The Inverse Relationship of Coal and Natural Gas

A heartrending editorial in the Charleston Gazette tells about recent massive layoffs in the West Virginia coal industry. While there’s mention of Obama’s war on coal (and make no mistake, it’s a real war on coal by the global warmists), the editorial puts most of the “blame” on the rise of cheap natural gas, brought about by hydraulic fracturing of shale.

Last week, Consol Energy said it will lay off 318 miners and close its Fola mine in Clay County. That’s a painful loss in a rural region with few industrial jobs. Consol President Nicholas DeIuliis blamed the cutback on decreases in "expected utility demand."

Also last week, Alpha Natural Resources notified 100 miners at four West Virginia pits in Logan, Boone and Fayette counties that they’ll be terminated. "It’s all thermal coal, and all due to the thermal coal market," Alpha Vice President Ted Pile said.

A week earlier, Arch Coal announced 750 miner layoffs in West Virginia and Kentucky, including 122 jobs lost near Cowen, Webster County. Arch blamed an "unprecedented downturn in demand for coal-based electricity."

Three major layoffs in two weeks are sad evidence of decline in West Virginia’s powerful coal industry. Two months earlier, Patriot Coal likewise announced cutbacks, and CEO Bennett Hatfield said: "Thermal coal markets remain weak as a result of the mild winter, coupled with low natural gas prices and reduced demand for electricity related to the economic downturn."

Much of coal’s retreat can be blamed on an abundance of cheap natural gas loosed by horizontal drilling and "fracking" in the deep Marcellus Shale. Gas that cost $10 per million Btu during the Bush administration has dropped to $2.50. Coal can’t compete with such low-cost fuel. Many plants are converting to gas.

A lot of the Marcellus gas boom centers in Northern West Virginia — thus the Mountain State stands to reap jobs and prosperity from the very source that is killing jobs and prosperity in coal zones. The ruthless economy both punishes and rewards.*

Not sure we buy the “ruthless economy” language. Economies are economies, they don’t have intent. It’s like saying “ruthless reality.” You know, reality is like, real! It’s what is. Not to minimize the massive loss of jobs—we do feel for those families. But capitalism—a free market economy—is not the culprit here. As the editorial goes on to say:

West Virginians are living through a significant industrial shift. Future generations may look back on today as the period when gas eclipsed coal.*

Indeed, gas is eclipsing coal, there is no doubt about it. As gas increases, coal decreases—an inverse relationship. However, it’s not going to happen overnight. There’s still a lot of coal burning plants in operation and will be for the foreseeable future.

And although there is pain in some places (coal), there is gain in many others (natural gas). Cheap, abundant, clean-burning natural gas is the result of the miracle of hydraulic fracturing. We need to embrace it.

*Charleston (WV) Gazette (Jul 2, 2012) – Hardship: More coal layoffs