Preliminary data released in May by the Kentucky Energy and Environment Cabinet showed Kentucky coal mines decreased production by 8.4% in both the eastern and western coalfields to 16.7 million tons in the January-March period from the fourth quarter of last year. Mines in western Kentucky, part of the high-sulfur Illinois Basin, produced nearly 9.2 million tons during the quarter, down 5.6%. In eastern Kentucky, located in Central Appalachia, output dipped to 7.5 million tons, a drop of 11.5%.
At that pace, Kentucky is on track to produce about 70 million tons of coal in 2015. In 2008, for comparison, the state turned out 121.1 million tons.
The report was equally grim on the employment front. An estimated 10,356 people were working at Kentucky coal mines in Q1, the lowest number on record. That represented a 10.6% decline from 11,586 employees in the fourth quarter of 2014. In the third quarter of 2011, by comparison, Kentucky boasted 18,808 coal jobs.Eastern Kentucky continued to hemorrhage mining jobs, losing more than 600 from late last year to early this year, a decrease of 8.7%. Coal mines in western Kentucky lost 607 jobs, or 13.7%. Most of those jobs were eliminated, however, when Patriot Coal Corp. closed its Highland No. 9 underground steam coal mine near Waverly in Union County early this year. The Scott Depot, West Virginia-based company subsequently filed for Chapter 11 federal bankruptcy reorganization.
Underground mines in Kentucky produced nearly 12.2 million tons in Q1, a decrease of 3.1%, from the fourth quarter of last year, according to the report. Coal production at surface mines, meanwhile, plummeted by 20.2% to nearly 4.5 million tons.
Eastern Kentucky production decreased most substantially at surface mines — a fall of 23.1% in the first quarter, with underground mining actually increasing by 0.2% and accounting for 57% of the region’s total output.
Almost all Kentucky coal is of the steam variety that is burned in electric utility power plants to generate electricity. As many plants have closed, or are in the process of shutting down this year and next to comply with new federal Environmental Protection Agency (EPA) rules, the demand for Kentucky coal has decreased.
Low natural gas prices are another serious headwind for Kentucky coal. In May, gas prices tumbled to as low as approximately $2.50/mmBtu, a level that encourages coal-to-gas switching. Many coal producers say they can compete with gas if the latter is around $3/mmBtu and can easily supplant gas if and when it reaches $4/mmBtu.
Eastern Kentucky is further hurt by thinning coal seams that translate to higher mining costs.
Western Kentucky remains primarily an underground mining region. Deep mining accounted for 87% of its production in Q1, with surface mining providing the remaining 13%.
The state’s two largest coal counties — Pike in eastern Kentucky and Union in western Kentucky — experienced sharp declines in the quarter. Pike County produced 1.8 million tons, down 17.6% from the fourth quarter, while Union County produced 2.5 million tons, a 21.5% decrease.
Alliance Resource Partners’ River View underground steam coal mine in Union County remained the state’s largest coal mine. The continuous miner operation near the Ohio River produced 2.4 million tons in the quarter, more than any Kentucky county outside Union County.
To Bill Bissett, president of the Kentucky Coal Association, the Q1 results are proof that the ongoing contraction in the domestic steam coal market “is really starting to hit home” in both eastern Kentucky and western Kentucky.
“We’re very concerned,” Bissett said. “But in some ways that’s why the greenhouse gas battle is so important,” a reference to the EPA’s proposed Clean Power Plan to reduce carbon dioxide emissions. The coal industry, coal states and many politicians are pushing back hard against the contentious proposal that is expected to be released in final form this summer. “If that comes to pass,” he warned, “the decline will accelerate.”
