Coal producers getting burned by switch to natural gas

The coal industry is in deep trouble, and Southern Company’s decision to buy an Atlanta natural gas utility puts it even deeper in the hole.

For years, coal producers have been taking it on the chin as electric utilities have closed more and more coal-fired power plants and switched to cheaper, cleaner-burning natural gas.

The situation was made worse when coal shipments to the once-voracious Chinese market slowed.

“You can see it across the industry,” said Kristoffer Inton, an investment analyst who covers the coal industry for Morningstar in Chicago. “Neither the domestic situation nor the international situation looks good for coal.”

Coal producers’ revenues have dropped 25 percent or more in three years and profits have disappeared, he said.

Several companies have filed bankruptcy. Mines are being closed, and jobs are disappearing by the thousands in major coal-producing states such as West Virginia and Kentucky.

Electric utilities across the nation have been retreating from coal-fired plants as a boom in oil and gas production — created by hydraulic fracturing and other new techniques — caused natural gas prices to plunge more than 50 percent in recent years.

Meanwhile, federal regulators have tightened clean air standards for carbon emissions and other pollutants, putting more pressure on utilities to close coal plants or invest in costly upgrades.

Monday, Southern executives cited the improved access to natural gas sources and pipelines as a big reason behind the company’s planned $12 billion acquisition of Atlanta-based AGL Resources.

In recent years, Southern has closed or announced plans to close more than a dozen coal- or oil-fired units in Georgia and other states. Natural gas-fired plants now account for 39 percent of Southern’s power generation capacity, just behind 42 percent from its coal-fired plants.

“With the evolution of changing regulations and the technology revolution taking place in energy production, Southern Company and AGL Resources will be well positioned to meet a future that needs more natural gas infrastructure for our customers’ benefit,” Southern CEO Thomas Fanning said Monday.

While cleaner air and cheaper energy have been great news for most folks and the overall economy, it’s been a knock-out punch for West Virginia, the nation’s second largest coal producer.

West Virginia has lost so many mines and mine workers in the last few years that the state now has the highest unemployment rate in the nation, at 7.5 percent, and rising, said Ted Boettner, executive director of the West Virginia Center on Budget and Policy in Charleston.

“It’s one of the few states that lost population last year,” he said.

He said West Virginia’s number of operating mines has declined by almost half since 2012, to 112 currently, and almost certainly will keep dropping. The federal Energy Information Administration projects that coal will account for only 30 percent of electricity production in the U.S. in the next decade, from a little more than 40 percent now. It was more than 50 percent in 2010.

But not all the blame for West Virginia coal miners’ hard times falls on tougher federal air standards or utilities’ switch to natural gas, said Boettner.

“People want cleaner energy, but the coal industry just doesn’t know how to pivot” and produce a cleaner product, he said. Many of West Virginia’s remaining coal seams are also thinning out, making it harder to produce coal at a competitive price, he said.

“The next couple of years, West Virginia will continue to see coal production decline dramatically. This is a structural decline in the industry,” he said. “It’s really a sad story.”

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