NOT AS MUCH COAL AS THEY THOUGHT

U.S. Foresees Thinner Cushion for Coal
Rebecca Smith, June 8, 2009 (Wall Street Journal)

SUMMARY
George Warholic of the U.S. Department of Energy (DOE) Energy Information Administration (EIA) is responsible for calculating the amount of U.S. coal reserves.

For decades, EIA calculations have indicated the U.S. is “the Saudi Arabia of coal.” Projections have suggested the nation has 240 or more years of coal in the ground.

Beginning with a U.S. Geological Survey (USGS) re-evaluation of the Powder River Basin in Wyoming and Montana late in 2008, the abundance of U.S. coal has grown more and more questionable.

click to enlarge

It is not that the Warholic/EIA estimate of the amount of coal in the ground is wrong.

As reported by NewEnergyNews in February, based on Coal: Cheap and Abundant…Or is it? by Leslie Glustrom, the cost of mining most of U.S. coal resources will make them too expensive to use. (See COAL MAY RUN OUT SOONER RATHER THAN LATER, WIND AND SUN WON’T)

David Rutledge, professor of electrical-engineering at the California Institute of Technology (Cal Tech), has studied world coal production and calculated that the U.S. has approximately 120 years, perhaps less, of economically recoverable reserves.

click to enlarge

Field reports verify the premise that existing coal reserves will be progressively more expensive to mine. Mining companies report needing to dig deeper, move more earth and expend more energy and time to satisfy coal demand. Utilities say there is ongoing doubt about adequate supply deliveries.

Verifying that old methods of assessing coal reserve data are inaccurate, Germany reduced its proven coal reserve numbers 99% in 2004, based on economic recoverability calculations. Total world reserves were reduced 50% from 1980 to 2005.

click to enlarge

The USGS, a division of the U.S. Department of Interior (DOI), began reevaluating western coal reserves in 2004. Its full study will be completed next year.

It is crucial not to confuse total reserves with what is economically recoverable.

In 1907, the USGS estimated reserves at 3 trillion tons. In the 1950s, it estimated them at 500 billion. In 2007, the economically recoverable figure was 267 million tons.

click to enlarge

COMMENTARY
The USGS analysis of Wyoming's Gillette coal field, the biggest and most productive field in the country, found that less than 6% of the coal in its biggest beds is economically recoverable at present prices.

click to enlarge

Gillette, an 80-mile-long strip in northeastern Wyoming's Powder River Basin, contains the 10 top-producing U.S. coal mines. A third of all U.S. coal, 1.2 million short tons a day, moved out every 24 hours in 75 trains of 125 to 150 cars each, comes from it.

USGS engineers, geologists and economists, after 3 years of analyzing 10,200 drill holes, concluded there are 201 billion short tons of coal in the Gillette field but environmental rules and physical challenges leave only 77 billion short tons recoverable. Less than 6% of that could be extracted profitably enough to leave mining companies an 8% rate of return.

click to enlarge

At $60 per ton, almost half would be economically recoverable, but at $60 per ton, New Energy would be a much better deal.

There is no immediate coal shortage. But sustaining current levels of production will likely become more and more expensive. At some point, economic dynamics take over and cheaper sources of energy gain in preference.

EIA reportedly is in the process of setting a new baseline from which it will subtract each future year’s consumption to ascertain new coal reserve numbers. It will be the first recalculation of the baseline since the 1970s.

Doubt about its ability to rely on coal will shake the U.S. to its core. It has depended on coal since the middle to the 1700s. Many have regularly answered oil shocks with calls for a switch to liquefied coal. The U.S uses 1.1 billion tons of coal a year. Only China uses more.

click to enlarge

In the fall of 2008, production problems caused some of the earliest contract fulfillment doubts. Utilities woke up. American Electric Power Co. (AEP) is the biggest U.S. coal buyer. With 9,100 railroad cars and 2,480 river barges dedicated to getting coal to its power plants, finding and buying coal is costing AEP more. It must work harder to be sure supplies are available. It even bought its own coal mine to increase supply certainty.

Peabody Energy, the biggest U.S. coal company, agrees with the USGS numbers and is also making new plans.

The good news is that it is time to leave coal behind. It is the biggest energy source of greenhouse gas emissions (GhGs).

Coal production is expected to drop 5-to-10% in 2009 due to a recession-induced fall in demand and a growing turn toward the less GhG-intensive natural gas. The price of coal is dropping, making increased production costs even less tolerable.

Many plans for new coal plants are being abandoned and little construction is going forward. It is time to turn to New Energy.

click to enlarge

QUOTES
- Brenda Pierce, head, USGS study team: "We really can't say we're the Saudi Arabia of coal anymore…"
- Tim Light, senior vice president, AEP: "We are very much concerned, and it's getting worse…We don't know what the future holds…"
- Kim Link, spokeswoman, Arch Coal Inc.: "[Coal] is certain to remain an enormously competitive energy resource by virtually any conceivable measure…"

click to enlarge

- Vic Svec, spokesman, Peabody Energy Resources: "USGS made a leap forward with this study…"
- George Warholic, analyst, EIA of DOE: "It's kind of crazy [to estimate how long U.S. coal will last]… It could be 110 years or 225 years or something completely different. It all depends on your assumptions."
- Janine Orf, spokeswoman, Patriot Coal Corp.: "What's left to mine is not as easy as what we mined even 10 or 20 years ago…The seams are getting thinner and there are more limestone intrusions."