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Coal-dependent states get second chance With shale gas boom

The changing economic tide is sweeping through the national energy sector. States that have been plush with coal-related jobs are watching those opportunities fade while at the same time, those same places are getting a fresh start in the shale gas field, where second chances are coming true.

The reality, according to one study, is that while the United States may have 200 years worth of coal, those reserves cannot be profitably mined. That’s because less than 20 percent of those resources are “economically accessible,” with the rest being hard to dig out. Given their current strains, it would appear that fewer energy enterprises will extract less coal — at higher prices. Coal production, in fact, has fallen since its 2008 peak by 80 percent in Pennsylvania, 50 percent in Ohio and nearly 32 percent in West Virginia.

“If coal can’t be mined at a profit, not much of it will be mined,” says Leslie Glustrom, director of research and policy for Clean Energy Action in Boulder, Col., who authored the report. “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. The coal industry will be smaller with less producers, fewer mines and higher prices.”

According to the group’s report, titled “Warning: Faulty Reporting of U.S. Coal Resources,” Peabody Energy BTU -3.33% is unwilling to make additional investments in its Powder River Basin operations while Arch Coal and Alpha Natural Resources ANR -2.52% are struggling; Alpha, for example, is losing money on every ton of coal that it mines in Appalachia, the study maintains. Clean Energy Action is suggesting that there could be more bankruptcies in this industry, extending beyond that of Patriot Coal.

According to SNL Energy, 8,800 megawatts of utility coal capacity was retired in 2012 while an approximate 5,781 megawatts will be taken off line this year. The biggest: FirstEnergy FE -0.5% Corp., which will shed nearly 2,000 megawatts of coal-fired electricity this year and which cites the regulatory environment and low demand.

SNL adds that roughly 28,000 megawatts of coal capacity will go by 2022. American Electric AEP +0.57% Power, the nation’s largest coal burner, will ditch more than 6,000 megawatts while FirstEnergy, NRG, Southern Company and Duke will each shed more than 2,000 megawatts of coal-fired capacity.

Of the total that will be eliminated, 11,000 of that will get converted to other types of fuels. Most of that will be natural gas, and to a lesser extent, biomass, says SNL.  Among the planned announcements that it cites are NRG Energy’s pledge to switch about 1,600 megawatts, Southern Company’s commitment to convert two units totaling 707 megawatts and PacifiCorp’s promise to change a 330-megawatt unit, all from coal to natural gas.

“For a lot of this production, it’s going to be difficult for it to come back, particularly for all the small mines and probably the U.S. is more difficult than other places, because you have got such a changing regulatory environment …,” says Greg Boyce, chief executive of Peabody Energy, in a third quarter conference call. “So, I think a significant amount of that operation — that production — probably won’t come back unless we saw massive price spikes.”

Indeed, there’s an economic transition in this country — one that is seeing coal’s market share fall from roughly half of the electricity market to about 40 percent and one that has seen natural gas’ share rise from about 20 percent to 30 percent of that same energy portfolio, all since around 2007.

IHS, a global market and economic information company, says that, nationally, shale gas will provide both good jobs and cheap energy. It says that by 2025, there will be 3.9 million positions directly and indirectly tied to the shale gas and shale oil industries. Such unconventional oil and gas activity, it adds, will increase the disposable income of the average U.S. household. That’s because monthly energy bills as well as other useful services will be cheaper and that savings — estimated to be $1,200 per home in 2012 — will continue to get passed on to consumers.

“In addition to significant job and economic impacts from energy production and its extensive supply chains, the growth of long-term, low-cost energy supplies is benefiting households and helping to revitalize U.S. manufacturing, creating a competitive advantage for U.S. industry and for the United States itself,” says Daniel Yergin, IHS vice chairman.

Consider the Marcellus Shale region and in particular West Virginia that is part of that formation: The coal industry has been shedding jobs since World War II, mostly because of mechanization. In recent years, the causes can be attributed not just to adverse regulatory conditions but also to thinning coal seams and relatively inexpensive natural gas.

The good news in that state, as well as others, is that shale gas development is providing a bridge: Greater job growth is occurring that is helping to dull the impact of coal-related occupational losses. As it happens, each well drilled in West Virginia requires an investment north of $5 million, which is keeping the area flush with cash and hope. About 2,300 wells have been permitted there, with roughly 700 of them active, says Downstream Strategies.

“The best hope of replacing lost coal jobs is through natural gas industry gains,” adds Jim Russell, a lawyer for Steptoe & Johnson in Morgantown, WV. “Statewide, there will be a total job increase as a result.”

As such, the state’s educational system is gearing up for the changes to a shale gas-based economy, he adds. West Virginia University and West Virginia University Tech are developing white collar job training in such fields as land management. Meantime, the West Virginia community colleges are providing local students with more technical schooling.

The transformation from an economy that once relied largely on coal to one that now uses more natural gas has not been painless, especially for those closely linked to the coal industry. And while tough times will continue in certain U.S. communities, others will find relief in newer endeavors. It’s not dissimilar from previous economic evolutions, which created hardships at the time but which eventually brightened the national prospects.

Source: Forbes