New Mines Elsewhere Aren't Necessarily Good News For Kentucky Coal
After being name-checked in two of President Donald Trump’s recent speeches, a new coal mine opened in Pennsylvania last week.
“Next week we’re opening a big coal mine,” Trump told supporters in Cincinnati. “You know about that. One in Pennsylvania. It’s actually a new mine. That hadn’t happen in a long time, folks. But we’re putting the people and we’re putting the miners back to work.”
The mine in Somerset County, Pennsylvania is expected to employ about 70 coal miners. But while it may be cause for local celebration and useful for political rhetoric, it isn’t a harbinger of what’s to come in Kentucky.
That’s because the mine in Pennsylvania — as well as another opening in West Virginia — produce a specialized type of coal called metallurgical coal.
Metallurgical coal — or “met coal” — is low-ash, low-sulfur coal that’s used for making steel. It’s distinct from thermal coal, which is the other basic type of coal mined in the United States. Thermal coal is what’s burned in power plants for electricity.
And by and large, most of the splashy mine openings that are drawing national headlines are for metallurgical coal mines. And James Stevenson, global coal director for IHS Markit, said that’s because metallurgical coal prices are rising, and U.S. met coal is in demand all over the world. So now is a great, profitable time to open a met coal mine.
“The met mines that are coming online are in northern Appalachia,” he said. “They’re good cost. They can certainly compete in the international market.”
The U.S. is the second-largest producer of met coal, behind Australia. But when it comes to thermal coal from Appalachia, well, that’s not really in demand internationally.
“U.S. thermal production doesn’t compete terribly well overseas,” Stevenson said. And that’s mostly because of cost — coal in Eastern Kentucky, say, is expensive to mine anyway, and when you have to add on the cost of transporting it to a port, it just doesn’t make economic sense.
So, while metallurgical coal being in demand will help boost the coal industry in some places, it won’t have much of an effect on Kentucky.
“In Kentucky we do not have a whole lot of metallurgical coal,” said Kentucky Coal Association President Tyler White. “You find a lot more metallurgical coal in West Virginia, Pennsylvania, that’s where you’ve seen tremendous amounts of growth in both of those markets.”
'It’s not going to be a typical year'
Despite that, White said there have been several mines that have opened in Kentucky in 2017. Some were new mines, while others were mines that were previously idled. Overall, statewide there were about 200 fewer coal jobs in the first quarter of this year, but there were tiny gains in some counties due to mines opening, re-opening or expanding. Coal production also increased slightly.
“So we saw that slight uptick in the first quarter, we think it’s going to be another slight uptick in production for the second quarter, but nothing completely drastic,” White said.
Stevenson said nationwide, coal is doing okay this year because natural gas prices have been higher, making thermal coal competitive again. But the bad news for Kentucky is that’s unlikely to last.
“I wouldn’t build a business plan on what’s happening in 2017,” Stevenson said. “It’s not going to be a typical year.”
He said natural gas prices are expected to drop next year, which will end up further depressing the market for thermal coal. And a lot of the power plants that bought this coal have shut down, or will shut down in the near future.
“In the longer term, you come up against the fact that it’s significantly cheaper to build a combined cycle natural gas unit than it is to build a very efficient coal unit,” he said. “So, as coal plants retire they’re being replaced by gas or renewable plants. And in the long term, U.S. thermal coal will decline.”
Tyler White said in Kentucky, at least for the short-term, political and market forces are absolutely affecting the industry.
“Because what we’ve seen for the first time in a long time is no further drop in production and minimal drops in employment, or we’re essentially starting to flat line, is in fact a very promising outlook for the market compared to what we were facing in previous years,” he said.
And White said in Kentucky, a realistic outcome is steadier coal jobs and production — not necessarily a miraculous rebound.