A coal state vies to share in global boom

West Virginia sees opportunity to sell mining equipment to China and, perhaps, more coal to Europe.

from the November 6, 2007 edition

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The changes in consumption and demand "created a ripple effect that has carried through the Asian-Pacific and Australian markets, all the way back to the shores of the US," says Vic Svec, senior vice president at Peabody Energy, an international coal company with a substantial footprint in West Virginia.

"This global pull on resources and, in our case, on coal has changed the flow of coal around the world," says Thomas Hoffman, a senior vice president for CONSOL Energy Inc., one of the largest coal producers in the US.

Traditionally, the US has sent coal to Europe on a catch-as-catch-can basis; South Africa and several South American countries with lower mining costs dominated the European market. However, South Africa and South American coal producers are now focusing their attention on the emerging market in Asia.

"East Coast producers of coal, like CONSOL Energy, now have the option to ship additional tons of coal into the European market," filling that vacancy, says Mr. Hoffman.

More mines are economically feasible

The export value of coal in the US doubled between 2001 and 2007, allowing coal producers to mine areas with higher-than-usual extraction costs. "The increased demand for coal is causing prices to go up, and it's ensuring that mines that might not have been profitable at one time can be profitable if they use the right ... technology now," says Richard Bajura of the National Research Center for Coal and Energy at WVU.

While the developing world's boom has created new markets, it has also added challenges to West Virginia's mining and to operations throughout the US. As new skylines emerge across Asia, many raw materials used for mining, such as steel, tires, and some large equipment, are in short supply.

"There's a demand for everything, with both China and India expanding their economies – demands for steel, demands for shipping, and things of that sort – that is making it quite competitive in terms of finding resources, and it's also increasing prices," says Dr. Bajura. The cost of opening a new mine today has increased by 50 percent of what it was in 2004, he estimates, because of pricier building materials.

In some cases, supplies are simply not available, creating "spot shortages," says Jerald Fletcher of WVU's Natural Resource Analysis Center. Last year, for example, industrial-grade tires – vital for mining equipment – were in short supply, forcing companies to find ways to extend tire life or risk productivity losses.

The give-and-take relationship between China and US coal-producing states like West Virginia may well continue for decades. Currently, China is building coal-fired power plants at the rate of almost one a week. Between 2004 and 2030, China and India alone are expected to account for 72 percent of the projected increase in the world's coal consumption, estimates the Energy Information Administration's 2007 International Energy Outlook.

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