Running on Empty

Warning: Faulty Reporting on U.S. Coal Reserves

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For decades the conventional wisdom has been that the US has a 200 year supply of coal that’s ready to burn.  This assertion has never taken into account the economic realities of bringing all that coal to market.  The US Energy Information Administration (EIA) has instead historically chosen to report the amount of coal believed to be in the ground.  In most extractive industries, the stuff you’re pretty sure is down there somewhere is called a “resource” or an “occurrence”, while the much smaller pile of stuff that you can actually dig up and make a profit on is called “economically recoverable reserves”.  Unfortunately, the EIA has for decades reported coal resources, while calling them recoverable reserves.  The result has been a dramatic overstatement of the amount of coal that is economically accessible to the US.  In 2009 the US Geological Survey (USGS) released a detailed assessment of the nation’s coal supplies, quietly calling out the EIA on their coal numbers.  The USGS calculated that substantially less than 20% of US coal resources were economically accessible, but to a nation long accustomed to low and even declining coal costs, the USGS wake-up call did not resonate widely.

Four years later, Patriot Coal is bankrupt.  The last two BLM auctions for new coal mining leases in Wyoming’s Powder River Basin have failed.  Peabody is no longer willing to make additional capital expenditures in their Powder River Basin operations.  Based on recent 10-K filings with the SEC, both the productivity and profit margins for coal producers Arch and Alpha Natural Resources have declined — to the point where Alpha is now losing money on every ton of coal they produce in Appalachia.  Even without taking into account its enormous impacts on the climate and public health, coal is stumbling economically.

As the costs of extracting ever more deeply buried coal reserves has risen over the last decade, delivered coal costs have escalated nationwide — much more rapidly than inflation, and much more rapidly than utilities typically predict in their resource plans.  Between 2004 and 2012, delivered coal costs rose at an average rate of 7.7% per year — more than enough to double fuel prices in a decade.  These costs are either passed on to ratepayers (in traditionally regulated markets), or threaten the competitiveness of power producers (in restructured markets).  It is imperative that we stop planning our electricity systems as if coal were going to be cheap and abundant for decades to come, and begin a rapid transition to other types of generation and efficiency resources.

With this reality in mind, Clean Energy Action offers the following three reports to the public in an effort to better inform the debate about our nation’s energy future:

  • Warning: Faulty Reporting of US Coal Reserves
    This is a lengthy report discussing the reporting of “reserves” by the EIA and an analysis of USGS and financial reports on US coal supplies indicating that we are very likely rapidly approaching the end of US coal that can be mined at a profit. There are over 200 references in the report with most of them linked directly to the sources of the information elsewhere on the web.
  • Executive Summary of Warning: Faulty Reporting of U.S. Coal Reserves
  • US Coal Costs 2004-2012
    This is a report that shows the rising coal costs for all states that report coal costs. There are graphs for each state that show what has happened since US coal costs began rising in 2004. In general, US delivered coal costs are rising at a rate above 7% per year. If the escalation rate stays above 7% per year for another year or two, coal costs will double in a decade (or less). This means that coal is unlikely to continue being a cost effective fuel for much longer — even without considering “external costs” such as climate change and public health.
  • Coal Production Top 16 States
    This report shows coal production for the top 16 states (which produce over 95% of US coal) and demonstrates the strong likelihood that the United States is past “peak coal.”

Supporting Material

A 2007 report by the Departments of Interior, Energy and Agriculture entitled, Inventory of Assessed Federal Coal Resources and Restrictions to Their Developmentwas originally available on the Department’s stie but has since been removed.  We have archived a copy of it here.

In their 1997 US Coal Reserves Update, the EIA acknowledged that their definition of “reserves” does not incorporate any assessment of economic recoverability:

EIA Reserves Definition Excerpt

The usual understanding of the term “reserves” as referring to quantities that can be recovered at a sustainable profit cannot technically be extended to EIA’s estimated recoverable reserves because economic and engineering data to project mining and development costs and coal resource market values are not available.  EIA’s recoverable reserves at active mines, about which EIA is authorized to collect simple tonnage and recovery rate estimates in its annual Coal Production Report survey, rely on mine operator estimates, and cannot be classified as to geologic assurance.

We have archived this document here.

Featured fuel-gauge image via Flickr user apranihita, Creative Commons BY-NC-SA.

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