by John Weckerle
It has been some time since we published an article. There is a reason for this. After reading an article in which a West Virginia interviewee stated that he voted for Donald Trump because he believed that his state’s coal economy had been decimated under the Obama administration, we decided to dive into some research on the coal industry, what makes it tick, and what’s making it wind down. We downloaded production statistics, read dozens of articles and government publications, created some fairly complex spreadsheets, and generated a couple of dozen graphs, looking at trends at the national, regional, and state levels, finding some things we didn’t expect and that we found very interesting.
Then, earlier this week – just after we began writing the actual article – somebody (ahem) decided to sign an executive order. The national media pounced, and suddenly nearly all the results and findings we had generated – that the decline of the industry has been going on for decades; that it is the result of market forces such as decreased demand, ascendancy of competing products (natural gas, renewables, etc.) to a much greater extend than regulatory pressures; and that the jobs are never coming back – were suddenly all over the airwaves and the web. As recently as this morning, MSN Money reported that the entire coal industry employs fewer people nationwide than the Arby’s fast food chain.
This was a bit discouraging, and highlights the challenges faced by those of us with very small writing staffs. Nevertheless, we did gain one insight that we haven’t seen prominently discussed in the national media: even if the coal industry does rebound nationally, West Virginia’s likely won’t, nor will most of the eastern U.S. coal industry.
Our first major source was the United States Energy Adminstration’s (EIA’s) Coal Data Browser which, among other things, provided us with coal production data from 25 coal producing states spanning 15 years (2001 through 2015). We saw this as a promising range of data, because it incorporates nearly equivalent segments (in terms of years) from two Presidential administrations – eight years from the administration of George W. Bush (2001 through 2008) and seven years from Barak H. Obama’s administration (2009 through 2015). As most would expect – at least those who pop in and read our articles once in a while – we were delighted to find that we could download the data, load it into a spreadsheet, and see where the information might lead us.
To understand the market trends within the United States, it is important to know how the EIA defined (at least until recently) coal producing regions (we’ve added the 2015 coal production to give a sense of scale):
- Middle Atlantic – Pennsylvania; 50,030,833 tons
- East North Central – Illinois, Indiana, Ohio; 107,437,449 tons
- West North Central – Kansas, Missouri, North Dakota; 29,139,231 tons
- South Atlantic – Maryland, Virginia, West Virginia; 111, 469,038 tons
- East South Central – Alabama, Kentucky, Mississippi, Tennessee; 78,656,669 tons
- West South Central – Arkansas, Louisiana, Oklahoma, Texas; 40,228,355 tons
- Mountain – Arizona, Colorado, Montana, New Mexico, Utah, Wyoming; 477,417,852 tons
- Pacific Contiguous – Washington; no data
- Pacific Noncontiguous – Alaska; 1,177,390 tons
One thing that surprised us was the prominence of the Mountain region in terms of overall production. Previously, when we thought of coal, we thought of Eastern states, especially West Virginia and Pennsylvania. In fact, the Mountain region accounts for more than half the nation’s coal production, and Wyoming alone produced nearly 42% of the nation’s coal in 2016. The next largest output does come from West Virginia, which in 2015 commanded just under 11% of U.S. production.
We examined the data from a variety of angles, and fairly quickly determined that where declining coal production is concerned, all regions – and all states – are not necessarily created equal. Overall, production in 2015 nationwide was about 231 million tons less than it was in 2001. Of this, 88 million tons of production were lost in the South Atlantic region (including West Virginia, whose production decreased by about 67 million tons), and the East South Central region was right behind, losing about 78 million tons of production (the lion’s share of which was lost by Kentucky at 72 million tons). The Mountain region was next, with production dropping by about 34 million tons, and the Middle Atlantic region, containing only Pennsylvania, saw production decrease by 24 million tons. Following were the West South Central region (decrease of 10 million tons), West North Central region (decrease of just over 1 million tons), and Pacific Noncontiguous region (decrease of about 337,000 tons). The East North Central region saw an increase of nearly 12 million tons, with Illinois’s gain of 22 million tons (a 66% gain compared to 2010) offsetting Indiana’s and Ohio’s losses.
Wait a minute…gains? If, as some people assert, Federal policy was responsible for the decline of the coal industry, one would expect that the industry would decline evenly, with perhaps a greater impact being seen in Western states where there might be more impact from banning coal mining from Federal lands. However, during the 15-year period, Wyoming’s production actually increased by 7 million tons, and its market share grew from 32.7% to 41.9%. During the same period, West Virginia slid from 14.4% to 10.7% of the market; Kentucky’s market share plunged from 11.9% to 6.8%; and Pennsylvania dropped from 6.6% to 5.6%. At the same time, Illinois’s share of the market grew from 3.0% to 6.3%; Montana picked up a little over a percent with an increase in production of 2.7 million tons; North Dakota picked up half a percent; several other states saw smaller gains in terms of market share even with production decreases; and Mississippi and Montana reaped smaller percentage gains with production increases of about 2.5 million tons each.
What gives? Why are some states faring better than others? To our eyes, it looked as if there might be an issue of variations in cost, so we decided to go hunting among the coal price data. There we found some interesting trends – while coal prices have fluctuated substantially even over the last few years, in every data set we examined, there was a substantial difference in price, and for the most part the hardest-hit states were those with the most expensive coal. In all cases, for example, the cost of West Virginia’s coal was 4 to 5 times higher than Wyoming’s and North Dakota’s, 3-4 times the cost of Montana’s, and in 2015 was nearly twice the cost of coal from Illinois.
A little more searching turned up some interesting sources of information, including a year-old USA Today article that outlines some of the factors contributing to the decline of the coal industry: lower costs in the West, the decline in exports, slowing of the Chinese economy, the decline in use for energy production (with an attendant increase in natural gas use), liabilities associated with restoration, bankruptcies, and more. An article by ClimateNexus.org provides a graphic depicting reported coal-fired generator retirements from 2012 to 2016, showing a major cluster of shutdowns surrounding those states with the greatest losses in coal production and market share. That article also discusses a variety of other industry-related trends that are of interest: China’s pledge to end the growth in carbon output, India’s strategy to increase its domestic coal production, and continued expansion of competing industries, including natural gas, solar energy, and wind energy. The article also discusses investor risk and divestiture, and discloses that the losses of large mining companies (including coal and oil drillers with assets of $50 million or more) in 2015 were greater than the profits made by the industry since 2007. Health costs and issues associated with high executive compensation are also discussed, as is the Miners’ Protection Act introduced by Senator Joe Manchin of West Virginia.
The mediocre news is that domestic coal production has been more or less stable over about the last year. Projections for the next year, depending on the source, run from small decreases to small increases, based on speculation that natural gas prices will experience a moderate increase. We’ll see how this plays out.
The future of the coal industry does not seem to be in doubt – it seems certain that the decline will continue, and economies in the eastern United States will be the hardest hit. The future of coal country is far less certain. On the one hand, the current administration seems focused on perpetuating the illusion that coal jobs will return someday despite the obvious reality that they will not. At the same time, the administration – and Congress – appear bent on dismantling the programs currently benefiting those hit hardest by reversals in the coal industries, and in other industries nationwide. On the other hand, coal country, like other areas affected by shifts in the economy, is populated by hard-working people with hopes, ideas, and passions of their own, and these are the best hope for creating new enterprises and renewed growth. What should the people of West Virginia, Pennsylvania, Kentucky, and elsewhere do? Having been on the wrong side of economic development, your editor hesitates to offer any suggestions – because in the end ideas that come from the outside of a community are perhaps of less value of those that come from within. That having been said, we’ll close with a link to a TED talk by someone who, by his own account, also started off on on the wrong side of the subject, but learned from that experience and developed a different way of helping people pursue their passions in business – Dr. Ernesto Sirolli.
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