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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

Geology

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/.

Reuters



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

  1. bobinget on Fri, 8th Nov 2013 2:35 pm 

    If we gradually switched to alternatives like Natural Gas for base power, in twenty years (or fewer) we would not ‘run out’.

    Fact number one. Coal kills more people world-wide then AIDS. If we could wipe out AIDS as easily as REPLACING coal burning, wouldn’t we do it?

  2. BillT on Fri, 8th Nov 2013 3:23 pm 

    ALL hydrocarbons have shorter useful lives than is reported and for the same reason. If it is not profitable, it is NOT going to be recovered. As for NG, that too is going to burst and revert to previous costs and lower profits. If you have no money, you cannot consume.

  3. Kenz300 on Fri, 8th Nov 2013 5:05 pm 

    The price of oil, coal and nuclear keeps rising and causing environmental damage……

    The price of wind and solar keeps dropping every year and it is safe and clean……..

    The future is in alternative energy sources……

  4. shortonoil on Fri, 8th Nov 2013 5:46 pm 

    Having been born and brought up in the mining industry, and having spent a good deal of my life working in some part of it, I can assure you this article is right on the mark. 80% of the US coal reserve will be left in the ground. As an example, there is a seam of coal that runs from the Appalachian mountains all the way to the Mississippi. In the mountains it is sticking out of the ground, by the time it hits the Mississippi it is 3000 ft deep. Post and pillar extraction methods mean that the deeper you go the greater is the amount of reserve that must be left in the ground (to hold up the roof). By the time you’ve made to Ohio, you’re out of business!

    In West Virginia my family owns 152 acres; about 100 acres of it has 6 feet of clean bituminous, and 16 inches of metallurgical coal. Value, last count, $152 million! This trove of riches lays under 175 ft of the hardest, dam old sandstone you ever saw. Several coal outfits have come by to look at it. They just shake their heads, and walk away. It is not extractable, and probably never will be.

    The same propensity to talk about the value of reserves runs all through the extractive resources industry. From coal, to metal ores, to structural stone, and to petroleum. You may tell the bank that you have a $zillion in reserves; what is never mentioned is that – there is no profitable way to get it out of the ground!

  5. J-Gav on Fri, 8th Nov 2013 6:51 pm 

    Stands to reason … Why should the importance of EROEI (net energy if you prefer) apply only in the cases of conventional oil & gas, tar sands, tight oil and shale gas plays? Of course it applies to coal as well.

  6. SteveK on Fri, 8th Nov 2013 7:27 pm 

    Anybody watch Pandora’s Promise on CNN last night? http://cnnpressroom.blogs.cnn.com/2013/10/29/cnn-films-to-air-pandoras-promise-thursday-nov-7/

  7. ghung on Fri, 8th Nov 2013 8:03 pm 

    I watched it. Looks like CNN is pushing for IFR deployment. Barely paid conservation and efficiency lip service, though probably right about no global movement to actually conserve. An unintended hat tip to Jevons perhaps.

    Of course, they skipped over the part where increasing energy availability from nuclear translates to increased consumption of all other finite resources, and made the assumption that more nuclear = less coal being burned. Funny that. The onset of the oil age didn’t seem to slow down coal burning at all.

    It seemed they also cherry-picked the data on effects from Chernobyl and Fukushima, and acted like Fukushima is in the past. No mention of the epidemic of thyroid disease in Ukrainian and Belarusian children, just that there haven’t been many deaths. I guess if it can be ‘treated’ it’s not considered an issue.

    They also didn’t factor in the full cycle costs of nuclear, decommissioning and all that, when comparing the costs of nuclear to renewables, only saying that intermittancy of renewables disqualifies them as a major player.

    Growth is all these people understand. As Greer points out, progress is the overarching religion of our time.

  8. ghung on Fri, 8th Nov 2013 8:08 pm 

    P.S. – I broke the seal on a fine bottle of Blanton’s Single Barrel about half way through. What else can one do in the light of such delusion. Praying doesn’t help.

  9. energyskeptic on Fri, 8th Nov 2013 8:16 pm 

    I wrote an article Jan 8, 2013 about peak coal titled: Peak Coal is already here or likely by 2020 — if true — IPCC 100 year projections too high? at http://energyskeptic.com/2013/peak-coal-is-already-here-or-likely-by-2020-ipcc-100-year-projections-too-high/ which has references to many peer-reviewed articles about this topic. Peak coal is not only happening in America, it’s peaking globally as well, and may have already peaked energy-wise, since we’ve already mined the easy, high-quality coal (which varies a lot in BTU’s, some isn’t much better than wood)

  10. Outcast_Searcher on Fri, 8th Nov 2013 8:45 pm 

    There is this thing called supply and demand for all markets. If it will cost more to mine the coal, the price will increase. If it increases enough, people will be pushed more (and more rapidly) towards other sources, like investing in solar panels, for example.

    Acting like it is a catastrophe every time a price forecast on an energy commodity might be incorrect does nothing but provide credibility to those who perceive the peak energy crowd as “Chicken Little’s”.

  11. GregT on Fri, 8th Nov 2013 11:55 pm 

    Those who perceive the peak energy crowd as ‘Chicken Littles’, are going to be in for a very rude awakening, when the sky falls.

  12. BillT on Sat, 9th Nov 2013 12:39 am 

    Solar panels are NOT cheap.You cannot run an American lifestyle on solar system unless you have a big roof and north of $20,000.00 to invest. And it is an investment. Especially if the bank owns your home and you can lose your job and home as millions already have. Or you rent and have no place for panels, batteries and the converters.

    ‘Cheap’ is relative. If your income is 6 figures plus, it may be cheap. If your income is in the mid to lower 5 figures, like most Americans, it is not. and for most, solar is out of reach totally.

  13. Roman on Sat, 9th Nov 2013 5:27 am 

    Hey Kenz 300 the future isn’t about your shitty energy that you use so you don’t have to do work. The future is about finding something to eat.

  14. PrestonSturges on Sat, 9th Nov 2013 3:40 pm 

    If coal were that abundant, we would not be knocking down the Appalachian Mountains to get it would we?

    Maybe people will notice when the strip mines and fracking pads come to their neighborhoods.

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