Coal job numbers: Looking to the future

August 9, 2012 by Ken Ward Jr.

Gazette photo by Chip Ellis

If you missed it, we had a story in this morning’s Gazette (posted online last night) that provides the first glimpse at government data reflecting the jobs impact on the layoffs various coal operators have announced since the first of the year. Here’s a bit of that story:

Coal-mining employment in West Virginia dropped by nearly 1,300 jobs in the second quarter of the year, according to preliminary numbers that illustrate the coal industry’s continued decline in the face of cheap natural gas, declining reserves, and competition from other coal regions.

New data from the U.S. Mine Safety and Health Administration put coal employment at about 23,300 during the period from April to June, a decline of about 5 percent over the previous three months.

The numbers are the first government statistics to reflect recent layoffs across the state’s coalfields. But some observers said they also show coal employment remains surprisingly strong, given the political campaign that alleges new environmental rules are destroying the industry.

Current statewide numbers are roughly the same as the last full quarter of George W. Bush’s presidency, according to jobs numbers mine operators report to MSHA.

West Virginia mining employment is up by nearly 1,800 jobs — more than 8 percent — since the Obama administration began initiatives aimed at cracking down on mountaintop removal mining. And, the most recent quarter’s figures show the seventh-highest number of jobs over the last 40 quarters, or 10 years.

So everyone is clear, many of the layoffs took effect in the second quarter of 2012, so they weren’t included in the first-quarter data that we previously published in the Gazette and discussed here on Coal Tattoo (see here, here and here).  And for those not familiar with the data, it’s reported to the government by coal operators and published by the U.S. Mine Safety and Health Administration, though various other agencies also keep similar figures.

What to make of all of this?

First of all, there’s simply no question that for the miners and families personally hit by these layoffs, it’s terrible news.  Roger Horton, a miner who started the group Citizens for Coal, spoke from personal experience when he testified to Congress last year about how mine closures can impact families and local communities:

The workforce and local union were obviously devastated but the county was also severely damaged. The school system and social welfare programs lost revenue that was vital to their existence and operation.

Entire communities were devastated. With nowhere to work and no prospect of the mine reopening any time soon, residents packed up and moved to other states to find lower paying jobs. Businesses that relied on the mine for their income — gas stations, restaurants, repair shops and equipment vendors — vanished.

But it’s also important, from a larger public policy standpoint, to put what’s happened and what is happening in context, and to base discussions about it around the facts — not the scare tactics of the mining industry’s public relations machine, the nonsense of President Obama’s coal-related campaign ads, or the rhetoric of those who don’t always fully understand the role coal still plays in many communities here.

Clearly, the net loss of 1,300 jobs to any industry in West Virginia is a troubling economic trend, right? Everybody can agree on that? But is it the end of the world, sky is falling, destruction of an industry that supporters fear and some opponents actually celebrate?

Remember that coal is a boom-bust industry. As the West Virginia Center for Budget and Policy has warned, by relying so heavily on one boom-bust industry for so long, West Virginia puts itself at risk for what happens when things go bust:

However, natural resource extraction tends to lead to economic boom and bust cycles, as production grows and shrinks, energy prices rise and fall, and the resources themselves are depleted over time. West Virginia has experienced this pattern over the past century. Since the state is so dependent upon natural resources, this pattern of booms and busts causes volatility in revenue streams, leaving communities vulnerable, underdeveloped, and less economically secure.

And a quick look through the MSHA data shows that large fluctuations in coal job figures from quarter to quarter is hardly that unusual. In the last 38 quarters, total mining employment in West Virginia has increased or decreased by 700 jobs or more at least a dozen times from one quarter to the next. The change last quarter was the third time job numbers increased or decreased by more than 1,000 from quarter to quarter in the last decade.

So it’s not as easy to conclude — as some might want to — that this is just terrible, awful, tragic news that is almost the end of the world for West Virginia. One might just as easily conclude that this sort of fluctuation in jobs figures is not all that terribly unusual, at least not in this particular industry.

On the other hand, keep in mind that one of our state’s largest coal producers just reported a $2 billion — again, to all of my former and current editors, that is supposed to be a B — loss, mostly because of charges it took to write down the long-term value of its assets. Alpha Natural Resources emphasized that:

None of these charges are anticipated to materially impact the company’s liquidity position or the future operation of its business.

But on paper at least, a major coal company is admitting that it is worth a couple billion dollars less than it thought. Alpha spokesman Ted Pile provided this comparison in an effort to explain what this all means:

An analogy would be, for example, if you bought a house for $150,000 in the run up to the last recession, and learned through an appraisal today that the current market value is $100,000. The value of your asset (the house) has been impaired by $50,000.

And in case anyone didn’t catch it, it’s pretty clear from looking at what companies like Alpha and Arch Coal are saying that they are indeed looking at a major restructuring that includes long-term reductions in their presence in the Appalachian steam coal market. As we reported in today’s Gazette print edition story:

Alpha said it plans to continue to “optimize” its Appalachian operations “by adjusting our footprint, idling high-cost thermal coal and lower-quality metallurgical coal production, while focusing on our higher-margin metallurgical products.”

“We sincerely regret the impact our production curtailments have had on good employees and their families, but the market environment with which we are faced left us no other options,” Crutchfield said. “We will continue to evaluate market conditions and will make further adjustments if market conditions warrant.”

Late last month, Arch Coal said it was also making moves toward “realigning our Appalachian asset portfolio towards” mines that produce steel-making coal.

“Given the muted outlook for domestic thermal coal in that region, we’ve taken the hard step and idled five higher cost thermal operations that were unable to earn an adequate return in the current market,” said Arch CEO John Eaves. “It was a difficult, but necessary, decision that was made to enhance our competitive cost structure in Appalachia and to position Arch for long-term success.”

At the same time, many folks in the coal industry seem to be starting to come to grips with the fact that their effort to blame all of this on the Obama administration isn’t working.  Even West Virginia Coal Association President Bill Raney seems a little tired of spouting that line, even though the industry front group Friends of Coal continues to try to pretend this is an armed conflict. When I spoke with Bill yesterday about the MSHA data, he was still saying that EPA’s more detailed permit reviews were a big factor for many operators, but he also conceded that there are many other factors — the mild winter, declining reserves, cheap natural gas, competition from other coal basins — at work:

All of it kind of accumulates and comes together on you.

In particular, Bill said:

There’s not any surprise in this. You’re talking about a declining reserve anyway. We mined the low-hanging fruit a long time ago.

Tom Witt of WVU, right, and Cal Kent of Marshall University discuss the coal industry economic impact study they performed for the West Virginia Coal Association.

With all of that said, there is no denying that there are real consequences here. In their report on the West Virginia Coal Economy, WVU and Marshall professors outlined clearly coal’s many economic benefits to the state and to local communities. As we covered here on Coal Tattoo when that report was released:

… Here’s the summary of what Witt and Kent report:

– Coal provides more than 63,000 direct and indirect jobs

– Coal provides a total business volume of $25.53 billion

– Total employee compensation from coal was nearly $3.6 billion

– Total value added was $7.6 billion.

Bottom line?

Preliminary estimates released by the U.S. Bureau of Economic Analysis indicates that for 2008 mining, which includes coal mining, oil and gas extraction and support activities for coal, accounted for $5.7 billion or 9.2 percent of GDP in West Virginia.

The report also outlines the ripple effect of the industry:

For example, a coal mining company may purchase supplies from an office supply store. The office supply store, in turn, purchases manufactured goods, utility services, and pay employee wages, among other expenditures. The continued backward linkages from organizations buying from their suppliers, and suppliers purchases from their suppliers, etc results in a continued respending of these funds. The induced economic impact of the industry represents the expenditures by households of the income they received associated with the direct and indirect impacts. For example, the individuals employed in a coal mining company earn wages and salaries, a portion of which they spend locally on the consumption of goods and services.

That’s only common sense, as is the fact that the economic impacts travel the other way too:

Once West Virginia coal has been mined, several industries create economic impacts using that coal and these additional economic impacts were also quantified. The additional analysis include the economic impact of taxes paid to the state and local government, the economic impact of the transportation of West Virginia coal, and the economic impact of the use of West Virginia coal in the generation of electric power within the state.

Of course, the problem with the WVU-Marshall study is it only looked at the positive economic impacts of coal mining, and — as I also wrote at the time it was released — did not make mention of any of the negative impacts (except to reduce any effort to curb those negatives to something that might inhibit industry growth):

You have to wonder why some other things weren’t at least mentioned in the study …

– The work of WVU’s Michael Hendryx (which — unlike Witt and Kent’s report — was published in peer-reviewed journals) to document the fact that coal costs Appalachia more in adverse health-impacts and premature deaths than it provides in economic benefits.

– The recent study (also published in a peer-reviewed journal) that documented the scientific consensus that mountaintop removal’s environmental impacts are “pervasive and irreversible.”

– Another study (not peer reviewed) commissioned by the Sierra Club that found that limits on mountaintop removal would not shut down the entire West Virginia coal industry or kill the state’s economy.

– A study in Kentucky that concluded coal there takes $115 million more annually from the state in services and programs than it contributes economically.

– A National Academy of Sciences study that documented $62 billion in hidden costs — in the form of health impacts — from the nation’s coal industry.

Another series of reports, by Downstream Strategies and the West Virginia Center for Budget and Policy (see here, here and here), examined another question that often has folks ringing their hands: The potential impact to the state’s coffers from a decline in the coal industry.  The results? Coal costs the state government $42 million more each year than the industry brings in — not exactly the bonanza that most people might think.

So you see, this is all really more complicated than it’s often made out to be in the back-and-forth public relations campaigns, in the media coverage, and even in the way most of us talk about it every day (if we talk about it at all — it’s not really clear that most West Virginians are nearly as focused on these issues as readers of this blog). It’s also certain that much of the discussion is aimed at narrow goals (stopping mountaintop removal, defeating President Obama, just for example) that alone don’t speak to the challenges facing a region where a major employer just said its long-term business is worth $2.5 billion less than it thought.

But to go back again to a couple of important things, also mentioned in today’s print story:

Over the next 25 years, the projected coal share of overall U.S. electricity generation is expected to fall to 39 percent, well below the 49-percent share seen as recently as 2007, according to DOE.

At the same time, DOE projects that coal production in Central Appalachian — mostly Southern West Virginia and Eastern Kentucky — will drop by more than half between 2011 and 2035.

Maybe those numbers are wrong. Maybe gas prices are on their way back up. Maybe heat waves will continue and we’ll have a terrible winter this year, and coal demand will go back up.

Even if those things happen, and the next quarter and the next quarter and the next quarter don’t bring even more coal layoffs, aren’t some of the things that West Virginia might do to prepare for a coal collapse things that would be good ideas even if coal rebounds?  Does anybody really think it’s a bad idea to set aside some of the profits from our state’s coal industry to provide for future infrastructure needs? Does anybody think it wouldn’t be good to improve our educational system, create green jobs by cleaning up past coal messes, or even just talk more openly, honestly, and constructively about the challenges we face?

6 Responses to “Coal job numbers: Looking to the future”

  1. Lorilee Taylor says:

    I moved from WV in 1983. I believe that was the begining of the fall of the coal mines in WV. No one could find a job. I would love to move back home to the land I love and live close to my parents. There is just not enough work there and without the mines working it doesn’t generate enough jobs for other folks. It’s really a terrible thing. And it would be wonderful if we could find a way to start some green projects to generate some work. Thanks for listening.

  2. Matt Wasson says:

    I don’t think we should let Bill Raney and others in the industry so easily get away with comments like “All of it kind of accumulates and comes together on you” when talking about the combined impacts of natural gas prices, mine safety and environmental protections, and updated regulations on coal-fired powerplants on coal’s competitive position in the marketplace.

    I mean, it sounds awfully reasonable on the surface (most of what Bill says usually does), but it doesn’t actually reflect how markets work.

    A useful way to think about supply and demand for coal is to think about a water pipe with a faucet. If you have a 6” pipe leading from the water source (productive capacity of active mines), but only a 3” pipe leading to your faucet (coal demand), then it doesn’t matter if you have a couple of 5” sections along the way (safety and environmental regulations) because the limiting factor, or the bottleneck, is the faucet (demand for coal).

    Ah hah, you say, but the EPA (or is it the Sierra Club?) is shutting down power plants, which reduces demand for coal. Not so much. It may be the case that mercury rules will lead plants that are already operating at low capacity to shut down sooner than they otherwise would, but the impact of that on coal demand so far is less than a rounding error, and since even modern coal plants not scheduled for retirement have plenty of excess capacity, generation from retired plants is going to be met by increasing generation from those newer coal plants if coal is indeed the most cost-effective fuel option. Also, we can all agree that the EPA greenhouse gas rule will prevent construction of new conventional coal-fired plants, but those would only come online maybe 4 or 5 years from now — in the unlikely event they could have even gotten financing.

    Once you understand this, then it puts the impact of mines safety and environmental regulations in a very different context. While they don’t have an impact on how much coal is produced or consumed, they do have an impact on what type of mines are used to meet demand. What big coal companies want is to meet demand at the lowest cost because that’s how they maximize profit, and regulations prevent them from cutting corners and hiring fewer workers to lower costs. But what’s best for West Virginia? It’s to ensure that the safest and least destructive mines, which hire the most workers, are the ones that produce as much coal as there is demand for.

    It’s actually quite simple, but it’s amazing how effectively the coal industry has twisted the logic and the debate to convince West Virginians that those mine safety and environmental regulations are harmful to their state and “kill jobs.”

  3. Ken Ward Jr. says:

    Interesting comments. Thanks, Matt.

    What I found interesting regarding Bill Raney’s remarks is that they are so different from the “war on coal”, Obama is “killing jobs” message of the industry’s PR campaign. Bill’s comments seem more along the lines of what Alpha said this week in its earnings report.

    Alpha’s explanation for its poor results and the coal market downturn started with this:

    “The domestic market for thermal coal has been extraordinarily weak in the first half of 2012, as the combination of low-priced natural gas and mild winter weather led to a sharp reduction in coal burn and a rapid increase in utility stockpiles.”

    Regulatory restrictions were relegated to something that is “exacerbating the situation,” not the major driver — which is what the ad campaign would have us believe.

    I would be interested,though, to understand the numbers showing that the impact of the EPA’s mercury and air toxics rule are “less than a rounding error.” Are figures available to express in tonnage or something else that impact in a quantifiable way?

    Thanks, Ken.

  4. Matt Wasson says:

    There are lots of projections by a lot of different groups, but I don’t know of any actual analysis of the data to dat, Ken – probably because there aren’t really any data yet, which is my argument.

    My point about the mercury and air toxics rule impacting coal demand by “so far, less than a rounding error” is a logical conclusion from the facts that:

    1. While there have been a number of announcements of future intentions to retire plants, very few coal-plants have actually already been retired and almost all of those were scheduled before the MATS rule was released;

    2. Companies that have announced plans to retire coal-fired plants have typically cited other economic considerations and the fact that those plants were already operating at a low capacity (you’ve reported to that effect on AEP, and Duke and Progress have made similar statements);

    3. Coal-fired plants have been operating at less than 60% capacity factors on average over the last year across the southeast (sorry, I have the data, but don’t have a published report to share – but it’s common knowledge), meaning that more efficient coal plants have certainly taken up any slack from the few retired plants if coal was the lowest cost fuel on that grid.

    That may not be rock-solid proof, but I’d challenge you to find anyone with any actual expertise in generation markets who would contradict that logic.

  5. FactsFirst says:

    Not sure I follow completely Matt Wasson’s pipe-to-faucet analogy on supply-demand dynamics for coal, but I would just offer the following observations on several points:
    1. There is a difference between a coal-to-gas switch driven by termporal changes in fuel pricing and regulations that force plants to permanently retire. When regulations establish standards that cannot be economically achieved (i.e., the cost outwieghs the payback) the plant is permanently retired and therefore no longer available for use if the fuel pricing changes (as it has in the past and will undoubtedly in the future) and coal would be a more economical choice to meet load demand.
    2. The same holds for EPA rules that set standards for new plants that are unachevable by the best available technology as is the case identifed by Matt for the EPA greenhouse gas rules for new coal plants as well as for the recently enacted Mercury rules for new plants.The same can be said for the Sierra Club’s Beyond Coal Campaign that takes credit for stalling and then the abandonment of scores of new advanced coal plants. In both cases coal demand from new advanced and more highly efficient coal plants that would have been built to meet higher electricity demand or to replace older less efficient coal plants is lost. Point here is that some of the anxiety in the coal fields seems to relate to prospects for future demand–not just current demand–and these examples illustrate why that source of anxiety is well founded. The future retirements that have already been announced add to that as well.
    3. Some may say, well those plants would not be built in today’s pricing environment for gas. Well that may be true for some, but not all since utilities still have nightmares from the last decade(and before) when gas prices gyrated wildly especially on the upside. Utilities like the hedge and the historic stable pricing of coal. And given the choice of maintianing a diverse generation mix–the choice of building baseload plants of either coal or nuclear the cap ex delta is wide–> $5Billion pergigawatt for nuclear and maybe less than $2 billion/GW for coal.
    4. Matt’s point that coal plants have been running at only 60% capacity factors over the past year I think is about right (regions will vary) but in terms of them picking up all the slack from retired plants if they are the lowest cost fuel on the grid is not entirely correct. Right now, the only two fuels that are really competing on the basis of economic dispatch are coal and gas. Nuclear and renewable are being dispatched in many states on the basis of availabiltiy. Nuclear because of the inflexibility and expense of ramping up and down; wind and solar because of renewable mandates. So in the case of renewables, there is higher priced power that is forcing out lower cost gas and coal at the rate payers expense (and in the case of the production tax credit for windand solar its also at the expense of the tax payer to the tune of $23-$24/megawatt hour). But looking longer term, I think Matt’s point is correct–the surviving coal plants will run at higher capacity factors. But of course for some coal companies and miners that may be cold comfort if the plants they were supplying did not survive and those mines are not capable (due to location, coal specs and price) of filling that market space.
    5. As for the point about “Big coal companies want to meet demand at the lowes cost to maximze profit”–two responses: that would be the objective presumably for big and small coal companies and frankly that is the aim of any successful business model. To be sure they should be safe and environmentally sound. But to suggest that the aim should be mines that “hire the most workers” –while nice–it simply defies economic reality. It seems as if Matt is suggesting that we should forgo large mines for more small mines since in the aggregate they presumably hire more workers. But what happens to productivity under that scenario–if the smaller mines are less productive they are less competitive and what you end up with is fewer or no mines–which means fewer or no jobs. One can think of it this way–if a company is paying a miner $60-70,000/yr but would have to shift to a mine that employs 4 miners to produce what that one miner did–they would have to pay those miners $15-18,000 to compete. Is WV better off with less miners making $70,000 and more miners making $18,000. A value judgment I suppose, but the reality is that such a choice would mean nomine and no miners. WV coal is not competing against WV coal–its competng against US coal and overseas coal for overseas markets. Identify an industry that produces each unit of its outputwith more labor today than it did 10 or 15 years ago and you have probably identified an industry that is no longer in the US. This in part goes to the question of regulatory policy again. Last year the Energy Information Administration adjusted downward its productivity factor for Cental Appalachian coal mines in part due to permitting delays. This was a clear validation of what many operators were saying in that their inability to get new permits to open or expand mines was huring their productivity and in turn their competitive position. Looking at Mr. Ward’s later post today on the recent court decison on the coal mine permit, the background discloses that the company origially filed that permit in 2007–and now 5 years later the matter is resolved–or is it? Delays destroy the value of investments whether for power plants, mines or factories.
    6. None of this is intended to suggest that safety and environmental performance should be sidelined. It simply responds to several points that I believe don’t fully reflect the entire policy environment and how it is affecting the current state of play and future in terms of coal demand and supply. So I have to also take special exception to Matt’s observation that all of this “[is] actually quite simple.” I am afraid it’s not. And I think that has been Mr. Ward’s point –both sides want to paint the current situation at the opposite extremes. That being said, Matt I concur with Mr. Ward’s response to your post–Interesting comments and thanks for sharing your perspectives.

  6. Matt Wasson says:

    Well, FactsFirst, I have to say you chose a good screen name. There’s very little you said that I would argue with. Thank you sincerely for a very honest and well thought out response – and thanks to Ken for creating one of the few forums where a discussion like this can happen.

    I don’t, however, see anything in your response that contradicts my original point about Bill Raney’s comment: the layoff numbers we’re seeing right now (not fearful of in the future, but right now), aren’t because of the EPA but because of energy markets. Sure, you can point to a couple of situations where mines have been idled because they couldn’t get permits to expand, but since there is so much unused productive capacity at nearby mines, all that means is that jobs lost (or not created) at those mines were instead created or retained at other mines.

    I understand your point that higher costs/lower productivity at Appalachian mines contributes to displacement of Appalachian coal by western, mid-western and over-seas coal suppliers, but the reality you’re failing to acknowledge is that the only – and I mean only – market for Central Appalachian steam coal is a captive market. It’s companies like Duke and Progress Carolinas, Dominion Virginia, etc. that have very little gas-fired capacity and operate plants that, for the most part, were specifically designed to burn CAPP coal. Everyone who is able to switch to PRB coal, or who is confident they can blend in Illinois Basin coal without slagging their boilers, is already doing so – or else they ought to be sued by their rate-payers.

    Even considering the high transportation costs, there is hardly a plant in the country that couldn’t lower its costs by burning Powder River Basin coal if its boilers and fuel-handling facilities could handle it. But you’d have to be producing CAPP coal at something like $50/ton if you want to win back that share of the market, and that’s just not going to happen, regardless of what EPA, OSM, MSHA or anyone else does. Moreover, since the market that does exist is almost entirely a captive market, it doesn’t really matter whether coal is selling at $65 or $75 per ton – utilities are going to buy the same amount of it. The only reason costs are lower is because of competition between CAPP producers, not because of competition with suppliers in other regions.

    For my part, I agree that regulations on mercury, air toxics and CO2 are going to increase costs of burning coal and lead to power plants retiring or not being built in the future – there is plenty of reason for concern about the future if you’re working in the Appalachian coal industry. But those rules have nothing to do with a “war on coal,” they are part of a common sense effort to clean up our air and water and prevent catastrophic climate change. People can call that a “war on coal” if they want, but like Sen Rockefeller and the late Sen Byrd tried to warn their constituents, this country is not going to halt progress, stay stuck using 19th century technologies and cook the planet because political leaders in West Virginia don’t have the vision or the will to help their state adapt to the changing times.

    We’ve got about 3-4 years to make big gains in diversifying the economy of southern WV before that captive market for CAPP coal collapses completely, FactsFirst. The whole coal industry won’t collapse – there’s going to be a market for met coal for a good long time – but we’re looking at replacing 10,000+ mining jobs in southern WV with new jobs in new industries over the next four years. That seems to me to be quite possible – difficult, but I believe in the ingenuity of Americans and West Virginians.

    What are we going to do with that 3-4 years, FactsFirst? Keep pretending that climate change is a hoax and punishing any politician that dares to speak a word about the need to move beyond coal? Blaming every coal job that’s lost on somebody else? West Virginia can do better.

Leave a Reply