Questions and answers about the coal industry: How did the recession affect coal demand?

Q&A: The state of the coal industry

The giant explosion that killed 25 coal miners in West Virginia on Monday comes at a difficult time for the coal industry. It’s faced with slumping demand because of the Great Recession and is feeling the pressure being put on U.S. and other countries to cut emissions of greenhouse gases that come from burning coal and other fuels.

Here are some questions and answers about the state of the coal mining industry:

Q: Why is coal so important to the U.S. economy?

A: Almost all coal produced in the U.S. is used to make electricity. It also plays a key role in industries such as steel, cement and paper.

Q: Where is coal mined?

A: Wyoming produces about 40 percent of the nation’s coal. West Virginia is No. 2 at 13 percent.

Q: The recession has crippled demand for all forms of energy. What has it done to coal?

A: As it turns out, plenty. Coal production in the U.S. fell 8.5 percent last year to 1.07 billion tons, the largest percentage decline since 1958 and the biggest tonnage drop-off since 1949, according to the Energy Information Administration.

Production dropped as utilities made less electricity in general and from coal in particular. Electricity consumption fell in 2008 and 2009, the first consecutive drop in 60 years.

Much of the decline was caused by weak industrial demand for electricity. But a mild summer and low prices for natural gas were also key factors. Gas prices were so cheap that utilities and power generators used more gas to produce power last year than in previous years.

Coal’s share of electricity production fell to about 45 percent last year, the lowest since the 1970s.

Coal producers also have been hurt by weakening demand from the industries that use coal and declining exports because of the weak economies in Europe.

Q: I hear coal contributes to greenhouses gases and emits other pollutants, such as mercury. What kind of future does coal have if the U.S. and other countries limit emissions from power plants that rely on coal or further restrict releases of other pollutants?

A: Utilities generate about 40 percent of the nation’s greenhouse gases, much of that from coal.

Natural gas emits about half as much carbon dioxide as coal does and gas producers have developed new technology that allows them to unlock vast reserves in the U.S. There also has been a push for new nuclear power, which has no emissions.

Many utilities may find it cheaper in the long run to shut down older, coal-fired units if tough restrictions are imposed on greenhouse gases and other kinds of pollutants. Big power generators such as Exelon and Progress Energy have announced plans in recent months to shutter old units, many of them coal-fired.

Q: Are there any other environmental issues?

A: Yes. The Obama administration has issued new water quality standards for six Appalachian coal-mining states that will make mountaintop mining more difficult. The rules figures to affect West Virginia the most.

Q: Wow. Is there any good news?

A: Sure. It looks like demand is improving as the economy recovers. Utilities are starting to see power usage pick up and the nation’s factories are coming back to life.

And outside the U.S. China and other developing countries need more U.S. coal to produce steel and other products. As consumption improves, coal stocks be pared down to more traditional levels.

Natural gas is not expected to be as cheap as last summer and that should mean utilities will use more coal to generate electricity.

More utilities are installing pollution controls in plants and that could help demand.

Furthermore, despite lower demand, coal prices have remained strong. Utilities paid 7 percent more for coal than the year before, according to EIA. Much of that is because of long-term coal contracts that were locked up in 2008 when prices for all forms of energy were at record levels.

While production was down in 2009, it did hit a record in 2008 as prices for coal and other fuels soared.

Q. What ever happened to “clean coal?”

A. A group called the FutureGen Alliance is developing an experimental clean-coal power plant in eastern Illinois. Funded by coal companies and power generators, the $2.4 billion project is developing technology to capture emissions of carbon dioxide and store it underground.

Another power company, American Electric Power, is testing a project at an existing power plant in West Virginia that also will capture carbon dioxide emissions and bury them.

Q. What’s the long-term outlook for coal?

A. Coal will remain the dominate source of fuel for electricity generation through 2035 even as renewable energy from wind and solar along with natural gas gain ground. Electricity demand is expected to increase 1 percent per year.

Coal should account for 40 percent or more of electricity production unless Congress or the Environmental Protection Agency imposes tough caps on greenhouse gas emissions. Coal production is expected to slightly increase.