Ed Reinke/AP - In this file photo, coal lies in piles around a conveyor system at a mine in Kentucky. Coal is deeply linked to the culture and economy in central Appalachia but the industry is facing an expected collapse in production over the next few years. Central Appalachia is where the political fight over the reasons for the coal industry’s woes have been most intense.
It’s become common to blame the flagging fortunes of coal mining companies on low natural gas prices that have convinced many U.S. utilities and industries to slash their use of coal.
But there’s another reason for the woes of mining firms: The cost of mining coal has been going up.
The sudden abundance of cheap natural gas is breathing life into a wide range of businesses.
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Although it’s commonly said that the United States is the Saudi Arabia of coal with more than 200 years worth of reserves, digging up those coal reserves and delivering them to customers has been getting more expensive.
That’s because of rising costs of transportation, explosives, wages — and geology. In most areas, companies first dig coal from areas that are easiest to access and that have the thickest, richest seams. Over time, however, it becomes more expensive to mine — and more difficult to do so profitably.
That’s particularly true in central Appalachia, where the political fight over the reasons for the coal industry’s woes have been most intense.
With a lot riding on the outcome of the election in swing states such as Ohio and Virginia, where some coal companies have announced layoffs and mine closures, GOP presidential hopeful Mitt Romney has been blaming the coal industry’s problems on the Environmental Protection Agency’s regulations on coal-burning power plants.
Indeed, EPA has issued regulations that require new controls at some of the country’s oldest and least efficient coal-fired power plants. And the Labor Department has added safety regulations on mines after workers were killed in some mine explosions.
But some of the higher costs of mining have nothing to do with regulations, many analysts say.
“The issues aren’t mine inspectors and environmentalists. It’s a geological fact of life in central Appalachia,” said Tom Sanzillo, a former senior official in the New York State comptroller’s office and now a financial consultant. “You mine for 100 years and you take a lot of coal. It’s the cost of production. That’s the reality of it.”
Marie Shmaruk, a director at Standard & Poor’s who analyzes metals and mining companies, agreed. “We have been relatively negative on central Appalachia for quite some time because it’s an expensive area to mine,” she said. “It’s been mined out and has thinning coal seams. We’ve been mining there forever.”
Shmaruk said that “central Appalachia is being squeezed the most. At natural gas prices today, the coal in a lot of those mines is not really competitive. And you’re seeing a lot of the utilities in that area have moved to natural gas.”
Coal mining costs are rising much more slowly in the Powder River and Illinois basins, which remain competitive, Shmaruk said. The Powder River Basin, mostly in Wyoming, accounts for 40 percent of U.S. total coal production.
“Is there 200 years [supply] at today’s prices? Probably not,” she said. “But there’s a lot.”
Even in the East, some mining remains competitive. On Wednesday, citing improving market conditions, CONSOL Energy said it would reopen the Buchanan mine in Virginia that produces coal used for metallurgical industries like steel. CONSOL, which has hosted Romney campaign events, had idled the mine just two months ago. It will now recall about 400 of the 600 furloughed workers to return to work Nov. 5.
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