Although West Virginia's coal sector has improved in the last few years, experts from West Virginia University forecast a decline in production over the coming decades as coal-fired power plants retire and natural gas remains competitive.
The university's Bureau of Business and Economic Research released a study online Aug. 16 titled "Coal Production in West Virginia: 2018-2040," which details a projected decline of the state's coal sector.
West Virginia ranks as the second-largest U.S. coal producer and its share of the national coal production has continued to increase from 12% in 2017 over the first six months of 2018, but it will take a hit in the years to come even if natural gas becomes less competitive or the export market performs better than anticipated, according to the report.
West Virginia coal producers are pressured by a reduction in coal consumption as well as "shifts in coal sourcing" by power plants in states that used to buy much of West Virginia's thermal coal. The plants are still the top destination for West Virginia coal, though shipments to domestic utilities have decreased in nine out of the last 10 years and are down by 46% from 2011 levels, the report states.
The surge in natural gas production in the region "has allowed natural gas to emerge as an alternative to coal for baseload generation," according to the report. Natural gas prices are now lower than coal, a shift that began in 2012 given the supply flowing from the Appalachian Basin.
The long-term coal forecast anticipates that production in West Virginia will drop steadily after 2020 to below 80 million tons per year by the mid-2020s and then to less than 70 million tons about a decade later. The report projects that statewide coal production will hit 66 million tons by 2040, a 17% drop from 2016.
Although U.S. producers have found relief this year in overseas markets, export demand is expected to fall, "though a repeat of the 2014-2016 global crash in coal demand is not expected," the report said. U.S. exports are expected to settle between 80 million and 87 million tons from 2020 to 2040, meaning West Virginia would likely export 25 million to 30 million tons on average.
"However, this range of export tonnage for the state is only expected to last through the first half of the outlook period before trending into the lower 20 million-ton range during the second half of the forecast horizon," the report states.
Alternative forecasts
If natural gas were to become more regulated or had weaker production levels than anticipated, its price would likely increase and make it more costly compared with coal and renewable energy resources, according to the report. This would boost the coal market, especially domestic thermal coal production, but the difference between the baseline expectation and this alternative "is expected to shrink as time progresses," according to the report.
This scenario would encourage more coal-fired plants to remain online longer, though many of the plants will reach the end of their normal service lifetimes by the mid- to late-2020s.
"The most efficient plants or the ones most critical to grid operability would likely be kept open for extended periods, but rising maintenance costs for aging generators and facilities would cause less-efficient plants to be retired from service," the report said.
Natural gas would then likely "retain competitiveness" against coal in areas near shale gas production, but "new wind and solar capacity, which has fewer regulatory and permitting issues to overcome (and thus takes less time to build) would eventually account for a significant portion of new generation coming online during the outlook period," according to the report.