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Peak Coal Report: U.S. Coal “Reserves” Are Incorrectly Calculated, Supposed 200-Year Supply Could Run Out In 20 Years Or Less

October 30, 2013

Federal Estimates Overstate Reserves by Including Coal That Cannot Be Mined Profitably; Production Already Down in All Major Coal Mining States … And Utility Consumers Are Facing Rising Energy Bill Prices.

WASHINGTON , Oct. 30, 2013 /PRNewswire-USNewswire/ — America does not have 200 years in coal “reserves” since much of the coal that is now left in the ground cannot be mined profitably, according to a major new report from the Boulder, CO-based nonprofit Clean Energy Action (CEA). The CEA analysis shows that the U.S. appears to have reached its “peak coal” point in 2008 and now faces a rocky future over the next 10-20 years of rising coal production costs, potentially more bankruptcies among coal mining companies, and higher fuel bills for utility consumers.

Available online at http://cleanenergyaction.org/, the CEA report titled “Warning: Faulty Reporting of U.S. Coal Reserves” concludes: “The belief that the U.S. has a ’200 year’ supply of coal is based on the faulty reporting by the Energy Information Administration (EIA) of U.S. coal deposits as ‘reserves.’ Most U.S. coal is buried too deeply to be mined at a profit and should not be categorized as reserves, but rather as ‘resources.’ The report recommends that decision makers at all levels should begin taking a hard look at coal cost and supply issues considering both geology and finance and begin thinking about scenarios that require moving the US beyond coal in significantly less than 20 years …. In short, the EIA’s reporting of over 200 billion tons of ‘Estimated Recoverable Reserves’ for US coal supplies has been like a ‘faulty fuel gauge’ for US coal estimates.”

Key points in the CEA report include the following:

    --  EIA's claimed 200 billion tons of coal "reserves" are not likely to be
        extracted economically.  In fact, significantly less than 20 percent of
        US coal formations will likely be economically recoverable for mining
        purposes. 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.
    --  Consumers are already paying the price for rising US coal costs - and
        likely soon will be paying even more. The cost of coal used by electric
        utilities has been--rising in almost all states at a rate of 6-10
        percent per year or 2-3 times faster than inflation over the last
        decade. Since 2004, average US delivered coal costs have increased at a
        rate above 7 percent per year. At a rate of more than 7 percent per
        year, coal costs will double in less than a decade--as they have done in
        a number of states since 2004.  The 12 states with the highest annual
        increases in the cost of delivered coal from 2004-2012 are (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%).
    --  The United States already appears to be past "peak coal" with coal
        production falling off significantly since the apparent peak in US
        production in 2008. In addition, almost all of the top 16 coal producing
        states appear to be past peak.  Even the large coal-producing western
        states of Wyoming (14.2 percent drop) and Montana (18.1 percent drop)
        have seen significant production declines in recent years that aren't
        likely to be recouped. The other 14 coal producing states seeing coal
        production drops are (from highest to lowest percentage declines):
        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%).

Leslie Glustrom, director of research and policy, Clean Energy Action, and author of the study, said: “Economically viable coal is a nonrenewable 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. 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.”

Tom Sanzillo, director of finance, Institute for Energy Economics and Financial Analysis, said: “The rising cost of production is THE sleeper issue for those who follow coal and energy markets in the United States. 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 … (T)he country is going through a transition in its energy mix for electricity. What will emerge is a more diversified set of suppliers for the nation’s electricity consumers. Coal’s relative monopoly at fifty percent 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.”

Dr. Zane Selvans, geologist and assistant director of research, CEA, said: “The point of this report is that the fundamental constraint on coal is not from natural gas prices or government regulations, but from the geology of coal. 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. Independent of arguments about climate change and clean coal, coal’s days are very likely numbered due to questions of economic supply. 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.”

Other key points in the CEA report include the following:

    --  While it is unknown what the future holds for the US coal industry,
        there could be significant disruptions in the next five to 10 years as
        several top US coal companies have lost over 80 percent of their stock
        value and are facing debt payments in the next three-seven years that
        already have interest costs of 6 percent and above. For example, as of
        the end of 2012: Patriot Coal has already filed for bankruptcy and other
        companies, including Arch Coal and Alpha Natural Resources, have been
        put on bankruptcy watch.
    --  As the cost to produce US coal increases, coal company profit margins
        have thinned and for some producers, profit margins have become negative
        -- particularly from eastern mines. While production costs have risen
        and profit margins have thinned or become negative, mine productivity
        has fallen steadily from 6.99 tons per employee per hour in 2000 to 5.19
        tons per employee per hour in 2012. Utilities that fail to understand US
        coal supply constraints can end up making large capital investments in
        coal plants that may not be economical to operate and the capital
        investment can then be - come stranded. Utilities and investors have
        already made investments of hundreds of millions of dollars or more in
        coal plants that have either been lost or are likely to become stranded,
        including: the legendary investor Warren Buffett, has written off over
        $1.3 billion in investment in the heavily coal-dependent Energy Future
        Holdings of Texas; AES Eastern lost several hundred million dollars when
        two New York coal plants went bankrupt and were sold to bond holders for
        $240 million while their original cost was approximately $550 million;
        the decision by First Energy to idle the huge Sammis coal plant in Ohio
        after investing over $1.8 billion in pollution upgrade; and the decision
        by Energy Capital Partners to close the 1500 MW Brayton Point coal plant
        in Massachusetts despite a recent investment of over $1 billion on
        upgrade.
    --  Only time will tell whether the major US coal companies will survive the
        financial challenges they are facing in the next several years. To
        ensure proper economic planning, decision-makers from all sectors should
        begin examining the situation of US coal supplies carefully and consider
        scenarios that require the US to repower while retaining grid stability
        with coal supplies that could become seriously constrained in the not
        too distant future.

ABOUT CLEAN ENERGY ACTION

Clean Energy Action is based in Boulder, Colorado and works at the local, state and national level to accelerate the transition to the post-fossil fuel world based on clean energy. For more information, go to http://cleanenergyaction.org/.

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Clean Energy Action will be live-tweeting this news conference on October 30 starting at 1 p.m. EDT. Join us on Twitter! @ClnEnergyAction

EDITOR’S NOTE: A streaming audio replay of the news event will be available on the Web at http://www.cleanenergyaction.org/ as of 5 p.m. EDT/3 p.m. MDT on October 30, 2013.

SOURCE Clean Energy Action, Boulder, CO


Source: PR Newswire