Coal mine output totaled 80 million short tons in 2016, just over half of the 158 million short tons in 2008. While the baseline forecast calls for statewide coal production to approach 89 million short tons in 2017 and remain in the upper 80 million ton range into the early 2020s, the secular decline in demand for West Virginia coal will continue and lead to output sinking below 80 million tons by 2030.
The coal production report is produced annually by the Bureau of Business and Economic Research in the College of Business and Economics at West Virginia University. Within the report, BBER economists explain how an array of market and regulatory forces that affect coal use both domestically and internationally have caused this industry to endure significant declines in recent years and how many of these same factors will limit any upside potential for coal production in the future. In particular, the report highlights the dramatic shifts in market conditions and regulations for domestic power plants have and will continue to shape statewide coal production.
From a national perspective, West Virginia experienced steeper declines in coal production when compared to most other major coal-producing states, but only a few managed to avoid a double-digit drop in coal output last year. However, data show that West Virginia’s coal production activity is a tale of two regions. Production in the southern region, the report said, plunged 61 percent between 2008 and 2016 while Northern West Virginia coal output has actually increased 8 percent over this same time period. Southern West Virginia mines, which as recently as 2011 accounted for more than two-thirds of the state’s coal output, now produces only 46 percent of the state’s coal. By mid-2015, both Northern and Southern West Virginia were producing roughly equivalent levels of coal tonnage, but during each of the last seven quarters Northern West Virginia has accounted for most of the state’s total output.
The overall downward trend for West Virginia coal production and divergent patterns between the state’s two coal-producing regions will remain a theme over the long term, as factors on both the supply and demand side will continue to weigh heavily on the industry over the next two decades.
“Over the short term, however, healthier demand and tighter supplies on global metallurgical coal markets will provide a lift to production from some Southern West Virginia mines. At the same time, thermal coal output from highly-productive mining operations in Northern West Virginia should hold steady,” said Brian Lego, BBER research assistant professor and co-author of Coal Production in West Virginia: 2017-2040. “Furthermore, domestic use of coal in industrial applications is expected to pick up through the end of 2018, due in large part to an uptick in steel production.”
“Over the longer term, coal tonnage shipped from Northern West Virginia will tick lower due to the likely retirements of coal-fired power plants that consume the region’s high-sulfur coal. Production from Northern West Virginia will eventually settle within a fairly close range thereafter several mining operations in the region should remain competitive on price for domestic power producers under the market and regulatory conditions expected in the baseline forecast. By contrast, Southern West Virginia will see output decline consistently, as rising costs that are attributable to depleted or fragmented reserves make some mines in the region uncompetitive and cause more utilities to shift their coal sourcing to other basins or switch to another fuel source altogether,” Lego said. “Export prospects will come under pressure as well as the forecast progresses due to these same issues with high production costs, though compared to major met coal exporting countries in this case. Thermal coal exports face even more long-term difficulties since many importing countries have laid out plans to curtail (and in some cases eliminate entirely) coal-fired electricity generation in order to cut CO2 emissions. As a result, statewide coal production is expected to fall below 80 million tons by 2030 and decline further over the remaining outlook period.”
In addition to the baseline forecast, the report also provides alternative scenarios that illustrate the sensitivity of future coal production to different assumptions for US economic growth, natural gas prices and global coal demand. Lego said, “While stronger- or weaker-than-expected growth in the U.S. economy will have only a minimal impact on West Virginia coal output, natural gas prices and exports present the largest upside potential and downside risk to production over the long term. More importantly, however, shifts in the assumed trajectory of natural gas prices or coal export shipments will have noticeably different impacts on the state’s northern and southern coal-producing regions during the outlook period.”
The full report is available from the WVU Bureau of Business and Economic Research for free download in PDF format at http://business.wvu.edu/bber.
CONTACT: Brian Lego, WVU
College of Business and Economics
firstname.lastname@example.org or 304.293.7829