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Posted: May 01, 2013

King Coal’s uncertain future

Natural gas and environmental regulations threaten once-dominant electricity source

“We can shut down coal usage here, but that won’t change things globally,” said Richards. Already the No. 1 coal burner, “China is moving quickly to build more power plants and even if they build solar, they have to back those plants up, and they’ll do it with coal.”

Though exports may not be the last hope of the state’s mines, “Finding a way to those markets is something that they have to try to make work,” said industry veteran Bob Burnham. Now a consultant, with almost 45 years under his belt following graduation from the Colorado School of Mines and a stint in the Army, he’s still somewhat skeptical that exports alone will save the industry. “Throughout my career, I’ve seen exports go up and down. Besides port constraints, even though we produce high quality coal, it’s located in the middle of the nation. Everything has to be hauled quite a distance. Transportation rates are going to be high no matter where the coal goes.”

The Colorado Division of Reclamation, Mining and Safety, the agency tasked with tracking both coal production and employment, reported that in 2011, the ranks of miners increased by 370, to a 25-year high of 2,411 coal miners by year-end. But since then hundreds of jobs in the industry have evaporated. Those jobs, on average, pay $115,000 annually per employee, including benefits. Recently, when Western Fuels purchased Colowyo from multi-national Rio Tinto International, “They were starting to reduce staff and many folks left because they didn’t want to stay to the bitter end. We ended up saving a lot of good jobs especially in terms of pay, benefits and retirement plans. What community wouldn’t want jobs like that? With these you can buy houses, pay for college and retire securely,” said Richards. Between the two mines and their Denver-area headquarters, Western Fuels now employs almost 300 throughout the state, with more in Wyoming and throughout the West.

The Colorado Geological Survey estimates that 2012’s coal production was worth $1.32 billion, valued at roughly $45 a ton. “The state of Colorado receives more for coal royalties than any other state except Wyoming. When you start reducing coal production, you take away money for schools and other infrastructure, not just from Western Slope coal towns but Denver and the Front Range as well,” said Sanderson.

 

Coal vs. Natural Gas

“Frankly I’m not optimistic about the struggle between coal and natural gas. There’s lots of headwinds against coal from natural gas, increasing regulations and growing competition from renewables like solar and wind,” said Richards. But natural gas and coal do not compete on a level playing field. Gas is not subject to the Clean Air and Clean Water Acts like coal is, and it’s becoming obvious that the environmental footprint of the state’s 11 mines is miniscule compared to the cumulative footprint made by the thousands of natural gas wells scattered throughout the state – with tens of thousands more on the way. “Conversion to a natural gas future will continue to create disruption in people’s front and back yards while causing a massive transformation of the landscape in the West. Is this a Faustian bargain that the state has embraced?” Sanderson asked.

Furthermore, as the natural gas rush continues, we’re only slowly becoming aware of the environmental costs involved. “There are now studies suggesting that more greenhouse gases than were previously thought are actually emitted during exploration, development, transport and generation,” said Sanderson. That includes fugitive methane emissions that escape into the atmosphere throughout the natural gas development process. This methane – which some studies suggest is 25 times more potent than carbon dioxide over a 100-year time frame  undercuts the climate advantage that cleaner-burning natural gas has over coal.

But beyond environmental concerns, how much of a bite will this conversion take out of our wallets? The “big push” today is to convert gas to a liquid to enable its export, said Burnham. Once shipped abroad, Liquid Natural Gas (LNG) can fetch higher prices by tapping into overseas markets where gas is less plentiful. In recent weeks Nobel Energy has announced plans for an LNG plant in Weld County and British power producers have signed off-take agreements with American suppliers. As more domestic and Colorado gas goes overseas, the currently “low gas prices are not going to stay at the levels we’ve been seeing. We’ll be competing with the rest of the world for gas while our utilities are forced to buy at higher international prices. Consumers will take the hit in both their electricity and home heating bills,” said Burnham.

Even though we’re rapidly purchasing more intermittent sources like wind and solar, it’s all backed up by gas. With the government essentially sanctioning gas, a monopoly on baseload generation, “There will inevitably be a natural gas shock that will give a huge jolt to the economy and GDP,” said a concerned Richards.

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