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Posted: May 01, 2013

King Coal’s uncertain future

Natural gas and environmental regulations threaten once-dominant electricity source

/ Photography and words by Lee Buchsbaum /

Bucking a nationwide trend, 2012 marked the second straight growth year for Colorado’s coal miners. Only two states among the top 10 coal producers – Colorado and Illinois – increased production last year. But trapped between a glut of natural gas and falling demand for its premium quality coal, producers are getting hammered in 2013. However, as King Coal staggers here at home and nationwide, are we setting ourselves up for a future of reliance on much more expensive and potentially environmentally worse natural gas dependency?

Historically, Colorado coal production peaked in 2004 when almost 40 million tons were extracted, mainly from Western Slope counties. With its high heat and relatively low sulfur content, Colorado’s “super compliance” coal has long been shipped to electricity generators nationwide, particularly eastern power producers like the quasi-government owned Tennessee Valley Authority. But over the last decade, many coal-fired power plants have installed sulfur emissions scrubbers and other pollution controls that allow them to burn cheaper local supplies.

Simultaneously, competition from cheap natural gas and a growing amount of renewables like solar and wind, have eaten into coal’s market share – now down to only a third nationwide. The Great Recession and increased greenhouse gas regulations as well as uncertainty over future Environmental Protection Agency restrictions over carbon dioxide have led to widespread coal plant shutdowns, fuel switching and the curtailment of plans to develop cleaner coal technologies.

According to the 2013 Colorado Business Economic Outlook Study published last December, beginning in 2011 production from Colorado’s 11 coal mines increased 10 percent, to 27 million tons and then to last year’s high of 28.5 million tons. Almost half the coal burned to make electricity in-state comes from Colorado mines, with the remainder railed in from Wyoming. The state’s 12 coal-fired power plants consumed 18.4 million tons of coal in 2011, supplying about 68 percent of the state’s total electricity, but that figure has been declining and will fall sharply as new legislation like House Bill 1365 – dubbed the Clean Air Clean Jobs Act – kicks in. Chris Carroll, one of the authors of the coal section of the Business Economic study and a former Coal Geologist for the Colorado Geological Survey (he’s now with the State of Wyoming) is not hopeful. Looking at the most current figures, not only does he believe “the last two years of growth are unsustainable, but production statewide is starting to crater.”

“One should not mistake recent growth for a permanent trend,” warned Stuart Sanderson, president of the Colorado Mining Association. “The outlook is still very guarded as provisions of HB 1365 have yet to kick in. This bill could reduce over 4 million tons of production per year, as power plants along the Front Range have to convert roughly 1,000 megawatts of coal-fired production to natural gas or shut down. This supposed solution also comes with a $1 billion price tag for consumers,” said Sanderson.

 

Local and Statewide Impacts

Mined in nine counties, statewide Routt County has been the leading coal producer for years. In 2011 more than 7.7 million tons were mined from Peabody Energy’s Twentymile Mine, the state’s largest producer. Last year, Peabody, the world’s largest publicly held coal company, opened the new Sage Creek operation, also in Routt County, to eventually replace Twentymile. To the south, the Bowie Mine in Delta County is back online at full production following several years of engineering problems. After partnering with commodities traders and Chinese investors, it is ramping up operations as management hopes to export up to 1 million tons annually out of the Port of Stockton, Calif.

Both Peabody and Arch Coal, the nation’s No. 2 producer and owner of the West Elk Mine near Paonia, also ship large volumes of local coal to the Gulf and Canada for export worldwide. Additionally, production at the Colowyo surface mine in Moffat County is increasing after new owner Western Fuels Colorado, headquartered in Westminster, continues to invest in the mine while hoping it too can jump on the exports bandwagon. “If those market opportunities present themselves, if enough coal port capacity gets built, and rail haulage rates don’t price us out, then Colowyo is one possibility to fill that market, too,” said Duane Richards, CEO of Western Fuels. Other coal producers with corporate headquarters in the Denver area, though without any mines in Colorado – Westmoreland Coal and Cloud Peak Energy – are both actively engaged in the exports market.

Ironically, as the U.S. reduces its coal dependence, coal usage is soaring throughout the developing world. Many studies suggest that by 2015, the black rock may surpass oil as the global leader. “Colorado coal producers are, of necessity, going to have to sell more outside the state, as well as more abroad. In 2011 over 2 million tons went overseas, mainly to Europe, and 2012 numbers will undoubtedly be higher,” said Sanderson. The only thing stopping Colorado and U.S. producers from really cashing in are the lack of terminal options, particularly along the West Coast, to facilitate shipment to Asia.

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