Patriot Coal’s announcement two weeks ago that it is closing the huge Samples Mine, one of the largest mountaintop removal operations in the region, rightfully got a lot of media attention.
A lot of folks, including coal industry lobbyists and Coal Tattoo readers, blamed environmentalists and the push to end or at least much more strictly regulation mountaintop removal. Patriot officials made no mention of any permit holdups or other such issues, instead blaming the poor coal market and a corporate decision ” to concentrate production at lower-cost mining complexes.”
But there’s another part of this story that is pretty important … Patriot is making a concerted effort to re-examine its ability to mine its coal reserves with underground mining, rather than with huge mountaintop removal operations. And what are they finding? Well, here’s what Mark Schroeder, Patriot’s senior vice president, told industry analysts during a conference call just a few days before the announcement that Samples was closing:
The positive … for us is that as things get more difficult on the surface side, we have wonderful underground reserves that are out there, some of which are ready to go.
Whenever someone calls for a ban on mountaintop removal or even for slightly tougher regulations, the National Mining Association says such moves would jeopardize thousands of jobs and threaten the nation’s energy supply. But that’s not what Patriot Coal (the third largest producer of coal in the eastern U.S.) is telling its stockholders …
Schroeder was responding to questions from stock analysts — the guys who advise investors about whether to buy coal company stock or not — about what impact continued controversy over mountaintop removal permits was going to have on Patriot. He continued:
It’s certainly on the negative side if the permits don’t come around, but we are blessed with having a good base of underground reserves as well.
The coal out there in many of the properties is interchangeable and we typically in our contracts have the ability to substitute from one mine to another mine, so it gives us some additional latitude to move things around. If a surface mine is not operating because of a permit issue, we can go underground, we can continue to source the customer, etc.
Patriot officials complained that there “continues to be a logjam in the granting of permits by the Army Corps of Engineers.” They also noted that EPA has decided to become more involved in the review by the West Virginia Department of Environmental Protection of water pollution permits for coal-mining operations.
Patriot President Rick Whiting also gave the stock analysts the standard coal industry line about the Obama administration’s plans to more closely regulate mountaintop removal:
Clearly, these actions and delays make the permitting process more burdensome. They also threaten to reduce surface mining activity or at a minimum, substantially lengthen the permitting process.
Coal Tattoo readers will recall the guest blog Why Surface Mine? by Gene Kitts, vice president for International Coal Group, which explained — and defended quite strongly — why coal companies decide to mine certain reserves by surface methods, rather than underground. But read on, and see another possible industry reaction to the pressures being put on mountaintop removal because of its obvious and very serious environmental impacts …
Whiting said:
Every trip that [Patriot Chief Operating Officer] Paul [Vining] and I have made to the individual mining complexes in recent weeks and months … we continue to be presented with more potential underground projects. We asked our guys earlier in the year to roll up their sleeves and consider that, and they are indeed identifying and we’ve got some good previous drilling … we’ll probably accelerate our drilling … that can go through our existing infrastructure and continue to supply our customer base.
Not surprisingly, Patriot is most concerned about permit applications to continue mining at its huge Hobet 21 complex down along the Boone-Lincoln County border here in West Virginia (shown above in one of Vivian Stockman’s photos). One such permit, for a 400-acre operation called Hobet 22,already ran into problems, because of the WVDEP’s failure initially to require any limits on the operation’s selenium discharges to area streams. (This despite evidence that existing selenium discharges from Hobet’s existing operations were already pushing the Mud River watershed “to the brink of a major toxic event.”)
You’ll recall that Hobet last year warned employees of potential layoffs because of a challenge to that permit. That prompted the typical ” we’ll do whatever we have to do ” rhetoric from United Mine Workers President Cecil Roberts, and Gov. Joe Manchin ended up intervening. A deal was reached for more selenium monitoring and pollution controls, and the company promised to hire a forestry reclamation expert recommended by citizen groups.
But now, another Hobet extension permit, called Hobet 45, is on the list of strip-mining proposals that the federal EPA wants to take a closer look at before their Clean Water Act permits are approved by the Army Corps.
Whiting told stock analysts that if the permit isn’t issued soon, the company is looking at losing 500,000 to 1 million tons of production at Hobet sometime in the second half of 2010. But because of the time it’s already taken to get the permit, there will probably be some production lost:
We’re looking at some alternate plans to keep the dragline working for perhaps a few more months … we’re to the point that we’ve already waited long enough. There will be some impact.
Without the permit, production at the Hobet surface mine will wind down over the next two or three years. About 350 workers are employed at the operation. Said Whiting:
Frankly, it’s pretty hard to run that mine without the dragline swinging because it puts an awful lot of burden on the infrastructure, on just the truck and shovel component.
So it is important that we ultimately get that permit or move on to underground reserves or other projects.
Still … when asked point blank if not getting the surface mining permit would mean that Hobet couldn’t get the reserves proposed to be mined by Hobet 45, Whiting said this:
There may be some other more innovative method we could come up with over time to avoid those drainage areas and maybe so some pockets of it at certainly a higher cost in a different market.
There may be an engineering answer where we could get some of those reserves.
Make no mistake, Patriot Coal wants its strip-mining permits, as Whiting said:
It would be a travesty for these permits not to come through, because they are low-cost fuel for all of our customers and their customers and the citizens of this country.
… We certainly will be fighting the hard fight and making our case that when we’re complying with the laws of the land we should be granted these permits.
But, Whiting said:
… We’re hedged to manage through it either way it goes.
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Ken,
Your argument is based on the infamous “lump of labor” fallacy that most who master Economics 101 learn to avoid. More costly environmental and other surface mining regulations may not cause layoffs and the suffering job losses inevitably cause at Patriot’s operations because Patriot has underground reserves it can operate with equal efficiency as the closed surface ones (I do not think that is what Patriot said). But in the free, competitive energy market the US enjoys, cost increases from regulations necessarily do cause job losses somewhere. On the supply demand chart, when prices rise, demand falls. The highest price producer must reduce production and discharge the surplus workers.
So, when the NMA says that regulations cause unemployment and threaten energy production, it is merely stating the obvious economic impact of increased costs. In some instances, like the Hobet example you cite , the victims of overregulation can be easily identified. In others, the task is more difficult. However, basic economics says the NMA is right and your suggestion that increased regulation will not do the harm suffered by discharged employees is simply wrong.
It is true that some regulation has benefits which outweigh the harm caused by the unemployment that regulation causes. There are good faith arguments on both sides of the harm/benefit determination. But, the argument is not fair if the harm caused by the regulation is ignored.
Forrest
Forrest,
Thanks for your comment.
My point is that part of what increased regulation of this type of mining will inevitably do is force coal companies — and their many very smart engineers — to find better ways. Patriot said as much.
As you well know, most who master Politics 101 know that industries always complain that any new regulation is so onerous that it will shut them down. Most of the time, that proves not to be true, as smart and creative people find new and better ways to do things.
That’s already been seen in surface mining, where the WVDEP’s AOC rules — though poorly enforced — are reducing the numbers and size of valley fills.
As for cost-benefit, I know that you want to see the environmental costs of strip mining (and other activities of the coal industry) properly thrown into the economic equation so that the argument over the future of these activities is a fair one.
Ken.
Ken,
It is true that new technology can reduce or even eliminate costs and that necessity is the mother of invention. However, as you so often point out in CCS discussions, invention is never sure and failures often occur. There remains the highest of risks that more costly regulations will cause grave economic harm to those who mine coal and the many, including all West Virginians who rely upon coal taxes to support our government, who benefit from coal’s contributions to our economy. That harm should be considered in the debate over those regulations.
Forrest
Forest,
Regulation doesn’t cause unemployment. Corporate greed causes unemployment.
I highly doubt the coal will be left alone if surface mining is banned. There might not be the same profits being made by CEOS today (Blankenship makes $1,000 an hour), but I would guess that this regulation would actually increase employment.
It can not be assumed that surface mineable reserves can be mined by deep mining methods. While some can, some cannot. It really has to be looked on an individual mine to mine basis to be able to make that determination.
While Patriot may be able to re-tool some production from surface to underground at the Samples complex, I am also sure that there will be some amount of reserve there that will not deep mineable.
Well, in my humble opinion, if it can’t be deep mined it should be left in the ground.
Well Nanette, in my opinion, I’m glad you don’t make those decisions.
Brad and Ken
I would disagree on the role that regulation plays in unemployment especially when one looks at specific locations. Coal is a commodity that competes almost exclusively on delivered cost to the end user. Any regulation that affects West Virginia mining to a greater extent than its competitors will shut down marginal West Virginia production to the benefit of a competitor. For example the first phase of the clean air act, decimated production in the Illinois basin as utilities elected to purchase low sulfur powder river basin coal and central app coal. Overall employment may have stayed the same (although I doubt it) but the location put at a disadvantage by the legislation suffered significant job loss. Please note that I am not debating whether or not the legislation was justified, only that it most certainly did affect regional employment. By adding cost to Central Appalachian coal mines, employment in Illinois, Wyoming and Columbia is likely to increase, but that will not help tax revenues in West Virginia.
Matt
Nanette: You have the right to express your opinion, and you did. I agree that the coal should be left alone if it cannot be mined by deep mining. We know that some seams of coal are too low, and that deep mining would not be able to retrieve this coal.
Daniel: You said that you were glad that Nanette could not make those decisions. I read where she expressed a opinion, not a decision.
We will always have pro and con about MTR, and I believe we should be allowed to make those opinions honestly and fair. Coal will be available for many, many years and if only underground mining was left to produce the coal it would be able to do so.
Time is fast running out for the Senate to act on this bill that the House passed, and in reading the papers this morning, it is beginning to look like the Senate will not go along with House and pass this bill.
So it looks like MTR will be safe from any regulation, and can continue to rip off the tops of our beautiful West Virginia mountains. I only hope that the MTR operators will try to restore the mountains to their original contour as much as possible.
[...] officials at Patriot Coal are saying that ”we can mine it underground.” According to the EIA, most of Appalachia’s recoverable reserves are classified as underground [...]
[...] Top officials at Patriot Coal are saying that ”we can mine it underground.” [...]
Two comments.
1. A lot of folks, including coal industry lobbyists and Coal Tattoo readers, blamed environmentalists and the push to end or at least much more strictly regulation mountaintop removal.
much more strictly regulation mountaintop removal?
2. Nanette’s declaration “if it can’t be deep mined it should be left in the ground” is a tautology and hence moot.
[...] respond later in this process depends in large part on what EPA ends up doing with permits that Patriot Coal desperately wants to continue mining with the dragline at its unionized Hobet 21 complex along the Boone-Lincoln [...]
[...] things, the report cites comments from Patriot Coal executives (previously covered in Coal Tattoo here) about their ability to switch reserves to underground methods — and the fact that in West [...]
[...] I’ve written before about the situation at Hobet 21, where Patriot Coal has been seeking approval of a permit for its “Hobet 45″ extension of one of the largest mountaintop removal complexes in Central Appalachia. [...]