Coal contines to flex its muscles

More evidence that the demise of coal – Al Gore to the contrary notwithstanding – is greatly exaggerated. On Sept. 11, Tulsa-based Alliance Resource Partners announced it will open a new underground coal mine on the West Virginia-Pennsylvania border, digging high-sulfur Pennsylvania No. 8 coal for the utility market.

At the same time, the U.S. railroad industry said it expects coal shipments – the most important commodity for the rails – to remain strong for the foreseeable future. CSX Chief Financial Officer Oscar Munoz told a transportation conference last Thursday that demand for shipments of Appalachian coal are increasing and will be strong for the remainder of the year. Coal represents nearly a third of CSX’s annual shipments, the most important single commodity for the Jacksonville, Fla., railroad.

Alliance, a master limited partnership based in Tulsa, Okla., and created out of the former MAPCO mining empire in the 1990s, said it will open the new Tunnel Ridge mine on the West Virginia-Pennsylvania border as a long-wall operation producing some three million tons a year over 10 years, employing up to 300 workers by the end of 2010. Company CEO Joseph W. Craft III said in a press release that his company “has secured coal sales for 30 million tons over 10 years to support the opening of the Tunnel Ridge mine and is experiencing strong interest from other customers for the remaining production from this operation.” The company said production will initially run from 1.5-3.0 million tons annually, increasing to 5.5-6.0 million tons in 2015.

So much for Gore’s call to eliminate fossil fuel consumption in a decade.

Alliance Resources, according to the company, is the fourth largest coal producer in the eastern U.S., with eight underground mines in Illinois, Indiana, Kentucky, Maryland, and West Virginia. I have visited its large, long-wall underground mine in western Maryland, the Mettiki mine, and gone to the coal face. I was impressed by the professionalism and safety culture of the mine.

In addition to the Tunnel Ridge complex, Alliance Resources is also constructing the River View mine in Kentucky. The company also owns a coal loading terminal in Indiana.

As for the trains, coal is the most important commodity shipped by rail in the U.S., followed by grain. Traditionally, rail and barge transport is a significant component of the delivered price of coal. Coal prices outside the Powder River Basin, according to the EIA, have spiked dramatically, following crude oil prices, while rail haul prices have lagged.

That may be changing, as coal becomew attractive and prices are rising for other rail-shipped commodities. A Reuters account concludes, “ Railroads have benefited in recent quarters from global demand for metals, fertilizers and ethanol, offsetting softer shipments of auto, some consumer products, freight related to housing.”

Nonetheless, coal remains a growth market for the double-trackers, says CSX CEO Munroe. He told the transportation conference, noting that the coal market is locked in by long-term contracts, “We have in hand the demand that we see. It’s tangible, not hoping and wishing.”

Politically, coal is a potent issue in states that produce the dusky diamonds. The Associated Press reports that Montana Democratic Gov. Brian Schweitzer, a rising star in his party, is a stout advocate of Montana’s considerable, stripmineable, low-sulfur coal deposits. Schweitzer, who grabbed a prominent speaking spot at the Democratic national convention in Denver, is touting all forms of energy development. “Whether we’re talking about wind energy, oil, gas, coal, transmission systems – it’s all the same,” he told the wire service. “You’ve got to go out and you’ve got to work at it.”

Some Democratic analysts believe that presidential nominee Barack Obama would have been well-advised to pick Schweitzer as his vice presidential nominee, instead of Delaware Sen. Joe Biden. “Schweitzer would have given Obama a new look, and would have sewed up Montana,” one Democratic insider told me. “It would have also gone a long way to solidify support in other energy-producing, particularly coal-producing, states. If Obama can win those states, he becomes president.” Coal remains a necessary energy source, and a political power.