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Coal Fuels Brewpubs in Wyoming as Kentucky Mines Misery

July 18, 2014

Coal Fuels Brewpubs in Booming Wyoming as Kentucky Mines Misery

Of the 87 licensed mines in the county, just 27 are active, according to the U.S. Mine Safety and Health Administration. Harlan produced 4.6 million tons of coal last year, the lowest total since 1920. Photographer: Luke Sharrett/Bloomberg

Trying to find the boom in U.S. coal? Stop in the Gillette Brewing Company in Wyoming, which 38-year-old Tom Gorton opened using some of the $70,000 a year he earns mining coal.

“Things were iffy there for a little bit, but it’s picking up now,” Gorton said at his brewery in the center of town, where customers wash down brie baked in a wood-fired oven with gluten-free blue agave ale. “When people have a little extra money, that changes things.”

In the coal region of eastern Kentucky, about 1,300 miles away, extra money is hard to come by. Brandon Farley lost his job there when the James River Coal Co. (JRCCQ:US) mine closed. Months of looking turned up only one job lead: a minimum wage opportunity at the local Pizza Hut.

“They want coal to be done with,” Farley said. “I believe it’s coming to an end.”

The experience of these two mining communities reflect the conflicting views of coal itself. Environmentalists see signs of its demise in shrinking production and growing concerns over global warming. Boosters point to a surge in demand by developing countries hungry for cheap and plentiful energy. Germany and Japan, too, are burning more coal as they reconsider the risks of atomic power.

Boom, Bust

Evidence is similarly contradictory in towns across the U.S., where the changing fortunes of coal can swing a community from boom to bust and back.

“It depends on where you are standing as to what is going on,” Jeff Archibald, a specialist on coal at the consulting firm ICF International (ICFI:US), said in an interview. In Wyoming, “production is going to come back to the highs we saw a few years ago,” while in central Appalachia “coal is really dropping, and we expect that to continue.”

Coal: Can’t Live With It, Can’t Live Without It

The reason: Kentucky’s coal costs three times as much to mine as Wyoming’s. That is crucial as coal finds itself competing with supplies of low-cost natural gas unlocked by advances in drilling known as hydraulic fracturing, or fracking.

In the wide, vast plains of Wyoming’s Powder River Basin, where coal can be scooped out and piled high onto railcars headed for Texas and Midwest power plants, production is on a modest upswing.

Frozen Yogurt

That’s sparked a boom in the town of Gillette, where the local unemployment rate is 2.9 percent, less than half the nation’s 6.1 percent, and the median family income is $77,000, more than 40 percent higher than then national average. Within the past year four new frozen yogurt shops opened, along with the $5.5 million Jordan’s Western Dining steakhouse that has the cattle brand of former vice president and Wyoming Republican congressman Dick Cheney seared on a wood beam near the bar.

The scene is very different along Kentucky’s jagged eastern edge. The cheapest, easiest coal to mine was carved out decades ago, and now mining companies are shedding workers and seeking bankruptcy protection. The unemployment rate is 14.8 percent and doctors are drug-testing their own patients to make sure they are taking -- rather than hawking -- pain medication.

“The plug has been pulled on our economy,” said C.V. Bennett, who is the last local owner of coal mines. “I feel for the people because they really don’t have any direction, and I can’t give them direction.”

“It’s like you’re dead and don’t know it,” he added.

Vital Signs

The vital signs for coal are conflicting.

It is the nation’s No. 1 source of fuel for power and was burned to generate 39 percent of its electricity last year -- though that is down from almost half in 2007. Production from the nation’s mines last year fell to 984 million short tons, the lowest in two decades. The output is likely to dip for the next few years, and then increase slowly over the subsequent two decades, according to projections by the U.S. Energy Information Administration.

Industrywide employment in the U.S. has fallen to about 122,000 from 415,000 in 1950, before mining became mechanized, according to the National Mining Association.

Worldwide, coal is the fastest-growing major energy source, projected to rise 2.3 percent a year through 2018, and poised to dethrone crude oil as the largest source by 2020, the International Energy Agency said in December.

In recent months, Japan’s cabinet approved a new energy plan that designates coal as a long-term source of electricity. Coal consumption has reached record levels as nuclear reactors have been idled for safety checks since a tsunami struck and disabled a plant in Fukushima in 2011, spreading radiation.

Merkel, Fukushima

Germany has also boosted its use of coal since Chancellor Angela Merkel decided after the Fukushima disaster to shutter all 17 of the nation’s nuclear plants by 2022. Coal’s share of electricity production in the nation rose to 45 percent last year, the highest level since 2007.

According to the World Resources Institute in Washington, about 1,200 coal-fired plants are being planned, with more than three-quarters of the units in India and China alone.

That overseas demand has some U.S. producers hopeful that a boost in exports will compensate for declines in this country.

Wyoming, in particular, hopes to boost exports. Proposals to build terminals at ports in Washington and Oregon, however, have been stymied by environmental objections. And China has announced a goal of reducing its dependence on coal for power generation to less than 65 percent by 2017.

Short term, companies such as Peabody Energy Corp. (BTU:US) predict that coal exports will be flat or fall, as global prices are depressed.

Polar Vortex

There’s no mystery as to why coal has survived efforts to kill it off, or why it’s under pressure: it’s relatively cheap and easy to mine, transport, store and burn. This year, as the polar vortex threw much of the U.S. into a record deep freeze in January, blackouts were prevented in part by power companies firing up old coal plants.

However, underground mining is dangerous work; those who avoid the occasional roof fall or explosion face risks of black lung or silicosis. Surface mining can destroy mountains and pollute streams.

Coal-fired power plants are responsible for almost two thirds of the U.S. emissions of sulfur dioxide, which causes acid rain. And then there’s the existential risk of climate change: Coal emits twice the carbon dioxide as natural gas when burned to generate electricity, making it one of the biggest sources of greenhouse-gas emissions.

“Cradle to grave, there is no energy source on the planet worse than coal,” said Patrick Parenteau, a professor of environmental law at Vermont Law School.

Government Regulations

As a result, government rules have piled up in the past 30 years, as regulators moved to make mining safer and reduce air and water pollution. Industry groups and Republican lawmakers complain that under President Barack Obama a panoply of environmental rules have amounted to a “War on Coal” that is making it impossible for the industry to survive.

That “war” got a recent boost from federal courts, which upheld two Environmental Protection Agency rules mandating that coal plants install scrubbers to cut their mercury, acid gases and sulfur dioxide emissions. And the EPA proposed in June its first rules to limit greenhouse gases from power plants, ones that could further damp coal use in the U.S.

The EPA rules weren’t always a bad thing for either Kentucky or Wyoming. Because of quirks of geology both places have low-sulfur coal, and so when the federal government moved to cut acid rain with the Clean Air Act amendments of 1990, coal from each place was in high demand.

Wyoming Production

Wyoming coal production doubled from 1990 until 2008, to more than 400 million tons. Nine of the 10 largest mines in the country are now in Wyoming; the other is neighboring Montana.

“Everybody wanted to get low-sulfur coal,” Rob Livingston, who teaches mining technology at Gillette College in Wyoming, said in an interview. Oil companies with mineral rights in the Powder River Basin “put up their hands and said, ‘We got it here.’”

Because the coal is close to the surface, the mines look more like super-sized quarries, with mechanized shovels filling trucks with 400 tons of coal a shot, which then gets driven to conveyor belts that load up trains right from the mine and take the coal to plants in the South or Midwest. Instead of miners chiseling coal from underground caverns, the Wyoming operations are about using massive equipment to make production as quick and efficient as possible.

Cheapest Coal

As a result, at the mine gate, coal from the Powder River Basin is the cheapest in the U.S., less than a third the cost of Appalachian coal, according to the Energy Information Administration. The largest component is the cost of shipping Wyoming coal by rail. It was only the deregulation of railroad rates in the 1970s that opened the resources for commercial sale, according to Richard Schmalensee of the Massachusetts Institute of Technology.

Now producers say railroad congestion is a barrier to growth.

“The upside for producers will be limited by rail,” said Ted O’Brien, president of Doyle Trading Consultants, a Colorado-based coal-research company. Still, “coal is going to be a very big part of our grid for a long time.”

In 2012, prices for Powder River Basin coal fell to less than $7 a ton; it’s now at almost $12. What those prices will be long term will determine how much coal will be pulled from Wyoming mines, and explains in part why some companies are so anxious for exports.

Export Opportunity

“We have a good business that’s making money through a horrible down cycle,” Colin Marshall, the chief executive of Cloud Peak Energy Inc. (CLD:US), which has three mines in the Powder River Basin, including one that is in Montana, said in an interview. “Exports are basically the significant growth opportunity on top of that.”

Residents of Gillette, a town about 310 miles (500 kilometers) north of Denver, say they’re seeing more positive signs.

“A lot of the mines are hiring now,” said Joel Christophersen, general manager of L&H Industrial, a mining contractor based in Gillette. “Things have stabilized, and I think the future looks good.”

In fact, the town of Gillette is struggling with the issues of growth, not decline. While the county is building a new skate park, the city is debating what mix of soccer, football, baseball fields should be part of a new park. And with the unemployment rate so low -- and $70,000 a year jobs available in the mines -- other business owners say they have a hard time holding onto to workers.

Shedding Workers

“There is a decent amount of turnover, because there are some high-paying jobs available,” said Karl DeCock, a local architect. “The mines are where the money is at.”

Gorton and DeCock teamed up with four other co-owners to overhaul the town’s historic post office building along Main Street and turn it into Gillette’s first brewpub.

Gorton, a mechanic at a strip mine 12 miles north of town, had been an avid homebrewer and is now one of the year-old bar’s two brewers. In addition to beer, the bar offers weekly improv, trivia nights and live music. And it has competition. Within weeks of its first day, Prairie Fire Brewery opened blocks away.

None of those signs of growth are evident in eastern Kentucky.

In Harlan County, the setting of epic battles between mine owners and union organizers in the last century, the food bank is short of donations and a downtown partnership is taking bids not for new tenants but for companies that can tear down vacant storefronts.

Distressed Count

Of the 87 licensed mines in the county, just 27 are active, according to the U.S. Mine Safety and Health Administration. Harlan produced 4.6 million tons of coal last year, the lowest total since 1920. The county shed more than half its population in the past six decades, and locals say one of the only booming local businesses is renting U-Haul trucks for those fleeing.

“We’re going to have to rely on something else,” said Harry Gibson, a former miner who now runs a local contracting company. “But we’ve gotten so dependent on coal, it’s like we’re on drugs.”

Even before this latest downturn Harlan was categorized as a distressed county by the U.S. Census Bureau, with a median income of $26,758. Subtract the Social Security payments, government disability checks and unemployment insurance and that total drops to $15,831, about half the national average.

Its household income is about a third that of Campbell County, Wyoming, where Gillette is located.

Left Town

After months of looking for work, Brandon Farley did what thousands of Harlan residents have done before him: packed up his family and left. He found a job working at a coal mine in western Kentucky, where he says production is more stable.

“Harlan will be a ghost town,” Farley said. “There is nothing there that will let you match what you can get from coal.”

Coal’s pre-eminent place in eastern Kentucky began more than a century ago, as prospectors and entrepreneurs searched for fuel to support the rapid spread of electricity and manufacturing of steel and automobiles. Coal brought electricity, roads, railroads and immigrants to what had been an isolated area known for its feuds, moonshine and mournful music. Before coal, residents bartered ginseng, acorn-fattened hogs and furs for salt, their major import, according to historian John Hevener.

Black Mountain

In the early 20th century surveyors identified the coal deposits under Black Mountain, Kentucky’s highest peak, prompting a “coal rush” to the area. Wide, long seams allowed miners to tunnel miles underground to tap the rich deposits.

Ford Motor Co. (F:US), U.S. Steel Corp. (X:US) and International Harvester Co. (NAV:US) each established so-called captive mines in the area, guaranteeing supplies of coal for the steel making and electricity they needed for their factories.

Union battles flared in the 1930s -- and came back in the 1970s to be captured in the Academy Award-winning documentary film, “Harlan County U.S.A.”

Harlan’s record annual production was in 1942, when 15.2 million tons were mined, according to state data. As machinery made mining less labor intensive, mining jobs have been on the decline. In 1940, the mines had 16,403 employees. Thirty years later there were just 2,433 miners. Last year it was 932 -- down 35 percent from 2012 -- and none in a union mine.

Declining Resource

A century of mining has left the choicest minerals already extracted, meaning what’s left takes more time and effort to produce.

“Coal is not going away in eastern Kentucky, but it’s becoming more difficult and costly to produce,” said Cortland Eble, a geologist at the Kentucky Geological Survey. “What we’re seeing is a decline in available resources.”

With coal collapsing, local miners and political leaders boarded an industry-sponsored bus to Washington last year, announcing their status as a “Friend of Coal” and carrying signs that included, “Save America, Impeach Obama.” Some signs showed a cartoon boy in a miner’s hard hat urinating on the word “OBAMA.”

State and federal officials are trying to craft viable alternatives for the region. Democratic Governor Steve Beshear and Republican Representative Hal Rogers hosted a summit on Dec. 9 on reshaping the Appalachian region.

“People here have been jerked around, kicked around so much that they’ve lost hope,” said Carl Shoupe, a former miner and union organizer. “We have to do something else.”

‘Ground Zero’

Shoupe’s warning is acute for Kentucky. The question for Wyoming is how long companies and residents can avoid it.

Certainly, the coal industry sees the Appalachian travails as a warning signal. “Eastern Kentucky is ground zero for what the coal industry is going through in this country,” said Bill Bissett, the executive director of the Kentucky Coal Association.

Marshall of Cloud Peak says U.S. demand will be flat over the next years or decades, so low-cost producers from the Powder River Basin can still survive. “We have a sound domestic base, and production can go up as prices go up,” he said.

But a growing chorus of environmental advocates are looking at the proliferation of cheap solar and wind energy, and saying coal’s more recent woes are the beginning of the end. The U.S. passed its peak coal production in 2008, and mining will become increasingly expensive, according to a report by Clean Energy Action of Boulder, Colorado.

“As they extract more and more of the coal, the cost of producing it rises,” Zane Selvans, author of the report, said in an interview. What Kentucky is experiencing today, many mines in Wyoming may face in the next seven to 20 years, he predicts. “The margins in the Powder River Basin are still positive, unlike Appalachia; but they’re thinning.”

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net Steve Geimann


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Companies Mentioned

  • JRCCQ
    (James River Coal Co)
    • $0.08 USD
    • -0.00
    • -4.94%
  • ICFI
    (ICF International Inc)
    • $30.62 USD
    • -0.17
    • -0.56%
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