Coal reality check


It's a risky time to invest in coal. Production was down almost 8 percent in 2009, and consumption fell even further. Environmentalists have fought new coal-fired power plants tooth and nail -- and won. Some plants are already planning a switch to natural gas. Meanwhile, the shape of future federal carbon regulation, a looming threat to the industry, remains unclear.

Nevertheless, in March, Arch Coal successfully bid $86 million to lease 572 million tons of coal in southeast Montana. Other companies are reportedly sizing up Montana's untapped reserves, too. And in Wyoming, existing mines are asking the federal government to put 5.8 billion tons of new coal up for sale.

Declining Appalachian production and a rise in international demand for Eastern metallurgical coal, which can be used in steel-making, are expected to leave holes in domestic supply that Wyoming mines can fill. Domestic sales already rose in 2007 and 2008, thanks in part to growing Eastern exports, says Marion Loomis, executive director of the Wyoming Mining Association. He expects U.S. utilities to remain the primary -- and most reliable -- consumers of Powder River coal. But international markets are also being pursued: Peabody Coal hopes to establish an export terminal in the Northwest to send the basin's coal to China by the end of the year.

Loomis acknowledges that most new power will likely come from natural gas and renewables. Still, much of the existing demand will continue to be met by coal. Although natural gas is a formidable competitor, just to match the energy Wyoming coal provides, gas drillers in the state would have to about triple production. "It's just not going to happen in the next number of years," Loomis says.

Ultimately, the uncertainties surrounding coal are likely to wound the industry, not kill it, according to Rob Godby, a University of Wyoming economist. Coal-fired power plants generate large amounts of base-load electricity, the minimum amount of power utilities are required to provide to meet demand at any given time. "There's nothing to compete with that," Godby says. "Transmission already runs to (the plants), they're already built. Those all lead to a significant role for coal."

This sidebar accompanies the story, "Trouble in the PRB."

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