Thousands Jobless : Cheap Oil: Bad News to Coal Miners

They are ex-coal miners, a description that fits most of Logan’s legion of unemployed.

Their tired faces, filled with long stares, show their troubles. Each has been out of work for over a year; all have exhausted their unemployment benefits and have been reduced to welfare. Ashamed to take government handouts, they work for the city, cleaning Logan’s narrow streets in return for their checks.

Too proud to talk much about their problems--even when Logan’s mayor brings half a dozen of them together to tell a reporter how the spate of mine closings in Logan has affected their lives--all refuse to give their names. These men grew up in the isolation of southern West Virginia coal fields gouged out of the steep hills surrounding this hamlet of 4,000 people, and they would rather suffer in private, with their dignity intact.

‘No Belly-Aching’

“These fellas may be losing their houses and cars--and they probably are--but they aren’t goin’ to tell nobody about it,” says one 36-year-old miner who has been laid off for a year and a half. “They aren’t goin’ to do no belly-aching.”

Not even if it means that the rest of the nation doesn’t learn about their desperate poverty.

Welcome to the other energy glut--the one that hardly anybody is talking about.

Overshadowed by the sudden collapse of world oil prices this winter, the worsening slump in the U.S. coal industry is going almost unnoticed outside the coal belt.

With American mines producing 20% to 30% more coal than the market can bear, over the last three years, coal prices have been plummeting, mines have been closing and jobs have been disappearing all over Appalachia and the Western high plains.

“Coal is in terrible shape, and will probably stay that way for 10 years,” says William Hughes, coal specialist with the Boston consulting firm Charles River Associates.

Utilities Switching Fuel

Now cheap oil is adding to the woes of the coal business, as utilities and other big industrial fuel users start to switch from coal to oil at their power plants. That trend threatens to increase the pressure on already-depressed coal prices and compound a depression in Logan and other American coal fields that seems at least as bad as the slump in the oil states.

In fact, coal-dependent West Virginia and oil-bound Louisiana are virtually tied for the dubious distinction of having the highest unemployment rate in the nation--13.1% and 13.2%, respectively. The United Mine Workers reports that union employment in the nation’s coal fields has already fallen from a peak of 155,000 employees in the late 1970s to about 100,000 workers today.

Here in Logan and surrounding Logan County, for example, more than half the miners are out of work and many of the biggest local mines, which had operated for decades, have shut down for good. With mining costs relatively high and underground coal seams thinning out, Logan County, with a jobless rate of nearly 17%, is one of the hardest hit mining regions.

“We ask them (the company) when they might have some work for us, and they say they don’t have nothing in sight,” says Charlie Clark, 42-year-old father of five who, unlike many other miners, was willing to talk about his struggle to find work in the coal fields since Pittston Co. closed its mine in late 1982.

“I was president of our union local, with 150 members, and no one from my local is working,” he adds. “I believe Logan’s just about to dry up. I’m going to stay as long as I can, but if something don’t happen in another year I might have to move. You can’t get a job nowhere.”

Clark now helps the United Mine Workers run a food relief program for the families of about 150 laid-off miners each month.

Future Looks Grim

“I don’t see any improvement coming here for the next couple years,” says Mel Triolo, who ran the Logan Coal Operators Assn. until last year, when it disbanded because so many members had gone out of business. “The only thing that will pick Logan County out of the dumps is if the price of oil goes back up,” adds Art Kirkendoll, a Logan County commissioner and owner of a local mining equipment repair business.

Although much of the utility industry--which consumes more than 80% of the nation’s coal output--can’t easily switch from one fuel to another, at least a few power companies on both coasts have already started to bank their coal-fired plants and restarted seldom-used oil facilities.

San Diego Gas & Electric, for example, has drastically cut back on buying electricity from coal-fired power plants of other Western utilities and is instead operating its own oil-burning plants at full capacity. Mike Niggli, the utility’s director of fuel contracts, says that electricity produced from oil has become so cheap that the company is selling its surplus to other companies, a practice that would have been unthinkable just a few years ago.

Philadelphia Electric, meanwhile, has shut down two coal-fired generators and is relying instead on two previously under-used oil-burning plants to supplement nuclear power, a spokesman said.

Utilities Being Cautious

Most utilities are still wary of resuming a dependence on oil, for fear of again being vulnerable to the whims of the Organization of Petroleum Exporting Countries. Utility representatives say they won’t commit themselves to greater oil consumption until they are convinced that oil prices will stay below $15 a barrel indefinitely.

Many industry analysts believe, however, that oil usage in the utility industry (especially in coastal regions far from the coal fields, where transportation costs make coal more expensive) will surge, and that demand for coal will plummet if world oil prices stabilize in the low teens.

Steve Smith, energy analyst with Data Resources, a Lexington, Mass. economics forecasting firm, predicts that if oil prices stay in the $12-a-barrel range through 1987, coal could lose 8% to 12% of its already sluggish electric utility market. If the oil price stays at $10 a barrel--a level the market has flirted with in recent weeks--through next year, coal could lose as much as 15% of its utility business, he adds.

Top coal executives have not panicked yet, in part because they believe forecasts that oil prices will return to the $18-to-$20-a-barrel range by the end of the year. They acknowledge, however, that if a big rebound in oil prices doesn’t come soon, the coal market could suffer another major setback.

“So far, the effect of lower oil prices on the coal industry has been more psychological than real, with everyone worrying about what it might do to us and customers trying to use it to renegotiate better deals for coal,” says William Karis, corporate planning vice president at Du Pont’s Consolidation Coal subsidiary, second largest coal producer in the United States.

Close Competition Seen

“But if oil prices stay at current levels for the next year or two, it will be difficult for coal producers to compete with oil,” he warns.

Another ominous development for coal producers is the utility industry’s lobbying campaign in Washington (aided by Southwestern oil interests) to repeal the 1978 federal law that prohibits construction of new oil or natural gas-fired electricity plants. As long as the law remains on the books, utilities will switch from coal to oil only at existing plants. If it is repealed--and if natural gas prices fall further and crude oil remains cheap--power companies planning new units for the 1990s will be free to build dozens of new plants that burn gas or oil.

Despite the slump and signs of worse times ahead, U.S. coal production remains near record levels, seemingly unresponsive to the law of supply and demand. In fact, the industry has the capacity to dig more than a billion tons of coal out of the nation’s strip and underground mines this year, although only about 850 million tons of it is likely to be consumed.

Surplus Capacity Created

There is now a huge surplus in production capacity, one industry executives and outside analysts say could take years to eliminate.

The problem is that coal producers are trapped. In the late 1970s and early 1980s, when oil prices were skyrocketing and experts were predicting a big jump in the demand for coal-fired electricity, the coal industry invested in aggressive expansion and modernization programs that can’t easily be turned off because of the high costs associated with closing mines.

More recently, production has soared, despite big cuts in employment, as a result of a huge leap in productivity that came with the introduction of new mining technology and an unprecedented period of labor peace. Coal operators were banking on advanced technology and government funds to make feasible technologies such as coal gasification. Most such expensive experiments, however, have been scrapped.

Now that they don’t need so much coal, producers can’t just stop mining because it often costs more to shut down than to operate at a loss. As a result, many firms are still operating marginal mines, hoping to last until prices rebound once more.

“These mines are continuing to produce because of their high fixed costs,” says Norman Kilpatrick, a coal industry expert with the West Virginia Energy Department. “If you close a mine, it’ll be ruined (by lack of maintenance), and you’ll be throwing all of your expensive equipment away, and you’ll have to meet your pension liabilities. So producers are hanging in there, trying to sell cheap coal here or overseas to anybody that will buy it, so they can get cash to keep their mines open.”

The analysts say that the market won’t save them any time soon, however. Electricity demand and coal consumption are likely to remain relatively stagnant for the rest of the decade.

Geared for Growth

“Coal producers geared up with expectations of 5% annual growth in the utility industry’s demand for coal, but they have only gotten about 2% growth in the 1980s because of conservation and sluggish economic conditions,” says Hughes of Charles River. “And the power industry isn’t going to grow much between now and 1990, either, so it’s going to take a very long time to work off the overcapacity in coal.”

At the same time, other coal markets are also depressed. The steel industry, which burns coal to make coke, is going through a slump of its own and is buying about half as much coal as it did 10 years ago. Coal exports have also plunged, as cheap coal from Poland, South Africa and Colombia has taken markets from U.S. producers. The big European utilities, which have greater flexibility than American power companies in switching from coal to oil, are expected to aggravate the glut by reducing their coal orders this year.

Although coal prices vary widely, depending on type and quality, spot prices for “steam coal” from Appalachian coal fields--the type widely used by utilities--have fallen by at least $10 a ton, or nearly 30%, since the last price peak in 1981. In the last year alone, spot prices for Appalachian steam coal fell about $5 a ton, and now range between $20 and $25 a ton.

Price Comparisons

Since a ton of coal represents about four times as much energy as a barrel of oil, crude-oil prices would have to drop to $5 or $6 a barrel to match current spot-market prices for coal. But most coal is bought at higher prices through long-term contracts, and transportation, environmental and handling costs add so much more to the final coal price that analysts say crude oil can remain competitive even if the spot oil price remains double that of coal.

With the added pressure on coal from cheap oil, many more of the thousands of small producers across the coal belt may finally give up this year. Annual coal production in Logan County, for example, has already plunged from a peak of 10 million tons in 1980 to 8 million tons or less today.

“The big boys (such as St. Louis-based Peabody Coal, the nation’s largest producer) will still do well, but there will be lots of mom-and-pop producers under extreme pressure now,” says Marc Cohen, coal analyst with the New York investment firm Kidder Peabody.

Fewer Mines Operating

That means that fewer and fewer miners will be working in the small mines in the hollows around Logan, and laid-off workers such as Jim Adams will have to keep struggling to survive.

Adams, 47, hasn’t found steady work since he lost his repair job at a Pittston mine in 1982. For a time, he was forced to accept welfare benefits to feed his wife and four children. “My family and I ate cheese for three weeks,” he said. “My wife knows ways of preparing cheese that other people don’t even think about.”

Adams now helps out at his cousin’s equipment repair shop, but his relative can’t afford to pay him regularly. Adams plans to stay in Logan, partly because his house is paid off, but he says he doesn’t think there is much future here for his children.

“Logan is going from bad to worse, and any mines that are coming back are coming back in a non-union way,” Adams says. “If I can help it, I’ll keep my sons from ever trying to go into the mines.”