A coal state vies to share in global boom

West Virginia sees opportunity to sell mining equipment to China and, perhaps, more coal to Europe.

China and other developing nations' hunger for coal is proving to be both a financial boon and logistical challenge for small but coal-rich states like West Virginia.

Third-world consumption has opened new markets and boosted coal prices, but it's come in tandem with shortages in mining equipment, like tires and steel, that raised the cost of mining and forced some companies to change their operations to avoid productivity losses.

All of this has pushed West Virginia, not exactly a major international player, onto the world stage. The state's governor, Joe Manchin III, is currently leading a delegation of local mining supply and equipment companies through China to improve trade relations and to encourage West Virginian firms to take advantage of eager Asian buyers.

"We have tremendous opportunities," said Governor Manchin on Friday, during a call from China with reporters. While relatively little coal reaches China from West Virginia, the state is home to a number of mining-support companies that sell equipment to China.

US mining equipment, made to conform to America's safety standards, is particularly attractive in China, where, on average, more miners die in the first week of every year than in an entire year in the US.

Manchin says the Chinese "are very open to tell you that the technology that's needed for them to become more efficient and more safe is the technology that's been provided by the state of West Virginia."

The Mountain State's growing relationship with China, inside and outside the coal industry, is seen in its overall exports to China, which rose 68.8 percent between 2004 and 2006.

"[China] needs technology, equipment, and also management skills," says Qingyun Sun, associate director of the US-China Energy Center at West Virginia University (WVU) here. "West Virginia is a traditional coal-production state, [and] we have many equipment manufacturers, coal-mine technicians, and ... a very good safety record."

A reconfigured global coal market

Even for West Virginia, whose location makes it impractical to ship coal directly to China in most cases, export markets are being reshaped by the developing world's rising demand for coal. The state accounts for half of all US coal exports, so these new markets could have far-reaching effects for West Virginia.

In January, for the first time in recent history, China became a net importer of coal. Meanwhile, Russia, a large coal supplier, was exporting less coal so it could meet its own needs. Countries like India and Vietnam are also looking for more coal to fuel their development booms.

The changes in consumption and demand "created a ripple effect that has carried through the Asian-Pacific and Australian markets, all the way back to the shores of the US," says Vic Svec, senior vice president at Peabody Energy, an international coal company with a substantial footprint in West Virginia.

"This global pull on resources and, in our case, on coal has changed the flow of coal around the world," says Thomas Hoffman, a senior vice president for CONSOL Energy Inc., one of the largest coal producers in the US.

Traditionally, the US has sent coal to Europe on a catch-as-catch-can basis; South Africa and several South American countries with lower mining costs dominated the European market. However, South Africa and South American coal producers are now focusing their attention on the emerging market in Asia.

"East Coast producers of coal, like CONSOL Energy, now have the option to ship additional tons of coal into the European market," filling that vacancy, says Mr. Hoffman.

More mines are economically feasible

The export value of coal in the US doubled between 2001 and 2007, allowing coal producers to mine areas with higher-than-usual extraction costs. "The increased demand for coal is causing prices to go up, and it's ensuring that mines that might not have been profitable at one time can be profitable if they use the right ... technology now," says Richard Bajura of the National Research Center for Coal and Energy at WVU.

While the developing world's boom has created new markets, it has also added challenges to West Virginia's mining and to operations throughout the US. As new skylines emerge across Asia, many raw materials used for mining, such as steel, tires, and some large equipment, are in short supply.

"There's a demand for everything, with both China and India expanding their economies – demands for steel, demands for shipping, and things of that sort – that is making it quite competitive in terms of finding resources, and it's also increasing prices," says Dr. Bajura. The cost of opening a new mine today has increased by 50 percent of what it was in 2004, he estimates, because of pricier building materials.

In some cases, supplies are simply not available, creating "spot shortages," says Jerald Fletcher of WVU's Natural Resource Analysis Center. Last year, for example, industrial-grade tires – vital for mining equipment – were in short supply, forcing companies to find ways to extend tire life or risk productivity losses.

The give-and-take relationship between China and US coal-producing states like West Virginia may well continue for decades. Currently, China is building coal-fired power plants at the rate of almost one a week. Between 2004 and 2030, China and India alone are expected to account for 72 percent of the projected increase in the world's coal consumption, estimates the Energy Information Administration's 2007 International Energy Outlook.