No Coal, No Hope: Mine Cutbacks Kill Recovery In Appalachia

In the small town of Whitesburg, tucked away in the heart of Kentucky's Appalachia, residents are looking to the future with uncertain eyes.

In just a few days' time, a local mine run by Sapphire Coal Co. will close its doors, laying off 163 workers. The layoffs come at a time when the coal industry is facing increased environmental regulations, and is losing ground in electric generation to a boom in natural gas development and consumption. For towns entirely dependent on mining, like Whitesburg, the layoffs mean the prospect of economic recovery is gone.

If they get laid off, and they will get laid off, everybody's jobs are at risk, said Garrnett Sexton, Whitesburg's city clerk. We don't know what will happen if all these mines quit.

The Whitesburg mine isn't alone in laying workers off. Other companies in the region are cutting back, reducing the chances that those who lose their jobs will find work in other mines. The drop in mining capacity in the historical coal-mining region could mean a shutdown of southeastern Kentucky's entire economy, warned Letcher County Judge-Executive Jim Ward.

That is bad news for Kentucky, where the unemployment rate is at 8.6 percent, worse than the national average. University of Kentucky economists say the state's employment will not reach pre-recession levels until 2014. To get a sense of how bad a coal crisis would be for Kentucky, it's enough to consider that one third of all the coal mines in the nation are found here, mining roughly one-tenth of all U.S. coal.

Nationwide, according to 2008 figures, coal contributed $189 billion in GDP and $45 billion in federal and state taxes. The disappearance of that money could wreak havoc on budgets, especially at the local level.

It's true that low natural gas prices, the enemy of coal, are a boon to the national economy, giving companies the chance to propel growth with historically cheap energy. But that recovery isn't trickling down to America's coal towns, where people are leaving to escape poverty.

If it doesn't pick up in the next three quarters, we will likely be looking at some major problems, and not just in this county but in Appalachia, Ward said. Local governments would be forced to cut back on public services including schools, police and fire departments and care for the elderly, he said.

Letcher County, with a population of roughly 25,000, is coal country through and through. Its economy is dependent on the black substance that miners have extracted from its mountains for generations. But an abundant and cheap energy substitute is available, and costly regulations are attracting public utilities away from King Coal.

There is some natural gas drilling to help keep the county afloat, but if coal keeps sinking, Ward said people could start moving out in search of better opportunities elsewhere.

Coal's share in total U.S. electric power generation fell to 34 percent in March, its lowest level since 1973, the U.S. Energy Information Administration reported this week. Natural gas, whose prices are falling thanks to more production due to expanded drilling, climbed to 30 percent.

Between May 2011 and May 2012, American coal production dropped by 8.2 percent, reported the EIA. Diane Kearney, a coal research analyst with the agency, said thanks to federal regulations calling for cleaner emissions, and competition with natural gas, the medium and long-term outlook for coal becomes less optimistic.

Kearney said the country consumed roughly 1 billion tons of coal in 2010. That number is projected to bottom out to an estimated 900 million tons by 2015. Consumption levels are not projected to recover until 2035, when coal consumption is forecast to reach 1.1 billion tons.

RailAmerica, Inc., which owns and operates 7,400 miles of track, saw coal carloads drop by 6.3 percent in March 2012 from the year before. In April the number fell an additional 17.9 percent to roughly 11,000.

Also eating away at coal demand is the fact that with natural gas at historically cheap prices, some utilities are running gas-fired power plants to create base-load electricity, rather than to complement coal plants during peak energy demand, said William Raney, president of the West Virginia Coal Association.

It's a shift Raney hopes is temporary and reflects short term economic and energy trends.The price of natural gas will rise again, according to Raney, and when it does, coal will again find a place as a source of electric power. But for that to happen, he's been told natural gas will have to climb to $4.20 per 1,000 cubic feet.

Natural gas prices have not gone above $3 per mcf since February.

We dig in, hopefully we will stay the course, Raney said.

But digging in does not abolish economic realities. And on the ground in coal-producing states, those realities are harsh. Between Dec. 30, 2011, and May 31, 2012, there have been 1,305 coal miners laid off in West Virginia, said Courtney Sisk of the state's Department of Commerce.

In neighboring Kentucky, there have been more than 1,000 layoffs since the start of this year, said Bill Bissett, president of the Kentucky Coal Association, who added environmental regulation and lobbying to the list of powerful forces hurting coal demand.

The National Mining Association accuses EPA regulations of forcing power plants to cut back a total of 24.6 gigawatts of electricity generation capacity, enough to power 18.5 million homes.

People are angry with this government, Bissett said.

Ward, the Letcher County judge, said until large metro areas like New York start experiencing brownouts, the cumulative effects of a coal mining decline will not be understood.

United Coal Company LLC, which owns the Sapphire Coal mine outside Whitesburg, said the majority of the mine's activities will cease by June 16.

The decision to idle production at Sapphire was regrettable, but was necessitated by a very poor steam coal market caused in large part by historically low natural gas prices and ramped up production from the Illinois coal basin, said United Coal in a satement. We greatly appreciate the loyal and dedicated employees who have been with the company through this time. We deeply regret the impact that this decision has on them and their families.

A handful of employees will remain to clear out mining equipment.

It is devastating, said Sexton, Whitesburg's City Clerk. It's like a black cloud hanging over all of us.