Annual Coal Report 2003

Executive Summary

U.S. coal production fell for the second year in a row in 2003, declining by 22.5 million short tons to end the year at 1,071.8 million short tons, according to data from the Energy Information Administration (Table ES1), down 2.1 percent from the 2002 level of 1,094.3 million short tons. (Note: All percentage change calculations are done at the short ton level.) Total U.S. coal consumption rose in 2003, with all but one coal-consuming sector increasing for the year. Coal consumption in the electric power sector increased by 2.7 percent. However, there were only slight gains in consumption by most of the other sectors. Consumer coal stocks declined during the year, as consumers used their stockpiles to help meet increased demands that were experienced in 2003.

In 2003 the rebounding economy, coupled with the slightly warmer than normal summer experienced in the western part of the country, helped to drive up the demand for coal during the year. Although preliminary data show that total electricity generation decreased by 0.2 percent in 2003, coal-based generation increased by 1.6 percent, resulting in a 26.8-million-short-ton increase in coal consumed in the electric power sector. Total coal use in the non-electricity sector (coke plants, other industrial plants, and the residential and commercial sectors) rose by 1.8 percent to a level of 90.4 million short tons.

The average delivered price of coal increased in the electric utility sector (a subset of the electric power sector), while declining in the coking coal and other industrial sectors in 2003. The electric utility price increase was 2.2 percent, while the decrease was less than 0.1 percent for coking coal prices, and 2.2 percent for the other industrial sector.

Production

U.S. coal production decreased in 2003 by 2.1 percent to a level of 1,071.8 million short tons (Figure ES1 and Table ES1), a production level just slightly above the 1996 level of 1063.9 million short tons. For the first time since 2000, all three coal-producing regions declined for the year, with a slight drop in production in the Interior and Western Regions, while the large decline in Appalachia accounted for over 89 percent of the total decrease in U.S. coal production (Figure ES2 and Table ES2). As coal demand increased during the year, the decrease in U.S. coal production in 2003 of 22.5 million short tons was offset by a decrease in both consumer and producer stockpiles of 26.9 million short tons.

There were several issues that had an impact on coal production in 2003. Some of them were minor and had temporary effects (weather and transportation), while some were major and could affect the coal industry well into the future (legal and financial).

Among the minor issues were weather (rain or the lack thereof), transportation bottlenecks, and a one-day disruption in the electric power grid. The weather played a part in some of the transportation bottlenecks. The lack of rain led to low water levels in the river transportation sys-tem, in particular on the Mississippi River in January and again in August, which resulted in delayed coal barge shipments. There were severe rains in the Powder River Basin in June that impacted both coal production (causing some mine pit flooding and collapsing highwalls) and transportation (delays in train deliveries). Rail congestion problems continued to occur periodically in some States in the Western Region during the year. In August of 2003, there was an electricity blackout that affected over 50 million customers in the northeast United States and portions of Canada.

The major issues that had an effect on coal production in 2003 were primarily legal and financial, but also included operational problems. Legal issues continue to swirl around all aspects of the coal industry. The industry was still mired in the aftereffects of some actions that had been working their way through the legal system for several years, as well as some new legal challenges that occurred during the year.

The subject of increasing the legal weight of coal trucks used to transport coal in southern West Virginia was resolved in 2003, with an increase in the amount of coal that trucks could transport on designated highways. Also, with the circuit court overturning the suspension in the issuing of permits by the Army Corps of Engineers office in Huntington, West Virginia (covering eastern Kentucky, Ohio, and southern West Virginia), the resumption in the permitting system was slowed due to the backlog that had occurred while the lawsuit progressed through the legal system. The backlog contributed to the delay in the opening of new mines in that area with the renewal of existing permits taking precedence.

Also, there were new legal challenges to the coal industry in 2003. A new lawsuit was filed over the level of environmental review needed in the permitting system process as well as new challenges to the New Source Review program requirements for power plants. A coalition of environmental groups filed a lawsuit stating that all applications for permits should get full environmental review, while a coalition of several States and local governments sued the Environmental Protection Agency (EPA) to block the implementation of the new rule published at the end of October.

Bankruptcies continued to exert their influence on the coal industry as several producers and a few consumers were still trying to emerge from Chapter 11 during the year and another mid-sized coal company filed for bankruptcy protection in 2003 as it tried to realign its finances. The year also saw the continuing effort of several companies trying to exit the coal business by selling their mining interests to other parties. Adverse geological conditions and equipment problems continue to trouble some mining operations in both the Appalachian and Western Regions, while underground fires in Appalachia caused some mining operations to temporarily suspend production during 2003.

Appalachian Region

Although there was a slight increase in U.S. coal exports in 2003 (which are primarily produced in the East), the Appalachian region experienced another decline in coal production, the fifth drop in the last six years. Coal production in the Appalachian Region declined in 2003 to a total of 376.0 million short tons, the lowest level seen since 1978, when coal production was curtailed by a United Mine Workers of America strike which lasted from December 6, 1977, to March 25, 1978.

The decline in coal production in 2003 in the Appalachian Region was a result of several factors. The legacy of past lawsuits, that had temporarily halted the issuance of needed permits to open new mines, continued to constrain the amount of coal produced. Bankruptcies continued to plague Appalachia as another mid-sized coal company filed for Chapter 11 in early 2003, while several other coal companies were still working through their bankruptcy processes. Geological problems and underground mine fires added to the decline in coal production in some Appalachian States. Finally, several mines closed as they reached the end of their reserve base adding to the continuing reserve depletion that is affecting coal production in the East. Declining productivity and increasing labor costs also contributed to lower production levels in the region.

West Virginia, the largest coal-producing State in the Appalachian Region and the second largest in the United States, declined 6.9 percent to end the year with 139.7 million short tons of production, a level not seen since 1993. The Pinnacle mine was closed in the fall of 2003 as a consequence of ventilation problems and was unable to produce coal for the rest of the year, while a fire in the Loveridge underground mine early in the year disrupted its production for some time. Geological problems slowed production at other mines in the State, while depleted reserves led to the closure of some mines. Four other million-ton mines, Windsor, Lightfoot No. 2, Triad No. 1, and Fourmile Fork, were placed into a non-producing status in 2003 as a result of either the bankruptcy process or until market conditions support the reopening of the mines.

Eastern Kentucky produced 91.2 million short tons of coal in 2003, down by 8.2 million short tons, a level not seen since 1976. The drop in Eastern Kentucky is in part due to the closing of several mines due to reserve depletion and also due to the ongoing bankruptcies among several coal producers that have numerous operations in Kentucky.

Pennsylvania produced 63.7 million short tons, a drop of 6.8 percent from 2002. Some of the decline in coal production in Pennsylvania was a result of the idling of three mines in 2003. Two of the mines, Burrell and Dilworth, were idle the entire year, while the Maple Creek mine was idle for the majority of the year. These three mines accounted for a total of 6.6 million short tons of production in 2002. Alabama, Ohio, and Virginia had increased coal production in 2003, while Maryland and Tennessee had decreased coal production. Alabama benefited from the resumption of mining at the Jim Walter's Mine No. 5, which had experienced an explosion in 2002 that halted production for several months. Virginia saw an increase as several new mines began producing coal during 2003.

Interior Region

The Interior Region experienced a slight decrease in coal production in 2003, declining by 0.6 million short tons, or 0.4 percent. One reason coal production in the Interior Region did not fall further was the increased coal production in Mississippi and Texas. The demand for coal by the electric power sector in both States helped to keep total coal production in the Interior Region from eroding further. Mississippi, in its fifth year of recorded coal production, increased production by 1.4 million short tons, to a level of 3.7 million short tons. This additional production was a result of the increased coal needs of the mine's only customer, a power plant, for its first full year of operation in 2003. Texas, the largest coal-producing State in the Interior Region showed an increase in its coal production, ending the year at 47.5 million short tons, up 5.0 percent. This total brought Texas back to production levels of the early 1990's, as two of the three largest mines in the State, Jewett and Sandow, expanded production, while another mine previously idle, Tatum, came back into production during the year. The increase in coal production in Texas was due to increased demand by the electric power sector as a result of the high natural gas prices as well as the somewhat hotter than normal summer experienced in the region during 2003.

Indiana, the second largest coal-producing State in the Interior Region increased slightly in 2003 to 35.4 million short tons. Coal production decreased in Illinois by 5.0 percent to end the year at 31.6 million short tons due to the suspension of production in mid-2002 of the Rend mine and the closing of the Pattiki mine during early 2003. Western Kentucky coal production declined in 2003 by 13.1 percent, to a level of 21.5 million short tons due in part to idling of two large mines, the Baker and East Volunteer, and the closure of the Camp No. 11 mine due to depleted reserves. The other States in the Interior region (Arkansas, Kansas, Louisiana, Missouri, and Oklahoma), which accounted for a total of 4.5 percent of the entire region's production in 2003, all differed only slightly from their 2002 coal production levels.

Western Region

Coal production in the Western Region declined slightly in 2003 by a total of 1.7 million short tons, or 0.3 percent. This decrease was only the fourth one experienced for the Western Region in the last 20 years. Of the nine States in the Western Region, only three had higher coal production levels in 2003: Colorado, Washington, and Wyoming. Five of the other six States had declines in coal production ranging from 64,000 short tons to 2.5 million short tons, with the causes of the declines ranging from lost coal contracts to the closing of some mines in the region due to depleted reserves. Wyoming continued its dominance as the biggest coal-producing State in the Nation, a position it has held for 17 consecutive years. In 2003, Wyoming produced a record 376.3 million short tons of coal, an increase of 0.8 percent for the year. This production level was 12.6 million short tons more than the combined total of the next four largest coal-producing States (West Virginia, Kentucky, Pennsylvania, and Texas). The sheer dominance of Wyoming's coal industry in the United States is further illustrated by the fact that Wyoming accounted for about 35 percent of the total U.S. coal production, while West Virginia, the Nation's second largest coal-producing State, accounted for about 13 percent of the U.S. total.

Figure ES1. Coal Production by Coal-Producing Region, 2003                    (Million Short Tons and Percent Change from 2002) Regional                     totals do not include refuse recovery                     U.S. Total: 1,071.8 Million Short Tons (-2.1%)

Source: Energy Information Administration, “Annual Coal Report 2003”, Table 1; DOE/EIA-0584(2003) (Washington, D.C., September 2004).

Colorado produced 35.8 million short tons of coal in 2003, an increase of 0.7 million short tons. The increase in production for Colorado is credited to the increase in coal production at the Elk Creek mine in its second year of operation. The mine finished installing a longwall mining machine at the beginning of 2003. Coal production in Washington was up in 2003, ending the year at 6.2 million short tons, an increase of 6.9 percent. The higher production level was used to generate electricity to help replace some of the losses due to the still lower-than-normal hydroelectric generation totals in the State.

Montana, the second largest coal-producing State in the region, had a slight decline in coal production in 2003 of 0.4 million short tons, to end the year at 37.0 million short tons. Coal production in North Dakota was flat in 2003, ending the year at 30.8 million short tons.

Coal production in Utah fell to 23.1 million short tons, a drop of 2.2 million short tons, as a result of two mines experiencing problems of lower coal seam thickness or water intrusion, and one mine suspending production in the second half of 2003. Coal production in New Mexico declined by 2.5 million short tons, or 8.7 percent, the largest decline of any State in the Western Region. The drop in coal production in New Mexico was a consequence of the closure of the La Plata mine at the end of 2002, as well as the down time experienced by a longwall mining machine move at another mine and an outage at a customer plant that lowered coal demand. The other two States in the Western Region (Alaska and Arizona) both had declines in their coal production levels in 2003.

Consumption

As the economy recovered in 2003, so did total U.S. coal consumption. Total coal consumption increased 28.3 million short tons to reach a level of 1,094.7 million short tons, surpassing the consumption level of 1,084.1 million short tons achieved in 2000 (Table ES1). Almost 92 percent of all coal consumed in the United States was in the electric power sector, the driving force for all coal consumption.

Coal consumption in the electric power sector increased by 26.8 million short tons to end 2003 at a record level of 1,004.3 million short tons, surpassing the 2000 consumption total of 985.8 million short tons (Figure ES2). Nationally, gains in electricity generation by hydroelectric plants and other sources, as well as coal, helped to make up the loss in generation experienced by the nuclear and natural gas sectors. The decline in electric generation by natural gas was due to its high prices during 2003. Part of the decline in nuclear generation was a consequence of the shutdown of nine reactors in the northeastern United States as a result of the blackout in August. It was estimated that the total days of lost generation by those reactors was 43 days.

Figure ES2. Electric Power Sector Consumption of Coal by Census Division, 2003                    (Million Short Tons and Percent Change from 2002)

Sources: Energy Information Administration, Annual Coal Report 2003, Table 26, DOE/EIA-0584(2004) (Washington, DC, September 2004.

Another factor helping to drive the increase in total coal consumption for electric generation was the hotter-than-normal summer weather experienced during July and August over the western portion of the country in 2003. Overall, the United States experienced a 7.2-percent increase above normal in cooling degree-days during the summer, while the western portion of the country experienced a 13.9-percent increase above normal. Of the eight Census Divisions that had increases in coal consumption in 2003, two of the western divisions, the West North Central and the West South Central accounted for 47.6 percent of the increase in total coal consumption in the electric power sector.

Only one of the nine Census Divisions had lower coal consumption for electricity generation in 2003, the South Atlantic. The South Atlantic Census Division is one of the five Census Divisions, (East North Central, West North Central, South Atlantic, East South Central, and Mountain) where coal usually accounts for over 50 percent of total electric power generation from all energy sources. The other four of those five divisions, the East North Central, the West North Central, the East South Central and the Mountain, all had an increase in coal consumption in the electric power sector in 2003 ranging from an increase of 2.7 million short tons in the East South Central to 6.1 million short tons in the West North Central Division. Together, these four Census Divisions accounted for 17.3 million short tons (64.7 percent) of the total increase in electric power coal consumption. In the one Census Division that had the largest increase in total coal consumption, the West South Central, where coal and natural gas compete to be the leading fuel for electricity generation, (together the two fuel sources typically account for 80 to 85 percent of total generation during a year), coal consumption for electric power generation increased 6.6 million short tons in 2003 as coal displaced the higher-priced natural gas.

For the first time since 2000, overall coal consumption in the non-electric power sector increased in 2003, with gains in coking coal consumption and other industrial coal consumption. Coal consumption in the residential and commercial sector declined slightly in 2003.

It was a good-news/bad-news year for the coking coal industry. In 2003, increased demand for steel in the United States resulted in an increase in coal consumption at coke plants for the first time in three years. Coal consumption at coke plants was 24.2 million short tons, an increase of 2.5 percent. However, in November, the U.S. Government lifted the tariffs on foreign steel imports that had been in place since early 2002, in part, as a response to a World Trade Organization report that stated the tariffs were inconsistent with safeguards against protectionism. In April, the EPA enacted final rules to control emissions from coke plants that could result in the closure of some of the aging coke ovens. The good news for the coking coal industry was that, in December, construction began on a new coke plant in Ohio that should be on line in early 2005. The new plant will use a process that virtually eliminates coke oven emissions, thereby meeting the new EPA regulations.

The economic recovery did not extend very deeply into the coal-consuming manufacturing sector in 2003, but did result in an increase in coal consumption in the other industrial sector of only 2.0 percent to end the year at 62.0 million short tons. The manufacturing sectors that experienced increases in coal consumption in 2003 include the food, beverage, primary metal, fabricated metal, and furniture manufacturing.

Coal Prices

Coal prices declined slightly in 2003 at the national level for mines. The average open market price of coal was $17.85 per ton in 2003, a drop of 14 cents per ton from 2002. The price per ton of surface mined coal declined in 2003 by 23 cents per ton, while the price of underground coal increased by 3 cents per ton at the national level. Coal prices in the consuming sectors were mixed in 2003. Coal prices to electric utilities (a subset of the electric power sector) increased for the third year. However, the delivered price of coal declined in the other sectors in 2003. The average delivered price of coal to electric utilities was $25.29 per short ton (124.3 cents per million Btu), up 2.2 percent from the annual 2002 level of $24.74 per short ton (121.8 cents per million Btu) (Table ES1). Coal prices at independent power producers showed a decline in average delivered price from $27.96 per short ton (137.5 cents per million Btu) in 2002 to $27.02 per short ton (135.8 cents per million Btu) in 2003. Although there was an increase in consumption by the domestic coking coal market, the average delivered price of coal to coke plants decreased slightly in 2003 by less than 0.1 percent to $50.63 per short ton. The average price of coal delivered to the other industrial sector was lower in 2003 by 2.2 percent, ending the year at $34.70 per short ton.

Coal Stocks

Contact:

Fred Freme

frederick.freme@eia.doe.gov

Phone: (202) 287-1740