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Has US coal finally reached its peak?

WE have been hearing for years that US coal has a long life ahead, some 200 years or more based on reserve indications from industry number crunchers. <b>By Donna Schmidt</b>

Staff Reporter
Has US coal finally reached its peak?

Published in the January/February 2014 edition of RESOURCESTOCKS

But what if this was not the case? What if we were forced to undergo a paradigm shift based on estimates of 20 years or less?

Colorado-based group Clean Energy Action, which forthrightly proclaims that one of its main goals is to accelerate the transition to the post-fossil fuel world based on clean energy, recently raised eyebrows with a report suggesting that federal estimates may be overstated, that our “peak coal” years have passed and that the rocky road we have been following will only get more rough.

The Warning: Faulty Reporting of US Coal Reserves report was released on October 30 with the startling opinion that the coal industry has been basing its perspectives on the resource’s future on data that may be skewed, or at least, not telling the whole story.

“The belief that the US has a 200-year supply of coal is based on the faulty reporting by the Energy Information Administration of US coal deposits as ‘reserves’,” the report’s authors said.

“Most US coal is buried too deeply to be mined at a profit and should not be categorised as reserves, but rather as ‘resources’.”

The CEA claims that the 200 billion tons of coal “reserves”, as the EIA has classified them, are not likely to be extracted economically.

The percentage of that total the group feels is recoverable? Less than 20%.

“Given the current financial strains affecting US coal companies, it is unclear whether they will be able to support the increased capital and labor costs associated with mining coal that is more difficult to access,” the report goes on to say.

The report also examined the ratepayer side of its argument, pointing out that consumers were already “paying the price” for the rising costs of domestic coal. Those costs will only go up even more, the authors surmised.

“The cost of coal used by electric utilities has been rising in almost all states at a rate of 6-10% per year, or two to three times faster than inflation over the last decade,” CEA researchers said.

“Since 2004, average US delivered coal costs have increased at a rate above 7% per year.

“At a rate of more than 7% per year, coal costs will double in less than a decade.”

Many states have already seen that occur since 2004, the researchers said.

The 12 states with the highest annual increases in the cost of delivered coal between 2004 and 2012 were, from highest to lowest, Mississippi (12.54%), Montana (11.64%), Nebraska (11.17%), Indiana (10.03%), Michigan (9.92%), Louisiana (9.68%), Maryland (9.59%), South Carolina (9.58%), Wisconsin (9.34%), New York (9.22%), Missouri (9.2%) and Pennsylvania (9.05%).

Interestingly, many of the states on the list have been hit hard with the closures of coal-fired power facilities over the past 18-24 months amid the pressure of more stringent federal regulations.

Additionally, more than a couple of the aforementioned states are considered among the nation’s top 10 in terms of coal production.

So what of the group’s claims that the industry and nation are beyond “peak coal” and that our heyday passed some five years ago? Though it did not specify what sources it used for its data, the CEA said the proof there was also in the numbers.

“Almost all of the top 16 coal-producing states appear to be past peak,” the authors said.

“Even the large coal-producing western states of Wyoming – a 14.2% drop – and Montana – an 18.1% drop – have seen significant production declines in recent years that aren’t likely to be recouped.”

Also seeing falls, from the highest to lowest percentage declines, were 14 other coal heavy-hitters including Pennsylvania (80.2%), Virginia (61.4%), Ohio (50.2%), Kentucky (47.7%), Illinois (46.4%), Arizona (44%), Utah (39.3%), Alabama (32.4%), West Virginia (31.8%), Colorado (28.3%), New Mexico (24.3%), Texas (20.8%), North Dakota (14.9%) and Indiana (2.4%).

Alarmed yet? The CEA says we should be.

In its recommendations, the report’s authors said decision-makers throughout coal should begin taking a hard look at costs, supply issues for coal and also examining the geology and finance of its points.

Additionally, those individuals should begin thinking about scenarios that include moving the nation beyond coal “in significantly less than 20 years”

“In short, the EIA’s reporting of more than 200 billion tons of ‘estimated recoverable reserves’ for US coal supplies has been like a ‘faulty fuel gauge’ for US coal estimates,” it concluded.

Author Leslie Glustrom, who serves as the group’s director of research and policy, shortened that estimate even further to as little as a decade.

“Economically viable coal is a non-renewable resource and after examining currently available geological and financial data, there is good reason to believe we are rapidly reaching the end of US coal deposits that can be mined at a profit,” she said.

“If coal can’t be mined at a profit, not much of it will be mined. It is unclear how long the US coal industry will produce large quantities of coal and at what price but the current financial distress of US coal mining companies could lead to significant changes in US coal production in less than a decade.”

The report also has the backing of the Institute for Energy Economics and Financial Analysis, with the group’s finance director Tom Sanzillo calling rising production costs the big “sleeper issue” for the coal and energy market masses.

“It is a geological certainty and an economic fact that as mining activity matures in a region, production typically becomes more difficult and more expensive [and] the country is going through a transition in its energy mix for electricity,” he said.

“What will emerge is a more diversified set of suppliers for the nation’s electricity consumers.

"Coal’s relative monopoly at 50% of market share is likely to be replaced by growth in renewable resources, efficiency, natural gas and in some regions of the country by hydro ... the coal industry will be smaller with less producers, fewer mines and higher prices.”

Geologist and CEA assistant director of research Dr Zane Selvans said coal’s days were likely numbered due to questions of economic supply.

“The fundamental constraint on coal is not from natural gas prices or government regulations but from the geology of coal,” he concluded in the report.

“The fundamental fact is that most of the coal in the US is buried too deeply to be accessed easily and we are rapidly approaching the end of accessible US coal deposits that can be mined profitably.”

He noted the potential short life expectancy for coal was independent of arguments about climate change and clean coal.

“Even if coal were perfectly clean – or could be made to be so – it would still be the wrong choice due to serious questions about long-term US coal supplies,” he said.

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