Rising Costs, Not Natural Gas, Main Driver of Coal Mine Closures

Apr 9, 2018

A new study finds rising production costs, not cheap natural gas, was the lead factor that drove thousands of coal mines across Appalachia to close.

The analysis, published last week by the nonpartisan, environmental think tank, Resources for the Future, scrutinized the impact that natural gas prices, stagnant electricity demand and rising costs had on the ability of coal mines to stay in business.  

The researchers created a model that allowed them to study different factors that affected the profitability of coal mines using public data from the Mine Safety and Health Administration, U.S. Energy Information Administration and information reported by public coal companies in their annual reports to the Securities and Exchange Commission.

They examined how low natural gas prices, electricity demand, and production costs affected mines that closed over the course of a 10-year period starting in 2002.

Ian Lange, director of the minerals and energy economics program at the Colorado School of Mines, and lead author of the study, said while low natural gas prices and lackluster electricity demand definitely played a role in mine closures, the researchers found rising costs was the biggest factor in two-thirds of mines closures.

Part of the reason costs climbed at Appalachian coal mines is tied to the region’s long history of extracting the resource.

Compared to other regions of the nation that produce coal, like the Powder River Basin in Wyoming and Montana, coal fields in central Appalachia requires more labor and resources to extract.

“In central Appalachian coal is deeper in the ground and the seams are thinner,” said John Deskins, an associate professor of economics at West Virginia University. “Because we’ve been mining coal for so long and so aggressively, we’ve already taken out all the easier to get coal.”

Harrison Fell, an associate professor at North Carolina State University who was not involved in the study, said it was surprising that natural gas prices didn’t play a more central role. He said today, gas prices are lower than they were during the period studied, which makes keeping mines from closing even more of a challenge.

“The underlying driver to all of this, and I think the most important thing to keep in mind here, is that by and large almost all the coal we produce here goes to coal-fired generation in the U.S., and so anything that reduces coal-fired generation in the U.S. is going to reduce coal production. And eventually, that reduction in demand for coal production is going to lead to mine closures,” he said. “So, the name of the game, if you’re goal is to keep coal mines open, is to keep coal-fired generation going.”

The study was funded in part by the National Science Foundation.  Co-authors included Brett Jordan of the University of Alaska, Anchorage and Joshua Linn, with the University of Maryland and Resources for the Future.