Can India benefit from Kentucky coal?

The silence around an old, dilapidated building in Harlan County, Kentucky., is all-consuming.

Inside, tubs of Pond’s facial cream from years – maybe decades – ago, rest on a shelf behind grimy windows and a locked wooden door. Collin Cornette peers through the window, noticing a glass case where coal companies used to sell meat or fruit. On the counter is a cash register, forever waiting for customers who will never come – like the owner “just decided one day to pick up and leave everything.”

The abandoned Clover Fork Coal company store is a relic from the heyday of coal mining in Harlan County in the U.S. state of Kentucky, and a harsh reminder of Cornette’s volatile occupation as an Eastern Kentucky coal miner.

Like a cloud of coal dust, the uncertainty of the industry hangs over a region built on mining. Between 2000 and 2012, coal production in Eastern Kentucky declined by 54 percent.

But across the world, India hungers for the black rock. The nation has the sixth largest coal reserves in the world, but with a booming population and not enough coal mined within its own borders, it’s not enough.

A potential relationship between India and Kentucky promises mutual benefit – but such a relationship is uncertain.

The demand for coal in India has increased to 600 million tons per year, and the gap between demand and supply is 98 million tons. With 85 million tons already being imported into the country, there is still space for more imports, potentially from markets like Kentucky’s.

Coal could bring electricity to India’s darkest corners, refrigeration to households without means of food preservation and a more Westernized quality of life to many parts of the country.

“The use of wood or dung to create energy is alien to people living in the United States,” said Bill Bissett, president of the Kentucky Coal Association. “But that’s not alien to people of rural India. They have the potential to jump centuries in a couple months. Coal can be a main change agent of that.”

With some of the best-quality coal in the world, Kentucky could feed India’s hunger, while potentially breathing life into an industry struggling to survive in the eastern part of the state.

In August 2012, Kentucky Gov. Steve Beshear held a press conference announcing a $7 billion deal that would ship about 9 million tons of Kentucky coal to India each year for 25 years. The actual trade specified in the deal has not happened yet, reflecting the uncertainty of such a relationship between regions worlds apart.

The contract, between India’s Abhijeet Group and New Jersey-based FJS Energy LLC, is still technically in effect, but is waiting for prices to cooperate before shipments from Kentucky begin.

According to sources within the Indian mining industry, no company is importing coal from Kentucky into India, even experimentally. So the potential remains untapped.

A more solid commitment promises an economic boost to this persistently-poor region and to an industry shrinking across the nation as regulations tighten and more sustainable energy resources take root.

Maybe no one will ever come back to Harlan County and reopen that long-empty company store – once a cornerstone of a coal mining camp that was the lifeblood of the town. But with the natural resources another country desperately needs, perhaps the rest of Harlan County – and many other Kentucky counties like it – won’t be enveloped by the silence, turning into ghost towns.

On the decline

On Wednesdays, the Harlan County Walmart doesn’t get as crowded as it used to.

Coal miners usually get paid mid-week, and there used to be a lot more of them. But jobs have declined with the industry. Between 2011 and 2012, Eastern Kentucky coal mines cut 4,038 full-time jobs – a 30 percent decrease in employment in a year.

With fewer miners getting that Wednesday paycheck, Cornette doesn’t see as many of his friends shopping for groceries in the middle of the week.

“The population is hurting,” he said.

So is the town. Harlan, Ky., doesn’t have many restaurants, shopping centers, entertainment – or much employment. You either work in the coal mines or at the local Walmart. As jobs are lost, choices become more limited.

“Where else but the coal mines would someone with only a high school diploma be able to make ninety to $100,000 a year legally?” Cornette said. “But you never know if you’re going to get laid off. If I lose my job, my family and I would be forced to relocate.”

Such is the quandary in many Eastern Kentucky coal towns. Sometimes, a family wage-earner will cross the border into West Virginia or Virginia to work, leaving a spouse and children to live alone in Kentucky.

Coal production in Eastern Kentucky towns reached its lowest level since 1965 in 2012, when the region mined 49.4 million tons, down 27.6 percent from just the previous year.

That decline can be attributed to both environmental wear-and-tear and the economic challenge of mining coal from a region that simply does not want to be mined anymore.

“Central Appalachia has some of the highest operating costs in the country because the area has been so heavily mined,” said Dr. Thomas Novak, the Alliance Coal Academic Chair and the director of graduate studies in the University of Kentucky’s mining engineering department.

“The coal that was easy to get to at first is gone. What you’re left with is difficult to get because you have to remove a lot of rock.”

That would require more labor during a time when jobs are on the decline. And, the loss of a coal-mining job does not just affect that mine; it ripples through the whole region.

“For every mining job lost, we lose three other jobs in Kentucky,” Bissett said. “We’ve lost a huge percentage of our production. How do we replace that lost market? We can replace it with other countries who have tremendous need for our coal if we can get it shipped to them.”

Steel from coal

Although Eastern Kentucky does not have the booming coal industry it once did, the region still has one of the world’s best supplies of metallurgical coal, which is used to make steel.

“That’s just the way that God put it in the ground all those years ago,” said John Grantham, a partner with River Trading Company, which owns several river terminals that are used to transport Kentucky coal outside the state.

What Eastern Kentucky stands to gain from those natural deposits of metallurgical coal is money, if the economy would cooperate. This type of coal sells at a much higher price than the steam coal that is used for electricity.

“At times, metallurgical coal will trade for up to 200 or 250 bucks (about 12,000 to 15,000 rupees) a ton, where steam coal can get up to about 80 (about 4,900 rupees),” Grantham said. “But it’s a global marketplace, so the price fluctuates wildly.”

Although the selling price depends on market demand, U.S. metallurgical coal has seen an uptick in exports. In 2002, a little over 20 million tons of metallurgical coal were exported. By 2012, that number had risen to about 70 million, according to the U.S. Energy Information Administration.

Although not as economically profitable for Kentucky as metallurgical coal, steam coal is still needed in India, and at high numbers. The largest consumer of coal in India is the power sector, followed by the industries using metallurgical coal (iron, steel and cement companies).

But it is not as simple as one country having a need, the other a supply. It comes down to the global prices when Kentucky tries to compete in the international market.

“In terms of steam coal for electricity generation, (Kentucky) is certainly not competitive with Indonesia and Australia and Colombia,” Grantham said. “Most likely coal that does go export predominantly will be metallurgical coal, except for when there is a disruptive situation that makes U.S. coal economically advantageous internationally. Then it will flow.”

When China stopped exporting coal a few years ago because of the high demand in its own country, Novak said that left several countries without a supply. At that point, other coal-mining countries could step in and export their coal.

A similar bump in the coal market could happen thanks to India’s burgeoning population, which is estimated at 1.2 billion. Even though electricity has not reached some remote corners, India still has the sixth-largest electrical consumption in the world.

“If they (India) were to have a spurt like China had it could change things,” Novak said. “That’s what caused the whole spike in the first place was China’s demand for it. It increased the world demand. India could do the same thing if they continued to grow like they are.”

A deal in question

The hopes for such an import-export relationship between Kentucky and India began – and came to a screeching halt – with the $7 billion deal that still has not manifested itself.

“It’s no secret that the coal industry is in a state of flux in America, what with erratic market conditions, the uncertain regulatory atmosphere and the ever-changing energy picture,” Beshear said during the contract’s announcement in 2012. “But international markets need coal, and this private partnership is a great example of a new market for Kentucky resources.”

While it still rings true that India could be a large and hungry market for Kentucky coal, hold-ups in the deal have prevented Kentuckians from seeing any of those benefits.

Scandal has also plagued the Abhijeet Group, as its chairman, Manoj Jayaswal, came under investigation by India’s Central Bureau of Investigation after his connection with a controversial coal block allocation issue within the country.

“We had signed a consignment to import coal from Kentucky but it didn’t materialize due to some internal reason with the firm,” said an Abhijeet official.

The deal gone astray reflects the continuing uncertainty that hovers over Eastern Kentucky and the industry that has been its lifeblood for decades.

But the logistics of getting millions of tons of Kentucky coal to a country 8,000 miles away cloud the faltering relationship.

“It’s just the issue of getting that black rock from Hazard, Ky., to Bangalore,” Bissett said. “We buy so many products from China and India that there are empty ships going back. There are opportunities.”

Those opportunities have just been difficult to solidify, as the delayed shipments from the Abhijeet Group-FJS Energy deal show.

At issue is the price of transportation, which decreases profit margins. The market price for a ton of steam coal hovers around $80 (about 4,900 rupees), and a company spends a similar amount in production costs, which are higher in Eastern Kentucky. Then there are the costs to ship it internationally.

But with metallurgical coal selling at a much higher price, Kentucky could stand to gain from its vast reservoir of this type of coal, provided the economy cooperates.

“So you produce the coal at the mine and your costs are somewhere between 70 and 90 dollars (about 4,200 to 5,500 rupees) for metallurgical coal,” Grantham said. “Then you truck it to the river for, say, 10 bucks (about 600 rupees), then you put it in a barge and you barge it down to the gulf for $15 (about 900 rupees) and then you load it in a vessel and ship it to wherever it’s going. There’s a big profit margin there when the market really soars.”

But like so much else, the market prices and transportation costs for Kentucky coal are uncertain.

After declining multiple interviews for this story, the Kentucky Cabinet for Economic Development sent an email statement from communications specialist Joe Hall:

“The Cabinet for Economic Development is working with the coal industry for economic development opportunities. We are also working with mining-related manufacturers and service providers to find additional opportunities both locally and internationally.”

Until those opportunities materialize, people like Cornette will still wake up in the morning wondering if today will be the day he has to tell his family that he lost his job.

“What I think people don’t understand about why coal is so important here is because we’re like a third-world country compared to the rest of the state,” Cornette said. “There’s a lot of people who don’t want to work, but there are a lot of people here that do. I worry pretty often that I won’t have a job tomorrow.”

The company that Cornette works for, Arch Coal, released its annual report this month, announcing that its net loss in the first quarter of 2014 had increased to $124.1 million. The company also said it would ship fewer tons of metallurgical coal than expected in the future, citing a “challenging” global metallurgical coal market.

“I have mixed feelings,” Cornette said of the decreased shipments. “A company cannot survive losing money like this so on that end I’m a little concerned.

“But the international opportunities seem to be the only thing this administration is leaving alone, so they have to be pursued because so many people are counting on them.”

Coal 101

·        Metallurgical coal: Coal used to make coke, which is needed during steel production. It typically sells for around $200 to $250 (12,000 to 15,000 rupees) per ton

·        Steam coal: Coal used in power plants for electricity production. It typically sells for around $80 (about 4,900 rupees) per ton

·        Kentucky advantage: Experts say the U.S. state’s metallurgical coal has a better quality than the rest of the world’s because of its higher BTU (British thermal units), which means there is more energy contained within the coal.

India Blooms News Service 

(Credit to writer and agency is mandatory)

Image: The National Archives and Records Administration (NARA) (1946 image)

               Martin Mine (Source: Wikipedia Creative Commons)