To hear folks from the coal industry — and their politician friends — talk, you’d think that the Obama administration’s move to more closely review mountaintop removal permits has brought coal production across Appalachia to a halt — or at least driven mine operators to the brink of thousands of layoffs and economic ruin.
Take state Senate Majority Leader Truman Chafin, D-Mingo, who told a statewide radio audience in West Virginia yesterday:
We’re going to see layoffs like you’ve never seen before real soon.
Or state Senate President Earl Ray Tomblin, D-Logan, who warned the U.S. EPA in a letter last month:
It is of the utmost importance that this situation be resolved not in a matter of weeks, but days.
Such statements make local political leaders sound pretty tough — slapping around some bureaucrats in Washington, D.C., is always an easy thing for these guys to do.
These comments also fuel fear among hard-working coal miners and their families. They put pressure on regulatory agencies to back down, or make much quicker — and perhaps less thoughtful — decisions than a calmer, more reasoned debate might produce. They’ve helped the coal industry get out huge numbers of people at public meetings, and generated an atmosphere that is hardly healthy for a real discussion of mountaintop removal’s future.
But are these statements true? Is there a mountaintop removal permit crisis? Not if you believe what executives from the region’s largest publicly traded coal producers are telling industry analysts and corporate shareholders.
Over the last two weeks, coal company officials have repeatedly told stock analysts and their shareholders that they’re in pretty good shape for another year, maybe two … seems like plenty of time for everyone to sit down and come up with a workable solution without scaring workers and threatening environmental activists.
Take Massey Energy President Don Blankenship, for instance. During a conference call last week with coal industry stock analysts, Blankenship was asked about the impact of U.S. EPA’s permit reviews on Massey Energy operations:
They are very safe in detail in ’10. In ’11 if we had a issue with permitting on a surface mine, we would go to more deep mines … We will be and keep ourselves in a position to make those volumes or more irregardless of which way the permitting issue evolves.
But certainly if we get a lot of pressure from the permitting side that continues on into ’11 we will begin to get restricted to some extent and we’ll probably see a little bit higher cost on surface mining because of the placement of the material and perhaps move a little bit more to deep mining.
That’s not to say there aren’t issues … but are they as serious as the National Mining Association and state-based coal lobby groups are trying to make it sound?
Mike Carey, president of the Ohio Coal Association, had this to say about EPA’s permit reviews:
EPA is playing with fire. More importantly, the agency is playing with people’s livelihoods. The implications of their delaying tactics will be felt throughout this state’s economy.
Bill Caylor of the Kentucky Coal Association said:
EPA’s hit list was compiled by people in Washington who are entirely insulated from the consequences of their actions and far removed from the families and communities affected by them.
And my buddy Bill Raney, president of the West Virginia Coal Association, said:
People all over West Virginia can’t believe this is happening. They don’t understand why Washington is willing to kill-off good paying jobs when our economy is still on the ropes and the unemployment rate is still unacceptably high.
Are things really as bad as Carey, Caylor and Raney make them sound?
One permit that’s gotten a lot of attention is the Spruce No. 1 Mine. Arch Coal subsidiary Mingo Logan Coal Co. has warned that at the Spruce Mine — the subject of a pending permit veto effort by EPA — it “must soon develop more fill capacity or cease operations.” But that mine currently lists just 26 workers. And its permit dispute with EPA didn’t even merit a mention in Arch Coal’s recent quarterly financial report or earnings conference call.
Or consider Patriot Coal subsidiary Hobet Mining’s Hobet 21 expansion project — called Hobet 45 — down along the Boone-Lincoln County line in Southern West Virginia. It’s one of the last large surface mines working under a United Mine Workers contract. It employs 325 people.
We’ve discussed this permit before, and reported on Patriot’s concerns that without the new permit its dragline would have to be shut down. But the company said it didn’t expect to lose much production until the second half of 2010, and that it was exploring options that could keep that mine working. More recently, state regulators reported that Patriot and EPA had reached a deal on this permit, averting layoffs at the Hobet operation.
During a conference call with industry analysts last week, Patriot CEO Rick Whiting said the permit hasn’t gotten final approval yet, but expressed some optimism about the situation:
We do not have it in hand. We continue to provide answers to questions and have meetings with the regulators and in fact I think we are going to make a new submittal, I guess, I’ll call it a partial submittal or an adjustment to previous submittal by the end of this week, and we continue to keep the dialogue open and respond to their request, and I believe we are making progress, but we do not have a permit at this point.
Of course, in an opening statement, Whiting gave the standard coal industry line about the EPA permit reviews:
Currently surface mining provides almost two-thirds of Central Appalachian thermal coal. So, we look with great concern on the EPA decision to further review all 79 surface mining permits pending with the Corps of Engineers.
If future permits are not granted and important source of low cost fuel for electricity will be eliminated that will mean higher utility cost for many Americans. Unfortunately the EPA’s decision adds further uncertainty for coal producers, our employees, our customers, and our investors.
But, one analyst asked, is Patriot facing serious problems with any specific permits other than Hobet 21? Whiting responded:
I think that anything else that we have in our lineup it becomes more of an issue [when] you get to mid 2011.
In fact, Whiting went on to say that Patriot already has some permit approvals in the area where it previously shut down its huge Samples Mine, and might seek more permits in that area, but not until probably 2012:
Obviously at some point in time we have other opportunities, what was Paint Creek, which is the area, where Samples previously operated, we have some other reserves already permitted out there and we have another large block that we would be seeking a permit for sometime in the future probably all those we get done in by 2012 up there we would be a good shape for that fits in to our strategic plan and when we think we would like to bring those terms online.
So, as we get in to 11 and 12 no permit scenario, we can’t run and hide from that any more than in the rest of the industry can. I think we are probably a typical profile that if our production drops down over the next three or four years, if we don’t get any permits, but I think anything that’s going to affect ’10 is pretty well the Hobet 45 that has gotten so much fame of light.
The only layoffs that I’m aware of that have so far that have been attributed to EPA’s permit reviews were announced last month by International Coal Group Vice President and General Counsel Roger Nicholson during that crazy Army Corps of Engineers mountaintop removal public hearing here in Charleston.Nicholson said the Obama administration has enacted a “de facto moratorium” on new permits that is “strangling the Appalachian coal industry.” Nicholson said that at one ICG opreation, permit delays caused a sequencing problem, closure of certain equipment and loss of jobs.
After the hearing, I asked Roger for some more details on what happened. Here’s what he said:
… Delay or non-issuance of permits has directly contributed to layoffs at both our ICG Eastern operations (38 workers laid off) and ICG East Kentucky operations (10 workers laid off).
By way of explaining what permit delays mean to mine operators, he added:
The practical effect of delay in issuance of permits is that a mine is often forced to change its mining sequence when permits for logical extensions of an operation are delayed. This raises costs and can render an operation uneconomical, and, of course, permitted coal reserves can be exhausted, which can lead to closures and layoffs without the issuance of new permits for additional areas.
Over the last few weeks, I’ve repeatedly asked ICG for more details. I wanted to know exactly what happened at these operation, to understand specifically how EPA’s permit review contributed to the layoffs. Finally, I got this response from Roger yesterday:
We are not going to comment in detail about specific permits. Mining is a very complicated, engineering-intensive business. Permits are the life–blood of any mining company’s business, and companies plan specific operations, as well as subsequent mining areas for those crews to “go-to” when existing operational areas are exhausted, well in advance. The delays in mining permit issuance is a contributing factor to those operational changes that I mentioned in my initial statement. As we have stated publicly, the mining permit delays have not yet caused a material negative effect on ICG’s financial performance overall.
In a conference call last week, ICG President Ben Hatfield repeated this idea that there’s a “de facto permit moratorium” instituted by the Obama administration:
It is inevitable however, that all Appalachia and coal producers will face more significant operational difficulties unless the administration de facto moratorium on coal permit issuance is listed and permits for both surface and deep mining operations are issued without undue delay.
Hatfield also made what appears to be a perfectly reasonable point: That the coal industry wants clear direction from EPA about what is wrong with the permits is is reviewing and what needs to be done to fix them:
Our strategy would be easier to find, if could find some method to the madness part. Frankly, when they won’t even give us a good excuse of what they are looking for or what their problems are, we don’t, quite know how to react.
I’m hoping to discuss this particular issue in more detail in a future post. For now, though, it is important to look at what Hatfield said when asked about specific operational problems the EPA permit reviews were (or weren’t) causing his company:
Well, the short answer would be essentially our higher costs impact certainly. We do not see in the permits that are teed up for scrutiny at this point anything that’s likely to cause us to have to literally shutter production in that two year time horizon. But certainly there is a cost impact that even there as we speak in the current period, because when you don’t get permits for new valley fills that means you have to haul the material further.
We are fortunate to have locations, particularly at Hazard in ICG, Eastern locations, where we can haul the material little further and maintain our more or less our current production output. But there is a cost connected to that. So in the near term I would say more pressure on higher costs because we don’t have the permits approved and certainly over the more extended period I would say beyond the two year horizon, substantial risk of production shutting and quite literally as existing mines are depleted and the successor permits are simply not approved at that stage.
In addition, consider this:
But our overall plan as you know probably from following our… for a period of time, most of our growth is on the underground side. Beckley with a big piece of our growth, Center with a big piece of our growth and continuingly we expect to develop the Tygart project beginning in 2011. That’s another major step up on underground production.
Roger Nicholson would want me to point out here this quote from him regarding that Tygart Mine, an underground operation proposed for Taylor County, W.Va.:
Of course, as you are also aware, anti-mining extremists have been contesting the state permit for ICG Tygart Valley’s deep mine–one which will create hundreds of new jobs in Taylor County–for a couple of years now.
But overall, here’s what Hatfield said about the future:
So I think you would generally see our company particularly in the industry, in many cases favoring, bidding on both on the underground side as of somewhat safer haven so to speak because of the uncertainty as to how long it takes or even whether you can get a surface mine permit approved.
So I think that the short answer is moving more of our focus on expanding underground operations and looking particularly at our subs operations or locations where we can continue producing without new adequate, not letting not putting material back on existing bench or reusing an older field. So there are some strategies that help us bridge that period of time, but the industry overall is going to see a negative impact to production output and particular to surface mining in Appalachia.
Consider what the folks from CONSOL Energy had to say in a conference call with industry analysts two weeks ago. CONSOL President Brett Harvey explained that his company has some exposure to mountaintop removal mining permit issues because of its purchase two years ago or Amvest Corp. But, Harvey didn’t indicate any crisis there, even though at least one Amvest permit is among those being examined by EPA:
… That permit right now, we are running the biggest mines that we have in Amvest , and they are running on year to year permits. We had five other permits in the queue, and those permits were more expansive type, and we’ll continue to push for those permits, but it’s not in our 2010 plan at this point in time.
Harvey called the mountaintop removal issue in the Central Appalachian coalfields “a very poignant issue” and said it is “critical to get permits there.” But he also said:
We have low exposure to Central App, but we think it will affect Central App in a big way that could translate back into an advantage for Northern App because we have very big mines that are well capitalized and have 20 to 25 year lives … We would rather see everybody get permits and be competitive, but if there is a positive for us, it does push value back to Northern App if Central App continues to struggle based on permitting.
And, even Don Blankenship seemed to be saying that EPA was doing his company a favor by taking a closer look at some of the pending mountaintop removal permits held by his company’s competitors:
We believe we have a 100 million tons of thermal coal or surface mining coal permitted and that we have lots of opportunities to get permits in manners or in ways that comply with these laws, but we always worry about what EPA and others will do next, as far as frustrating that process.
But relative to other companies we feel very good and we think that at least in the short term that we would benefit from the permitting process being frustrated but we’re certainly not in favor.
I mean one of the reasons that we bought in prompt delivery coal in the third quarter and let our fixed coal volumes suffer was is that it allowed us to add a couple of mines that are fully permitted that were sort of left in storage in case the permit issue worsens and the prices improve.