Wednesday, June 10, 2009

u.s. forsees a thinner cushion of coal

WSJ | Every year, federal employee George Warholic calculates America's vast coal reserves the same way his predecessors have for decades: He looks up the prior year's coal-reserve estimate, subtracts the year's nationwide production and arrives at a new official tally.

Coal provides nearly one-quarter of the total energy consumed in the U.S., and by Mr. Warholic's estimate, the country has enough in the ground to last about 240 years. A belief in this nearly boundless supply has led officials to dub the U.S. the "Saudi Arabia of Coal." But the estimate, recent findings show, may be wildly overconfident.

While there is almost certainly as much coal in the ground as Mr. Warholic's Energy Information Administration believes, relatively little of it can be profitably extracted. Last year, the U.S. Geological Survey completed an extensive analysis of Wyoming's Gillette coal field, the nation's largest and most productive, and determined that less than 6% of the coal in its biggest beds could be mined profitably, even at prices higher than today's.

"We really can't say we're the Saudi Arabia of coal anymore," says Brenda Pierce, head of the USGS team that conducted the study.

No one says the U.S. is facing a coal shortage. But the emerging ranks of "peak coal" theorists argue that current production levels may be unsustainable and, if anything, create a false sense of security. David Rutledge, an electrical-engineering professor at the California Institute of Technology who has studied global coal production, figures the U.S. has about half as much recoverable reserves as the government says, which would work out to about 120 years' worth.

The Energy Information Administration, part of the Department of Energy, says it is reassessing its coal tally in light of the new Geological Survey data. It intends to create a new coal baseline from which it will begin its annual subtraction "as soon as we can," says William Watson, a member of the energy analysis team at EIA in Washington, D.C.

In the field, challenges are becoming more apparent. Mining companies report they have to dig deeper and move more earth to extract coal from aging mines, driving up costs.

Utilities have grown skittish about whether suppliers can ship promised coal on time. American Electric Power Co., the nation's biggest coal buyer, says it has stepped up its due diligence to make sure its suppliers can make deliveries after some firms missed shipments last fall. It even bought a mine to lock down supplies. "We are very much concerned, and it's getting worse," said Tim Light, senior vice president for AEP.

(Accompanying slide show is amazing. Check it out.)