out of state to survive. Coal production remained in the low 30 million tons per year level until 2011 when production hit 37.4 million tons. Production continued to increase, peaking at 57.8 million tons in 2014. However, the impact of the Obama MATS rule and other environmental regulations which are estimated to close over 400 units and over 75,000 mw of baseload power nationwide began to impact Illinois in 2015. Production declined 25 percent from the 2014 peak before slightly rebounding in 2017.
Rachel Gleason – While we have seen some relief federally in recent years, the coal mining industry in Pennsylvania continues to be heavily regulated, well beyond what is necessary to safely and responsibly mine and reclaim the land once mining is complete.
While other coal mining primacy states generally benefit from a more common-sense regulatory approach, Pennsylvania tends to resist implementing any change from what has been decades of the status quo, even though industry and practices have evolved. As a result, PCA and our member companies are constantly working with, and sometimes against, our state regulators and policymakers to address unnecessary and costly laws and regulations to bring our Commonwealth in concordance with federal requirements. Conformity is needed for our operations to compete with other coal states that don’t have the same state-imposed burdens.
Bill Raney – In 2008, West Virginia’s production was 166 million tons — 97 million underground and 68 million surface. By 2016, production had fallen to 84 million tons – 69 million underground and only 15 million tons surface. The reasons were the loss of CAPP thermal markets due to coal unit closures courtesy of MATS and other environmental regulations, lower overall power and steel demand domestically due to a poor U.S. economy and lackluster export demand for both thermal and met coal. In 2017, production rebounded across the board to a total of 94 million tons. Coal employment (direct) fell from 20,514 in 2008 to 12,213 in 2016. In 2017, employment rebounded to 14,986.
Travis Deti – Everyone knows the American coal industry has seen some tough times these past few years. We (Wyoming) lost about 1,500 jobs and about 100 million tons annually. The abusive over-regulation of the Obama administration was an unprecedented attempt to cripple and end an essential American industry.
The Wyoming mining industry employed over 5,680 people directly in 2017, with each job supporting an estimated two to three jobs in the service and supply industry. During the toughest times, coal still averaged more than $1 billion in annual revenue to state and local governments.
In Wyoming, we don’t labor under a Pollyannaish notion that the positive change in policy direction from the Trump administration is a “silver bullet” to restore the industry to its former heights. However, it has certainly been a welcome and positive change.
Headley: Are you optimistic that you will be able to recover more of the production lost in the Obama years, or is that production “off the table”?
Gonet – With President Trump’s regulatory reset for the coal industry, the future of Illinois coal production can be considered moderately positive. There are several factors for this optimism.
First, there is an abundance of coal in Illinois. According to the Illinois State Geological Survey (ISGS), at one time there were about 210 billion tons of coal beneath the state’s borders. To put in round numbers, Illinois has about 100 billion tons of recoverable coal or enough to meet the country’s needs for over 100 years. The energy content in Illinois’s coal reserves is greater than the energy content of the oil in Saudi Arabia and Kuwait combined.
Second, Illinois coal operators know how to get their product to the end users. For over 25 years 85 percent of the coal produced in Illinois has gone out of state. The Illinois coalfields have logistics alternatives and are bounded by the Ohio and Mississippi rivers and provide a way to get the product anywhere in the country and the world at a reasonable cost.
Gleason – Our regulators need to recognize that not only do our operators compete against operators in other coal-producing states, but we also compete against an abundance of natural gas which has led to low gas prices and the development of gas-fired electric generating facilities. Competition with natural gas is what a competitive market demands, but when government offers massive subsidies for renewable electricity that distorts the market by incentivizing generators to sell power below the actual production cost, or states like Pennsylvania mandate renewable production, the market is disrupted and consumers lose.
Thus, absent reforms to level the playing field and make competition fair, we must focus on the cost of production. By ensuring the cost of production is not excessive due to over-regulation and other requirements, our producers have a better chance of competing and operating within their margins to provide thermal coal for affordable electricity generation.
Raney – While we are confident coal reserves are available to meet an increased demand, a portion of the market has been forever lost as a result of the Obama-era regulations, particularly MATS. Some portion of the domestic utility market is gone, but given West Virginia’s coal quality, we could regain some share of the demand that remains if we can lower our regulatory costs (regulation and severance taxes).
Deti – No serious person involved with Wyoming coal believes over-regulation to be the sole cause of the industry’s downturn. The rise in the competitiveness of natural gas is a huge market factor, but fair competition in the market is a good thing. Easing unfair, punitive regulation intended solely to make coal less competitive is also a good thing and should not be downplayed.
We must also not forget the rise in renewables is a perfect illustration of government playing favorites through tax breaks, subsidies, mandates and favorable regulatory treatment. But all of the special treatment in the world cannot make these power sources reliable.
Headley: Where do you see your state and region’s coal industry in 20 years?
Gonet – Illinois coal mines are among the most productive mines in the country when measured by tons produced per man-hour. Most Illinois underground coal mines have seams that exceed six feet, making the coal relatively easy to extract. In a shrinking market, the low-cost producer will prevail. The near-term prospects for the Illinois coal industry are positive.
Gleason – Opportunities for metallurgical coal are often market-driven, and companies need to be structurally well positioned to survive the ebbs and flows of pricing and demand, both domestically and globally. While over- regulation impacts the cost of doing business, it also impacts our customers, such as iron and steel manufacturers, who, like coal, face some of the most stringent state-imposed regulations in the country. When those industries are competitive and thriving, and when investments are made in infrastructure and manufacturing, a demand for coal is created, industry confidence is secured, steel is being made, bridges and pipelines are being built, and cars and refrigerators are being manufactured.
Raney – Hopefully, with a bigger piece of the remaining domestic thermal coal demand as the remaining power plants seek the highest quality coal for their feedstock. As the world demands more energy, coal is the most available resource and West Virginia offers the best coal, with an established export infrastructure and workforce in place.
West Virginia will continue to dominate the domestic met and export met markets, provided action is taken to stem the closure of U.S. power plants and regulatory costs and government burdens (severance taxes) are reduced/rationalized.
Deti – While Wyoming coal is indeed operating with a “new normal”, coal mining remains a bedrock industry for this state and the nation. And it will remain so for the foreseeable future. It is far, far too early to write its epitaph.