If “black gold” makes you think of oil, think again. It may be a better moniker for coal. After all, coal comes from mines like gold, and a lump of coal feels like a chunk of gold. And for more than 150 years, there was big money to be made from this dark stone.
But recently coal has lost its golden sparkle. Just 10 years ago, coal accounted for more than half of the energy produced in the United States. Now it is closer to a third, replaced in large part by the rapidly growing natural gas market, which is proving to be an abundant domestic natural resource. Coal prices dropped in the first half of this year from $70 a metric ton to less than $55 a ton. Stock prices for many coal mining companies have fallen as well. This black gold appears to be in danger of tumbling down a deep well.
Yet in the midst of what would seem to be a dark time for coal, Walter Energy Inc. has announced plans to create an expansive new coal mine in Tuscaloosa County. The Blue Creek Energy mine will cover an area of more than 20, 000 acres and require an estimated capital investment of $1.2 billion. Once it is fully operational in 2018, the mine should produce an annual average of between 2.5 million and 3.5 million metric tons of coal for at least 40 years, according to Paul Blalock, Walter Energy’s vice president of investor relations.
So why would the Hoover-based energy company proceed with such an extensive project—one of the largest single investments in Alabama in several years—at a time when all signs appear to be pointing downward for coal? The answer can be found overseas, in the growing industrialized economies of Asia, Eastern Europe and South America.
Blalock explains that the new mine will produce metallurgical coal that is used in steel production, and not the thermal coal that is burned in power plants. Blalock says the market for metallurgical coal is growing steadily, especially in foreign countries.
“This coal will be used to make steel, and the worldwide demand for steel is stronger than the supply, ” Blalock says. “There are very few mines that produce this quality of coal. This is not thermal coal. The margins on that kind of coal are much, much lower than the margins on steel-producing or coke-making coal.”
According to data from the National Mining Association, net exports of U.S. coal have increased approximately 600 percent over the past five years, to 94 million tons. That is the highest level of exports since the early 1990s.
Blalock says the plan is for Walter Energy to begin digging the new mine shaft—located near Brandon School Road and Highway 69 North in Tuscaloosa County—by the end of this year. He says the mine should begin limited production by 2016 and be fully operational two years later. Blalock says the project should create between 500 and 550 jobs, with average wage and benefit packages in the $120, 000 range, which he says is standard compensation for similar mining jobs.
The path to the creation of the Blue Creek mine was made smoother for Walter Energy by the passage of Alabama House Bill 144, a measure that expanded the state’s tax-credit incentives offered to the coal mining industry. When the Blue Creek plan was officially announced on May 1, Walter Energy CEO Walt Scheller said that HB 144 “played a major role in our decision to move forward with this project.”
The incentives “definitely help make the economics of the total project more beneficial and more logical, ” Blalock says. “Those are tax credits, and you don’t get to take tax credits until you actually produce money. So the net present value of those is quite small today. But when we get out five to seven years and really have an operating mine, those will be quite beneficial.”
Walter plans three smaller projects in association with the major mine project:
• A rail spur in Fayette County to connect the mine to down-the-road shipping.
• A barge loading facility in Walker County with a 14-mile conveyor system.
• A coal loading terminal at the Port of Mobile. Walter Energy currently uses the State Docks in Mobile for shipping coal from its other Alabama mines, but is refurbishing a second dock that it recently purchased. Blalock says that dock will create approximately 50 jobs and should be operational within two years.
The Blue Creek Energy mine “represents a significant and long-term investment in the state of Alabama and our local communities, ” Alabama Gov. Robert Bentley said in a statement. “This is a perfect example of how development incentives lead to new jobs and new opportunities for people across the state.”
Not everybody is excited about the new mine. Environmental groups have long opposed coal mining in general, and this mine in particular concerns members of Black Warrior Riverkeeper, who say it has the potential to contaminate nearby waterways.
“Every single kind of coal mining has major environmental concerns, ” Black Warrior Riverkeeper official Nelson Brooke says. “Our state environmental agency is writing permits for coal mines that do not adequately address our concerns about pollution leaving these mines and entering waterways. The permits have gotten better over the past several years, but they’re not as good as we’d like to see them.
“This mine will be allowed to discharge into Big Yellow Creek and Little Yellow Creek, which ultimately feeds into the Black Warrior River’s Bankhead Lake just upstream of Bankhead Lock and Dam. This is a portion of the river that is very heavily used for recreation year-round by homeowners, swimmers, skiers, fishermen.
People shower with this water, cook with it, swim in it. It’s a major concern that they would be putting these chemicals from the washing process into the creek just upstream.”
Blalock says simply that when it comes to both environmental and safety issues, Walter Energy “always implements the very latest standards everywhere we operate.”
The company’s coal mining footprint extends well beyond Alabama, with additional operations in West Virginia, Canada and Wales. Blalock says the creation of the Blue Creek mine is another step in Walter Energy’s long-range plan to double its production of metallurgical coal from the 2011 output of approximately 10 million tons.
“We’re targeting 11.5 to 13 million metric tons of met coal this year, with hopes to get up to about 20 million tons by the end of the decade, ” Blalock says. The Blue Creek mine “will produce good coal with a good margin on it, with good transportation options and multiple terminals. That’s really a plus all the way around.”
Cary Estes is a freelance writer for Business Alabama. He lives in Birmingham.
By Cary Estes