What Is the Future of Coal in West Virginia?

For decades, the West Virginia coal industry has been the economic foundation of the state’s economy.  The industry generates more than 20,000 direct mining jobs and more than 70,000 indirect jobs.  In addition, the coal industry generates more than $6 billion each year in positive economic impact for the state. 1

However, the rise of the natural gas industry in the Appalachian region appears to be supplanting coal as the dominant energy resource and economic generator in the region.  In addition, several factors have made a significant impact on the West Virginia coal industry, including more restrictive environmental emissions standards, increased coal production in the Western United States, the re-emergence of the Australian mining industry, and a substantial downturn in the steel industry.

Traditionally, coal has been a competitive fuel source because of its abundance and cheaper pricing than other alternatives (gas, wind, solar, nuclear, etc.).  The recent shale gas boom has resulted in an abundant and cheap supply of natural gas.  In addition, natural gas is a relatively clean fuel source and is considered to be more environmentally friendly than coal from a production standpoint.  This has resulted in a considerable reduction to the market for coal-generated electricity.

More troubling news for the coal industry in West Virginia was recent decisions by many college and university endowment boards to divest their portfolios from coal companies in response to pressure from environmental groups and related student organizations.  In addition, the California State Teachers' Retirement System (CalSTRS) has also announced that it will divest from thermal coal holdings.  The California Public Employee Retirement System (CalPERS) is considering a divestiture based on California State Senate President Pro Tempore Kevin De Leon's (D-Los Angeles) proposed bill (SB 185) that would require the divestment of thermal coal and a feasibility study of divesting additional fossil fuel investments, such as natural gas and petroleum.  This bill was approved by the Senate Public Employment and Retirement Committee and awaits approval by the Senate Appropriations Committee.

The U.S. Energy Information Administration's Short-Term Energy Outlook, released April 7, 2015, projected U.S. coal consumption in the electric power sector to decrease by 6%  in 2015, despite an increase in overall electricity generation  Coal production for 2015 was 926 million short tons — representing the lowest annual production total since 1987, when 918.8 million tons was produced.  The decline in production will impact the West Virginia state budget, reducing both severance tax revenue and county personal property tax revenue.

Utility companies typically plan their energy consumption ten years out.  If they make the decision to either move away from coal-generated electricity, or at least reduce the amount of coal-powered electricity in their portfolios' it will have longer-term effect that will impact industry suppliers and the overall workforce.  If the industry doesn't make a rebound in the near term, miners that comprise the industry's workforce in West Virginia will need to search for other employment opportunities or options to provide for their families.

It remains to be seen how long the coal industry decline will continue.  A resurgence in the U.S. steel industry would be a welcome sign that the demand for coal is returning.  In my opinion, the next two years as well as the upcoming presidential election will hold the key to the future of coal in West Virginia.

Contact us with questions regarding the natural gas industry and visit our Energy and Resources Industry Group page to learn services that Schneider Downs can provide to your organization.

1 West Virginia Coal Association

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