I’ve been following the U.S. and world energy predicament for over 35 years. If there’s one common thread in the discussion over the course of nearly four decades, it’s that someone is sure to say something like, “The U.S. has a lot of coal.” Depending on who is doing the talking, maybe the comment will be even more specific, along the lines of “Heck, the U.S. is the Saudi Arabia of coal.” Or if the speaker really wants to impress you with precision, it will be, “The U.S. has a 250-year supply of coal.”

In other words, relax. It’s OK. Don’t panic. No matter how bad the energy situation gets out there in the rest of the world, here in the good old U.S. of A., we can always just dig some more coal. That’ll let us stay warm, run our industries and keep the lights on. Right? Well, let’s take a peek under the rocks and examine the state of U.S. coal reserves. In fact, here’s a map from the U.S. Energy Information Agency. And based on the map, it sure looks like there’s a lot of coal out there. But is there?

Coal Resources of the United States

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Deceptive Maps

First, I’ve been hearing that “250-year supply” — thing since about 1973. But the U.S. has been mining, burning and exporting coal in immense quantities for all that time. So don’t you think that the reserve estimate might have shrunk down to something like 215 years by now? Nope. That 250-year number seems never to change, kind of like those Saudi oil reserve estimates that stay the same year after year. Despite decades of coal mining, a lot of people still want to believe (and probably want you to believe) that the U.S. has a bottomless pit of coal resources.

Second, the map shows only in a very general way where coal was originally located. The map does not illustrate historical mining trends or demonstrate how people have dug out the coal during the past 150 years of industrial activity in the U.S. Sure, the map shows the coal-rich areas in a broad, arm-waving kind of way. But many of those areas, especially in the eastern and Appalachian region, are mined out near the surface. You need to understand that much of the shallow and easily obtained reserves are gone. The only way to get to the remaining coal is through complex stripping operations or deep and expensive shaft mines.

Arctic Coal That Cannot Be Mined

You also need to understand that a large-scale map does not explain whether or not it is commercially or environmentally possible to dig the coal from the ground. Look at the map of Alaska, for example. Alaska appears to hold large coal resources, and by some estimates, 30% of U.S. coal resources are in Alaska. One characteristic of most U.S. maps is that they typically show Alaska drawn to a different scale than the lower 48 states. In other words, if Alaska were mapped to the same scale as the lower 48 states, Alaska would dwarf every other state. (The main landmass of Alaska is more than twice the size of Texas.)

That’s good, right? If the map of Alaska is small in comparison with the lower 48, then the Alaska coal resources must in reality be even larger. (As big as Nebraska, maybe?) Then again, those large Alaska coal resources are almost entirely north of the Arctic Circle, in the exceedingly rugged Brooks Range. The fact is that there is only one coal dragline in all of Alaska (at the Usibelli Mine, south of Fairbanks). There is only one single-track railroad in Alaska that runs from the Pacific Coast to Fairbanks, far from the coal measures in the northwest part of the state and adjacent to the Arctic Ocean. So in northern Alaska, where the large coal resources are located, there are no coal mines. Furthermore, in Alaska’s far north, there are no coal miners, no coal mining equipment, no mining support businesses, no coal-transport facilities and no coal-loading piers. There are no power plants even remotely capable of supplying power to an Arctic coal mine. And the environmental challenges of digging and shipping coal from north of the Arctic Circle are simply mind-boggling.

Aside from the modest amounts of coal currently being mined near Fairbanks, it is likely that virtually none of the coal of Alaska will ever see the light of day. Most of the coal resources of Alaska are simply unavailable to the U.S. economy in anything but the most far-out and far-fetched scenarios of long-term planning.

Examining the Principal U.S. Coal Resources

Back in the lower 48, you can see from the map that there are coal resources in many states. The main concentrations of coal resources are in Appalachia, the Illinois Basin area and out west in Wyoming and Montana. But coal mining is a highly concentrated extractive industry. Only 53 large U.S. coal mines account for about 60% of total U.S. coal output.

Eastern Coal

Three states alone — Pennsylvania, Kentucky and West Virginia — produce 52% of the high-quality thermal and metallurgical coal in the U.S. Coal output in all three of these states has been flat or in decline for many years. This is because the U.S. Northeast was the part of the nation first settled, and was the heart of the nation’s industrial expansion in the 19th and 20th centuries. It’s no surprise that the coal of this region was exploited first. Now the digging is much more difficult.

Today, Pennsylvania’s anthracite coal (high carbon, clean burning) is almost gone. Small mining companies in the “hard coal” country (mom and pop operations, mostly) exploit coal seams as thin as just a few inches. In western Pennsylvania, long-wall mining for bituminous coal has become a controversial practice due to its damage to surface structures and water tables. Further south, in West Virginia (the second largest coal-producing state, after Wyoming), much coal is mined in a ruinous environmental practice called mountaintop removal. (It’s exactly what it sounds like.) Even with mountaintop removal — moving 20 tons or more of mountain to obtain 1 ton of coal — West Virginia is nearing its maximum production rate for coal. According to a recent report from the U.S. Geological Survey, production will decline in West Virginia within the next few years.

The Coal of the Interior U.S.

Despite how it appears on the map, the interior region of the U.S. (Illinois, Arkansas, Indiana, Kansas, western Kentucky, Louisiana, Mississippi, Missouri, Oklahoma and Texas) produces the least amount of coal of all the nation’s producing regions. The Illinois Basin boasts large reserves of bituminous coal, but production has dropped there since the mid-1990s. Coal from that region generally has high sulfur content (3–7%), so according to the U.S. Clean Air Act it cannot be burned, absent expensive pretreatment and combustion cleansing.

Western Coal — the “Fort Knox of Coal”

In Wyoming, the Gillette coal field, in the Powder River Basin, is the most prolific coal field in the U.S. This region has been nicknamed the “Fort Knox of coal.” In 2006, output from the Gillette region totaled over 431 million short tons of coal, or over 37% of U.S. total yearly production. Wyoming coal has relatively lower energy content than Eastern coal, but it also has extremely low sulfur content. Thus, many of the 600 coal-fired power plants in the U.S. buy Wyoming coal to blend with other coal with higher sulfur content to meet Clean Air standards.

Previous coal studies of the Powder River Basin indicated that its coal measures would last many decades, if not a century or more. One early estimate of total coal resource in the Gillette field was just over 200 billion short tons. More recently, the development of coalbed methane (CBM) gas exploitation in the Gillette coal measures has added an entirely new set of hard data points to previous estimates. The interpretation of these new data provides a shocking downward revision of the coal resources and reserves in the Gillette coal fields.

According to a recent USGS study (Assessment of Coal Geology, Resources and Reserves in the Gillette Coalfield, Powder River Basin, Wyoming, USGS open-file report 2008–1202), the coal reserve estimate for the Gillette coal field is 10.1 billion short tons, which is a mere 5% of the original 200 billion ton resource total. In other words, the USGS has just revised the Gillette resource base down by 95%.

This dramatic downward revision is just the beginning of many more disappointing announcements. Other researchers are performing analyses in all U.S. coal mining regions, using more of the updated data that are coming in from the field. This is long overdue. It’s one thing to feel good about your own press releases. But for setting energy policy, the U.S. needs to have a detailed, mine-by-mine analysis of resources and reserves based on current data using all of the available geological and mathematical tools for modeling. In the end, we should not be surprised to learn that only a small fraction of previously estimated coal reserves will ever be economically recoverable.

The U.S. almost certainly does not have a 250-year supply of coal. The nation will be fortunate if its coal supplies can stretch for another century. And even if the U.S. continues to use coal at current levels of output — which is unlikely in the face of the looming political controls on carbon — the supply issue will almost surely come to a head in as few as 10–20 years. In the world of long-range energy planning for the U.S. economy, the issue is ripe to address now.

Our Coal Miners

One final comment: The Outstanding Investments portfolio has two coal miners in it. Foundation Coal Holdings (FCL: NYSE) and Consol Energy (CNX: NYSE) have both seen highs and lows in the past year. Both companies are well managed. Both have an excellent reserve base. Both are profitable, despite the current economic climate. And both have a critical role in the U.S. economy going forward, no matter how much the political rhetoric goes against burning coal. At the end of the day, the U.S. needs to keep the lights on, and coal-fired power will be around for many years to come. Foundation and Consol both remain long-term buys.

Until we meet again…

Byron W. King