Coal Tattoo

Coal job numbers: Looking to the future

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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?