From: Steve James, Reuters
Published September 23, 2008 09:58 AM
Coal price hikes likely if mine ruling sticks
NEW YORK (Reuters) - The price of coal will rise sharply if a U.S.
appeals court upholds a ruling restricting surface mining in the Appalachian
mountains, analysts and industry observers say.
The battle over surface, or mountaintop, mining resumes in a Virginia court
on Tuesday, and one expert said there could even be power shortages and
brownouts if the judge sides with environmentalists over the miners.
At the least, several mining companies -- Massey Energy Co, International
Coal Group, Alpha Natural Resources and Patriot Coal Corp -- will lose
production, said analyst Jeremy Sussman of Natixis Bleichroeder. Those
companies have a large number of surface mines in the central Appalachian
coal fields.
"If the ruling is upheld, we believe that Appalachian prices could spike,"
he said. "Producers with a significant amount of surface exposure in
Appalachia could get hurt."
Conversely, producers with significantly more underground than surface
production, such as Consol Energy, should benefit, Sussman said in a
research note.
Jim Thompson, editor of industry newsletter Coal & Energy Price Report, said
a restrictive ruling would probably drive up costs for any miner with
surface operations in Central Appalachia.
He also warned that higher coal prices could lead to increased electricity
prices and a potential for brownouts.
"If you lose a big percentage of (Central Appalachian) production, it would
be impossible not to have a severe impact on coal prices and the
availability of coal," Thompson said. "It does not change the fact that 50
percent of our electricity comes from coal."
On Tuesday, the U.S. Court of Appeals in Richmond, Virginia, will hear an
appeal brought by Massey and the West Virginia Coal Association. Surface
mines account for about one-third of coal from West Virginia and half of
that from Kentucky.
The court will hear arguments on the March 23, 2007, ruling by U.S. District
Court Judge Robert Chambers on a petition filed by a number of groups led by
the Ohio Valley Environmental Coalition. The ruling said the U.S. Army Corps
of Engineers had not fully evaluated the potential environmental damage
before approving permits for mountaintop mining for four mines operated by
subsidiaries of Massey.
FROZEN PERMITS
Basically, OVEC contended that the Corps of Engineers had violated the Clean
Water Act and the National Environmental Policy Act. Since then, the Corps
has effectively frozen so-called 404 permits for surface mining.
"We believe that Consol Energy would be the biggest beneficiary if Judge
Chambers' ruling is upheld," said Sussman. "Appalachian prices would likely
rise as other producers are forced to limit production."
Consol is by far the largest producer in Appalachia, but derived only 4
percent of its 2007 production from surface mining.
By contrast, International Coal Group has 60 percent of production from
surface mines, Massey has 47 percent, Alpha 44 percent and Patriot 36
percent, Sussman said.
The National Mining Association, a trade group comprising most of the major
U.S. miners, is not a named party in the case, but has filed a "friend of
the court" brief.
"We have been in court for many years over challenges to mountaintop mining
and have prevailed," said NMA spokeswoman Carol Raulston. "We maintain that
the Clean Water Act provides for mountaintop mining, and will continue to
press that position."
The United Mine Workers Union is watching the case closely, said spokesman
Phil Smith. "Our members just mine the coal, wherever it is, and we press
for our members' jobs to be respected."
The UMWA has some 30,000 members, of whom 700 or 800 work in surface mines.
(Editing by Lisa Von Ahn)
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