If you’re looking for good news about the coal industry in West Virginia, don’t ask the CEO of one of the state’s largest producers.
In a conference call with investment analysts following the release of the company’s second-quarter earnings report, Paul Lang of Arch Resources, formerly Arch Coal, said last week that both thermal coal — the kind used in power plants — and metallurgical coal — the kind used in making steel — face challenges for several quarters at least.
Lang expects demand for thermal coal in the United States to decline by 130 million tons this year, following the nearly 100 million ton-decline last year. It doesn’t help that coal stockpiles at U.S. power plants are at an all-time high based on days of supply, Lang said.
In recent years, Arch has shifted its production away from an emphasis on thermal coal and toward one on met coal. The company is developing a new met coal mine in North Central West Virginia known as Leer South that it expects to produce a large quantity of met coal that is in high demand.
While the world market for met coal is improving, “we’re almost certainly several quarters removed from anything resembling normalcy,” Lang said.
Also last week, Norfolk Southern Corp. reported that it moved 5.7 million tons of thermal coal in the second quarter. That was down 67% from the 17.1 million tons moved in the same quarter last year. Total tonnage — utility, export, met and industrial — was down 57% to 12.45 million tons.
The week before, CSX reported its total tonnage declined 44% in the quarter, from 25.4 million tons to 14.2 million tons.
Part of that can be attributed to the COVID-19 situation, but the overall decline in coal is a long-term trend that shows no sign of improving. Met coal has its ups and downs, and it may be at the beginning of an up cycle, but the overall coal market is trending downward.
What does that mean for West Virginia? Not a whole lot that’s good.
Coal-fired plants are needed to keep the regional power grid running, but most of the new generating capacity that has come on line has been from natural gas, and no new coal-fired plants are in the works — planning or construction — in the United States.
Sooner or later, demand for thermal coal will hit bottom and level off for a few years. That still leaves the long-term problem, though.
State and local governments in coal-producing areas must plan for what budgeting will be like as revenues from coal severance taxes and income taxes from businesses that depend on coal decline as coal itself does. This is not a new concern; it has been around for years, but it is seldom addressed in a long-term manner.
We’ve had plenty of short-term tax breaks and other measures that keep the industry or individual facilities in business for the short term, but we’ve had few realistic and sustainable plans for the long term.
It’s incumbent on Jim Justice, Ben Salango and anyone else running for high office in West Virginia to talk about what life after coal will mean for the southern counties in particular and what state government can or will do about it.