Mining Weekly

VANCOUVER (miningweekly.com) – In dealing with the decline of US coal mining, western coal-producing states, such as Wyoming, are much better positioned to weather the market shift than their eastern counterparts, such as West Virginia and Kentucky, according to new analysis by Moody’s Investors Service.

Driven by weaker seaborne demand, lower natural gas prices and tighter emissions regulations, coal production is experiencing record declines in the three largest coal producing states.

As the downturn increasingly trickles down to local governments, Wyoming counties are benefiting from greater production levels, more favourable income and poverty indicators, as well as a lower reliance on state severance tax distributions, Moody’s states.

According to the market intelligence firm, despite lower coal output in all three states, Wyoming's output has declined at a slower rate than West Virginia and Kentucky. From 2011 to 2015, Wyoming's production declined by 14% to 376-million short tons from 438.7-million short tons, compared with Kentucky's 42% decline to 61.4-million short tons and West Virginia's 20% decline to 114.8-million tons.

Wyoming’s Powder River basin (PRB) has distinctive characteristics that set it apart from the eastern states, as it relies almost entirely on surface mining, which is less expensive. Further, coal productivity (the amount produced per hour) is about ten times higher in Wyoming than in the other two states.

According to Moody’s, Wyoming's coal-producing counties also demonstrate healthier income and poverty levels, indicating a greater ability to generate revenues.

A snapshot of top coal-producing counties in the three states shows Campbell County, in Wyoming, with a much higher median family income and a far lower poverty rate than Perry County, in Kentucky and Boone County, in West Virginia.

Moody’s ascribes the higher income levels to a greater opportunity to tap the tax base for new revenue. While each state's coal tax revenues have markedly declined, Wyoming counties are less reliant on state distributions from these funds.

Wyoming coal counties are less dependent by necessity; the total amount of state distributions to local governments is capped at about $20.3-million a year. In 2014, Wyoming-based Campbell County’s share accounted for less than 1% of general fund revenues, compared with nearly 48% distributed to Kentucky's Perry County and almost 29% distributed to Boone County in West Virginia.

A large decline in funds can force a county to considerably alter its budget for operations.

IPP PROJECTIONS
Should outgoing US President Barack Obama’s Clean Power Plan (CPP) be implemented pending judicial review, Moody’s cites the US Energy Information Administration's (EIA's) projection that coal output in the West region (which includes Wyoming) will decrease by 32% between 2015 and 2040.

The PRB accounts for roughly two-thirds of all coal produced in the Western region. Lower production costs for the region’s low-sulphur coal have historically outweighed the higher costs of transportation and kept Western-mined coal in economic favour in distant markets.

However, the implementation of sulphur dioxide emission controls at coal-fired power plants to accommodate the Mercury and Air Toxics Standards has made higher-sulphur coal more competitive.

Appalachian coal production (which includes eastern Kentucky and West Virginia) is expected to decrease by 79-million short tons, or 36% by 2040. The cost of production is relatively high compared with other regions and the EIA expects that decreasing labour productivity will make Appalachian coal less competitive with other regions, as well as other fuel sources such as natural gas.