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Alpha CEO: Tough times for Central Appalachian coal will continue

CHARLESTON, W.Va. -- The Central Appalachian coal industry is in the midst of a long-term and long-expected production and employment decline that might not end anytime soon, the CEO of Alpha Natural Resources said Friday.

Alpha's Kevin Crutchfield said his company expects the region's production of steam coal for electrical power plants to drop from previous levels of 120 million tons a year to a range of 50 to 70 million tons annually.

Crutchfield said it's not clear how much the federal government can do to help reverse that trend -- no matter who wins Tuesday's presidential election.

"It's difficult to see right now conditions in which much of Central Appalachian steam [coal] could come back into production anytime soon," Crutchfield told industry analysts during a call announcing his company's quarterly financial results.

Bristol, Va.-based Alpha reported a third-quarter 2012 loss of $46 million, compared to its net income of $63 million during the same period a year ago.

Crutchfield said market conditions for steam and steelmaking coal "have been challenging throughout much of 2012." Much of the nation's steam coal, frequently sold under long-term contracts at set prices, would be "uneconomic to produce at today's spot market prices," Crutchfield said.

In September, Alpha announced a major restructuring that cut back on its production and included plans to eliminate 1,200 jobs by early 2013.

The Alpha moves were another blow to the Appalachian coal industry, which is struggling in the face of inexpensive natural gas, competition from other coal basins, declining reserves of quality coal, and the finalization of long-mandated reductions in toxic air pollution from coal-fired power plants.

"We've always anticipated this sort of cage match between natural gas and coal," Crutchfield said. "We just figured it might take a little longer to play out. We didn't expect to have to deal with it all in the course of a couple of quarters."

While coal company officials and regional politicians have mostly blamed the industry's problems on the Obama administration, the number of miners working in Appalachia actually rose during the first three years of the administration.

A string of layoffs has come since the first of the year, though, and coal-mining employment in West Virginia dropped by about 1,300 jobs in the second quarter of the 2012, according to data from the U.S. Mine Safety and Health Administration. That data show about 23,300 mine workers during the period from April to June, a decline of about 5 percent over the previous three months.

On Friday, Crutchfield cited an unusually warm 2011-12 winter and record-low natural gas prices as central drivers in coal's predicament, saying that a "hostile U.S. regulatory environment" adds to those pressures.

"We've seen what the regulatory environment has held so far, and have sort of dialed that in," Crutchfield said. "The question is, is there more to come?"

Earlier this week, Gov. Earl Ray Tomblin disputed reports that forecast a continued decline in Southern West Virginia coal production. The governor said natural gas prices are creeping back up, a trend that will lead utilities to switch back to coal.

Crutchfield said that might be the case for coal produced in Wyoming's Powder River Basin, Southern Illinois or Northern Appalachia, but mining costs in Central Appalachia are higher, making it tougher for mines there to compete unless gas prices jump more. One problem is that utilities in the southeastern United States can more easily switch to natural gas, Crutchfield said. The region also contains a large number of small and older coal-fired power plants that utilities would rather close than spend money to upgrade for new air pollution limits.

"Clearly, Central Appalachia is the one that is most challenging," Crutchfield said. "We're not hiding from that fact. We've been pretty open about it."

Crutchfield has been highly critical of U.S. Environmental Protection Agency rules from the Obama administration, and has campaigned for Republican presidential candidate Mitt Romney.

When pressed by an analyst for details of what a Romney administration could do to help Central Appalachian coal, though, Crutchfield said turning the region's mining industry around won't be easy.

Crutchfield said he would like to see more "regulatory clarity" and for the EPA to focus more on ensuring any rules it issues are solid cost-benefit studies that show they're worth it.

He added, though, "One thing that I think is difficult is to reverse decisions that have been made over the course of the last several years.

"I do think that is challenging," he said. "Everybody likes to talk about it, but I think we're all pretty realistic in terms of how difficult that can be."

Reach Ken Ward Jr. at kward@wvgazette.com or 304-348-1702.


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