This article describes and examines structural and operational changes in the U.S. coal industry in the 1990's. During the decade, U.S. coal production continued an established growth pattern, buttressed by steadily increasing demand for coal for electric power generation. This growth occurred during a time of stiff competition, including closings or acquisitions of a great many mines and increases in the average size and productivity of those that remain. Meanwhile, competing suppliers have cut coal prices while delivering a higher quality product.

During the 1990's, operating mines have continued to cut back the recoverable coal reserves they control, while actual demand for coal and capacity at mines have increased. By the end of 1997, the cushion of coal reserves at producing mines, measured in equivalent years of production, was at its smallest level during the 21 years the Energy Information Administration (EIA) has collected those data.

Using three-year increments for 1991 through 1997, the core tables and graphs in this article summarize coal industry trends of the 1990's. Data for 1986 are included to illustrate relative data levels prior to the 1990's and to enhance common base year data cited in an earlier EIA report.⁽¹⁾ Several tables and graphs include data for additional years, where available, to better illustrate trends.

Coal Industry Adaptations in the 1990's

The current growth trend in coal production began in 1961. The growth during the 1990's, though trending upward, included a strike-related downturn in production in 1993 and regional contrasts in production patterns (Figures 1 and 2). From 1986 to 1997, coal production increased by 22 percent, while the number of operating coal mines in the country declined by 59 percent, from 4,424 in 1986 to 1,828 in 1997 (Table 1). Coal prices, on the other hand, decreased by 45 percent in real dollar terms. Significant adaptations supporting these interrelated trends include:

Increased average mine size
"High-grading" of reserve properties, shutting down less competitive properties
Concentration of productive capacity among fewer, large companies
Significant gains in coal industry productivity
Fiscal discipline imposed by vigorous competition.

Figure 1. Coal Production by Region, 1989-1998

Figure 2. Coal Production by Coal-Producing Region, 1998

Table 1. Number of U.S. Coal Mines, Distribution of Mine Size, and Coal Production by Mine Size Range, 1986, 1991, 1994, and 1997

Item 1986 1991 1994 1997

Number of Mines 4,424 3,022 2,354 1,828

Coal Production (million short tons per year) 890 996 1,034 1,090

Average Mine Size (thousand short tons per year) 201 330 439 596

Mine Size Distribution (thousand short tons per year) Number of Mines

1,000 or more 180 210 203 208

500 to 1,000 350 148 154 155

200 to 500 393 388 360 307

100 to 200 476 372 288 239

10 to 100 1956 1276 893 638

Less than 10 1069 628 456 281

Percentage of Total Number of Mines

1,000 or more 4.1 6.9 8.6 11.4

500 to 1,000 3.8 4.9 6.5 8.5

200 to 500 8.9 12.8 15.3 16.8

100 to 200 10.8 12.3 12.2 13.1

10 to 100 44.2 42.2 37.9 34.9

Less than 10 28.2 20.8 19.4 15.4

Coal Production by Mine Size Range (thousand short tons per year) Production (million short tons)

1,000 or more 497.0 658.7 727.1 822.4

500 to 1,000 118.1 105.0 108.1 106.2

200 to 500 121.8 121.7 114.6 97.8

100 to 200 66.2 53.3 42.1 34.6

10 to 100 82.8 54.8 39.6 27.8

Less than 10 4.4 2.5 1.9 1.2

Percentage of Total Production Tonnage

1,000 or more 55.8 66.1 70.4 75.5

500 to 1,000 13.3 10.5 10.5 9.7

200 to 500 13.7 12.2 11.1 9.0

100 to 200 7.4 5.3 4.1 3.2

10 to 100 9.3 5.5 3.8 2.5

Less than 10 0.5 0.3 0.2 0.1

Sources: Energy Information Administration, Coal Production 1986, DOE/EIA-0118(86) (Washington, DC, January 1988), Tables 1, 2, 3, and 7; Coal Production 1991, DOE/EIA-0118(91) (Washington, DC, October 1992), Tables 1, 2, and 4; Coal Industry Annual 1994, DOE/EIA-0584(94) (Washington, DC, October 1995), and Coal Industry Annual 1997, DOE/EIA-0584(97) (Washington, DC, December 1998), Table 6.

Increased Mine Size

In this discussion, "mine size" is equated with a mine's actual tonnage of coal produced. The Energy Information Administration (EIA), in its 1992 retrospective on the U.S. coal industry, noted a discernible trend toward larger coal mines in the 1970's, that was firmly established by the 1980's. EIA found that the percentage of coal production from mines of at least 1 million short tons per year rose to 63.5 percent in 1990 from 44.4 percent in 1980. The increase during the 1980's was supported principally by the expansion of existing surface mines in the western United States.⁽²⁾ During that period, mines producing less than 50,000 tons per year⁽³⁾ declined dramatically in number and combined total production, especially among the smallest, marginal mines producing less than 10,000 tons per year (Table 1).

During the 1990's, both trends have continued. In 1997, for example, million-ton-plus coal mines accounted for 75.5 percent of U.S. production. While the Nation's coal production grew at an average annual rate of 1.5 percent from 1991 through 1997, million-ton-plus mine production grew twice as fast, at an average annual rate of 3.1 percent. The average annual growth rate had been even more rapid from 1986 through 1991--2.3 percent overall and 5.8 percent for the million-ton class of mines.

Among the three coal-producing regions, increases in mine size, as in production share, were concentrated in the West and Appalachia (Table 2). In the prior decade, between 1980 and 1989, an EIA comparison of previously existing and newly opened mines showed that more than 200 million tons of growth in production from million-ton mines was supported primarily by increases in the size of existing underground mines in Appalachia.⁽⁴⁾ By 1997, annual production at million-ton mines had increased by an additional 206 million tons, from 616 million to 822 million tons. Million-ton Western mines--mostly surface mines--made up 140 million tons of that increase and million-ton Appalachian mines--mostly underground--comprised 78 million tons of production increase. Production growth at million-ton mines in those two regions was offset in part by a decline of more than 12 million tons in annual production at million-ton mines in the Interior region.⁽⁵⁾

Table 2. Regional Profiles of Coal Production, Mine Count and Size, Productivity, and Prices, 1986, 1991, 1994, and 1997

Region and Item 1986 1991 1994 1997

Total United States

Coal Production (thousand short tons) 890,315 995,984 1,033,504 1,089,932

Number of Mines 4,424 3,022 2,354 1,828

Average Mine Size (thousand short tons) 201 330 439 596

Productivity (short tons of coal produced per miner per hour) 3.01 4.09 4.98 6.04

Average Mine Price (real dollars per short ton)^a $29.52 $22.08 $18.50 $16.14

Appalachia

Coal Production (thousand short tons) 428,508 457,808 445,370 467,778

   Underground 275,864 303,252 285,487 308,360

   Surface 152,644 154,556 159,884 159,418

Number of Mines 3,990 2,676 2,068 1,602

   Underground 1,942 1,385 1,058 807

   Surface 2,048 1,291 1,010 795

Average Mine Size (thousand short tons) 107 171 215 292

   Underground 142 219 270 382

   Surface 75 120 158 201

Productivity (short tons of coal produced per miner per hour) 2.09 2.74 3.20 3.76

   Underground 1.90 2.54 2.96 3.55

   Surface 2.54 3.24 3.72 4.26

Average Mine Price (real dollars per short ton)^a $37.28 $29.48 $26.07 $23.62

   Underground W $30.31 $26.69 $24.68

   Surface W $27.83 $24.97 $21.57

Interior

Coal Production (thousand short tons) 196,635 195,418 179,858 170,863

   Underground 63,915 69,982 69,198 64,941

   Surface 132,720 125,436 110,660 105,923

Number of Mines 313 248 198 149

   Underground 69 67 53 43

   Surface 244 181 145 106

Average Mine Size (thousand short tons) 628 788 908 1,147

   Underground 926 1,045 1,306 1,510

   Surface 544 693 763 999

Productivity (short tons of coal produced per miner per hour) 3.14 3.98 4.43 5.54

   Underground 2.26 2.87 3.26 4.07

   Surface 3.87 5.08 5.71 7.11

Average Mine Price (real dollars per short ton)^a $29.09 $22.46 $18.94 $15.94

   Underground W $28.22 $23.17 $19.24

   Surface W $19.24 $16.29 $13.92

West

Coal Production (thousand short tons) 265,173 342,758 408,276 451,291

   Underground 20,658 33,991 44,419 47,357

   Surface 244,515 308,766 363,858 403,934

Number of Mines 121 98 88 77

   Underground 43 37 32 24

   Surface 78 61 56 53

Average Mine Size (thousand short tons) 2,192 3,498 4,640 5,861

   Underground 480 919 1,388 1,973

   Surface 3,135 5,062 6,497 7,621

Productivity (short tons of coal produced per miner per hour) 9.27 12.42 14.58 17.75

   Underground 2.82 4.56 5.98 6.88

   Surface 11.49 15.33 17.68 21.78

Average Mine Price (real dollars per short ton)^a $17.48 $12.03 $10.07 $8.47

   Underground $33.95 $23.04 $18.33 $15.92

   Surface $16.02 $10.82 $9.06 $7.60

   ^aIn 1992 dollars calculated using GDP implicit price deflators.
   W = Withheld.
   Note: Totals may not equal sum of components due to independent rounding.
   Sources: Energy Information Administration, Coal Production 1986, DOE/EIA-0118(86) (Washington, DC, January 1988), Tables 1, 23, and 48; Coal Production 1991, DOE/EIA-0118(91) (Washington, DC, October 1992), Tables 1, 21, and 25; Coal Industry Annual 1994, DOE/EIA-0584(94) (Washington, DC, October 1995); Coal Industry Annual 1995, DOE/EIA-0584(95) (Washington, DC, October 1996); and Coal Industry Annual 1997, DOE/EIA-0584(97) (Washington, DC, December 1998) Tables 1,51, 81, and 82.

Figure 3 assigns U.S. coal mines to three size ranges in terms of production levels. From 1986 to 1997, as production from large mines grew to dominance, production from medium- and small-sized mines declined. Growth in production share at larger mines more than offset the decline in small- and medium-sized mines, driving the overall growth in national production. For million-ton-plus mines, this is reflected in a 26-percent increase in average size, from 3.14 to 3.95 million tons per year, between 1991 and 1997.⁽⁶⁾

Figure 3. U.S. Coal Production by Mine Size Range, 1986, 1991, 1994, and 1997

The decline in production share of smaller mines corresponds with a decline in the percentage of smaller mines in operation. This is also a trend that began in prior decades (Table 1). Competition for market share in the 1990's, as coal prices continued to decline, has penalized smaller mines, which generally operate with less productive equipment and often rely on more labor intensive techniques than do the large mines. Unlike the larger operations, whose numbers stabilized as average mine size grew, the count of the smallest mines (less than 10,000 tons per year) plummeted by 74 percent from 1991 to 1997, while their average size remained essentially unchanged at about 4,000 tons per year.

Recoverable Reserves and High-Grading

EIA's recoverable reserves at producing mines are estimated by mine operators for each active property by mine operators, and constitute coal that is available to meet current and near-term demand at the end of the reporting year. As the number of operating mines was scaled back during the 1990's in the face of declining coal prices (Table 2), the reserves of coal that operators owned or leased also declined. Between 1991 and 1997, the mines controlling the greatest tonnage of reserves--the large mine category--cut back the greatest reserve tonnage. On a percentage basis, however, the 6.3-percent reduction in reserves at large mines was modest (Table 3). The major reductions, when viewed as a percentage of former reserve levels, affected medium-sized mines (46.0 percent) and small mine (61.6 percent).

Table 3. Recoverable Reserves at Producing Mines and Number of Mines by Mine Size, 1986, 1991, 1994, and 1997
(Million Short Tons)

      1986 1991 1994 1997 Percent Change
1986-1991 Percent Change
1991-1997

Reserves Number Reserves Number Reserves Number Reserves Number Reserves Number Reserves Number

Total--All Producing
Mines^a NA 3,175 NA 2,394 NA 1,898 NA 1,547 NA -24.6 NA -35.4

  Producing Mines
  Reporting Reserves 25,048 2,073 21,999 1,758 21,017 1,331 19,164 1,131 -12.2 -15.2 -12.9 -35.7

  Percentage of Total
  at Reporting Mines^b 92.6 64.0 95.2 73.4 94.4 70.1 95.5 73.1 NM NM NM NM

Combined--Large
Mine Category 20,914 350 18,816 358 18,558 357 17,623 363 -10.0 2.3 -6.3 1.4

   >= 1,000 per year c c 17,345 210 17,528 203 16,392 208 NM NM -5.5 -1.0

   500 to 1,000 per year c c 1,471 148 1,030 154 1,231 155 NM NM -16.3 4.7

Combined--Medium-
Sized Mine Category 2,762 869 2,055 760 1,776 648 1,109 546 -25.6 -12.5 -46.0 -28.2

   200 to 500 per year 1,844 393 1,219 388 1,390 360 821 307 -33.9 -1.3 -32.6 -20.9

   100 to 200 per year 918 476 836 372 386 288 288 239 -8.9 -21.8 -65.6 -35.8

Combined--Small
Mine Category
(10 to 100 per year) 1,372 1,956 1,128 1,276 681 893 433 638 -17.8 -34.8 -61.6 -50.0

   50 to 100 723 683 251 472 417 NA 200 NA -65.3 -30.9 -20.4 NA

   10 to 50 649 1,273 876 804 264 NA 233 NA 35.1 -36.8 -73.4 NA

   ^a Mines producing less than 10,000 short tons per year are "out of scope" for the EIA-7A survey and do not report reserves to EIA. Accordingly, both the reserves and the total number of producing mines in this table include only "in-scope" mines that produced 10,000 tons or more during the reporting year.
   ^b Percentage reported under "Reserves" actually represents coal production at reporting mines expressed as a percentage of total in-scope production. Reserves at out-of-scope mines are not known, but reserves at producing mines are assumed to be roughly proportional to their coal production. "Reporting Mines" do not equal "Producing Mines" because some in-scope mines withheld reserves data.
   ^c Reserves of 1,000,000 tons or greater were not published. All were reported as greater than 500,000 tons.
   NA=Not available.
   NM=Not meaningful.
   Note: Totals may not equal sum of components due to independent rounding.
   Sources: Energy Information Administration, Coal Production 1986, DOE/EIA-0118(86) (Washington, DC, January 1988), Tables 3 and 57, and Appendix E; Coal Production 1991, DOE/EIA-0118(91) (Washington, DC, October 1992), Tables 2 and 32, and Appendix D; Coal Industry Annual 1994, DOE/EIA-0584(94) (Washington, DC, October 1995), Tables 2, 6, and 29, and Appendix D; and Coal Industry Annual 1997, DOE/EIA-0584(97) (Washington, DC, December 1998), Tables 2, 6, and 30, and Appendix D.

As production increased, reserves of coal at producing mines declined concurrently, extending a downturn that started in 1986. In other words, reserves were being replaced at less than the rate of depletion. From 1991 through 1997, reserves at small mines (less than 100,000 tons per year) dropped by 61.6 percent, from 1,128 to 433 million short tons--a much more rapid decline than in the previous 5 years (1986-1991, (Table 3). As small mines have closed, their reserves have become less and less salable to surviving mine operators. When marginally economic mines shut down due to low coal prices, the reserves theoretically become available for purchase or lease, but most owners of small reserve blocks have not secured new commitments. Small-mine production between 1991 and 1997 declined significantly, by 49.5 percent, but not as severely as reserves, because reserves at closed mines were not being claimed by other small mine operators. Small or isolated blocks of coal are not amenable to the larger-scale, higher-technology mining that can boost average productivity rates, except for a relative few that are situated adjacent to successful mines in the same coalbeds.

This culling of reserves to screen out the harder-to-mine or economically less suitable is a logical adaptation to low prices in a buyers' market, but the result is to temporarily or permanently disqualify those coal deposits from potential mining. The effect is not unlike a systematic "high-grading" of coal reserves. Though not the norm, high-grading in the classic sense may occur when a mine operator has little vested interest in the property and chooses to extract only the quickest- or easiest-to-mine parts of a coal deposit or only the highest-grade coal that will fetch a premium price, leaving the rest. Hard-to-mine, less valuable coal left in a once-mined area is considered spoiled, especially as caving and weathering take their toll. Such coal is rendered unminable for later economic recovery (unless markets or mining technologies improve dramatically).

The analogous high-grading of entire reserve blocks of coal in the 1990's--essentially removing marginal reserves from foreseeable mining--has occurred at many mines that were closed, especially at smaller mines. With prices low and competition keen, coal deposits once regarded as reserves at producing properties were found to be no longer marketable or not as desirable as competing reserves, or prices attainable would no longer support the costs of mining.

If reserve blocks contain coal of moderate to high sulfur content, for which markets are shrinking, the chances of permanent closure are high. For example, when one such mine, with active contracts, was recently acquired, the new owner chose to "consolidate the underlying mines" (i.e., shut down the higher-sulfur mine) and fill the contract obligations from another property from which it would "likely realize a higher margin due to reduced mining costs, reduced freight charges and higher quality."⁽⁷⁾

Operators of marginally profitable mines can tolerate only limited deterioration in mining conditions. Thinning or splitting coalbeds, fractures or offsets due to faulting, interruptions in coal deposits or coal quality due to sandstone- or clay-filled channels, or unstable roof rock are considered "geologic conditions," which in profitable coal reserves can usually be overcome. In marginal reserves, geologic conditions are often cited as the final reason for closing a mine (and removal of any remaining reserves from foreseeable mining). In one case in point, a large active underground mine was closed because of "geological problems." Soon thereafter, the company's three remaining active mines in the same area were put up for sale. Although the timing of the proposed sale may have been moved ahead to fend off pending operating liabilities, the coincidence of financial and "geological" difficulties is not uncommon.⁽⁸⁾

Loss or renegotiation of contracts can also cripple small- and medium-sized operations. In the 1990's, it has become commonplace for companies to sell off reserves, equipment, and mining rights after filing for Chapter 11 bankruptcy protection. More often than not, the financial problems of these marginal mines result from contract disputes and/or cancellations involving major customers.⁽⁹⁾

At medium-sized mines (100,000 to 500,000 tons per year), operators avoided a rate of closings as steep as at small mines. From 1991 through 1997, both mine numbers and coal production decreased less rapidly than at small mines (Table 1). Even though fewer in number, medium-sized mines made up a larger percentage of operating mines in 1997 because the total for all operating mines dropped even more, primarily due to small-mine abandonments. Production at medium-sized mines fell by 24.3 percent, from 174.9 to 132.4 million short tons, but recoverable reserves plunged from 2,055 million short tons in 1991 to 1,109 million short tons in 1997, a loss of 46.0 percent and nearly twice the rate of production loss (Table 3). Compared to small mines, reserves at medium-sized mines are usually better suited for acquisition--by another medium-sized mine operator or by a large-mine operator--depending on the location, size, quality, and mining conditions of the reserves. On balance, however, these reserves have not often been needed by other medium-sized mining operations. Apparently, some have been absorbed by large operations but the rest have not been claimed, their ultimate minability uncertain.

As already noted, reserves at large mines have also declined, but by only 6.3 percent (from 18,816 to 17,623 million short tons) between 1991 and 1997. This took place while the number of large mines grew slightly, by 1.4 percent (Table 3). Effectively, the number of large mines and their reserves have stabilized during the 1990's. At the same time, however, their total production has continued to increase along with the relative proportion of active recoverable reserves they control. By the end of 1997, 11 percent of all mines controlled three-quarters of domestic production (Table 1).

In general, profiles of coal production and reserves between 1986 and 1997 reflect the dramatically rising productivity and the steadily declining coal prices of the period. The decline in coal prices may have started in the 1970's and 1980's, due to excess capacity and the influence of declining oil prices, but it has continued downward during the 1990's, in a self-reenforcing cycle (Figure 4). As investments, coal mines can take years to pay off, and once development capital is committed, coal mine owners may respond to continuing low prices by finding affordable ways to cut operating costs. One such way is to sell off reserves or allow leaseholds to expire, and shift capital into purchases of equipment and technologies that can improve productivity. Offers of coal at lower prices, in turn, stimulate further com-petition and the expectation among buyers of more low prices (at least until actual production reaches a level still closer to productive capacity). It is not surprising, then, to see the coal industry's investment in reserves decline as long as coal prices remain low and operators' very survival depends on increasing productivity (Figure 4).

Figure 4. U.S. Coal Production, Productivity, Prices, Reserves, and Sulfur Content, 1986 through 1997

When mine operators divest reserve holdings--unless severely overvalued--the better quality reserves are retained. Thus, the average quality of the coal produced, at least as indicated by lower average sulfur content, has kept improving (Figure 4). Lower sulfur levels can be seen as yet another mode of competition. In the context of pollution control measures mandated by the Clean Air Act Amendments of 1990 (CAAA90), low sulfur levels equate to added value to the customer and represent another way, besides price and productivity, to compete for customers. Declining sulfur levels in coal produced mean that reserves being retained at active mines have lower sulfur content, or that preparation facilities have been added or improved, or both. Preferential mining of lower-sulfur deposits is another aspect of a high-grade screening of reserve properties.

On the other hand, limited development of moderate-sulfur reserves--if they can be mined profitably with highly productive machinery and cleaned efficiently to meet customer specifications--is an approach that certain niche operators may use where another operator has failed. The market niches these mines serve, however, are limited, so contracts tend to be smaller and shorter in duration. As the CAAA90 Phase II requirements take effect in January 2000, the majority of electric power plants will be disinclined to burn even moderate sulfur coals.

Investment in reserves at producing mines, measured by the tonnage of reserves leased or held, has gone down in parallel with and in response to lower real-dollar coal prices (Table 4). At the same time, capital expenditures by   the coal mining industry for development and exploration, new construction, and purchased machinery have been trending downward since 1977 (Table 5). Outlays for these expenses could easily be reduced because previously explored working mines, their facilities, and equipment were widely available at negotiable costs.

Table 4. U.S. Recoverable Coal Reserves at Producing Mines, 1990-1997
(Billion Short Tons)

1990 1991 1992 1993 1994 1995 1996 1997

U.S. Total 22.8 22.0 21.6 21.5 21.0 20.1 19.4 19.2

   Appalachia 6.0 5.8 5.4 5.6 4.9 4.5 4.5 4.6

   Interior 3.7 3.7 3.6 3.3 3.1 2.8 2.8 2.6

   West 13.1 12.5 12.6 12.6 13.1 12.7 12.1 11.9

    Note: Totals may not equal sum of components due to independent rounding.
    Sources: Recoverable Reserves, Energy Information Administration, Form EIA-7A.

Table 5. Capital Expenditures by the Coal Mining Industry, 1977-1992
(Million 1992 Dollars)

1977 1982 1987 1992 Growth in Capital Expenditures, 1977 to 1992

(million dollars) (percentage)

United States 6,053.6 4,597.1 2,003.9 1,942.7 -4,110.9 -67.9

   Central Appalachia 1,754.4 1,421.5 745.6 701.5 -1,052.9 -60.0

   Northern Appalachia 1,774.7 1,117.5 510.0 340.4 -1,434.3 -80.8

   Illinois Basin 834.2 789.4 298.9 336.6 -497.6 -59.6

   Powder and Green River

   Basins (WY, western MT) 680.8 189.9 165.5 159.5 -521.3 -76.6

    Note: Capital Expenditures are funds expended for development and exploration of mineral properties, for new construction, and for purchased machinery chargeable to fixed asset accounts. Source data are available for every fifth year only; 1997 data not available at this time.
    Source: U.S. Department of Commerce, Census of Mineral Industries, 1977-1992.

Uncompetitive reserves include: small blocks not well situated for highly productive mining or assignment to an active profitable mine, coals of lower quality (high or medium sulfur levels, high ash, and/or low heat content), and marginal reserves that are costly to mine because of adverse geologic settings. The characteristics of reserves being recovered at competitive mines are good quality, efficient minability, and/or advantageous location, which are increasingly necessary for profitable production and marketing.

Concentration of Productive Capacity

As noted above, in a time when coal prices are low and expected to remain so, the competition for reserves slackens and companies may put more of their capital into mining and loading equipment and preparation facilities. These are relatively smaller individual expenditures than reserves purchases, and they direct capital to improvements that can more quickly increase pro-duction and returns from already developed reserves. The growing concentration of production among the 20 largest coal producers between 1986 and 1997 implies good, marketable reserves and increased concentration of productive capacity at the largest producers (Figure 5). Concentration of productive capacity among the largest companies is also reflected in the regional origins of recent coal production. Sixty-seven percent of total U.S. productive capacity, or 885 million short tons, is concentrated in Western surface-minable and Appalachian underground-minable reserves (Table 6 and Figure 6). During the 1990's, divestitures and acquisitions of coal companies have focused especially on companies with reserves, properties, and infrastructure in those two operational enclaves.

Figure 5. U.S. Coal Production Concentration, 1986, 1991, 1994, and 1997

In 1986, coal reserves held by all producing companies were equivalent to 28 years of production. By the end of 1997, companies were content to control less than 18 years of production (Figure 7). This reversed the trend of the late 1970's and early 1980's, when coal prices were two to three times higher than today in real dollar terms, and locking up reserves could be viewed as securing of future returns.

At the same time that the relative size of reserves was declining, the gap between coal production and productive capacity narrowed. The reason, again, is low coal prices. Along with reserves, the closing of more than a thousand mines between 1991 and 1997 reduced underused productive capacity. The fact that coal production kept increasing faster than productive capacity caused an upward trend in capacity utilization (actual production as a percentage of capacity, Figure 6). Utilization of capacity in major underground mining regions in Appalachia and the Interior rose to 83 percent, largely as a result of the closing of less competitive mines and reserves. In the West, surface mine capacity utilization was maintained at an average of just over 78 percent during the 1990's. This reflects the relatively good availability of active reserves in the West coupled with highly productive mining techniques (Table 6).

Even while the average of utilization rates has remained steady in the West, the variance among those rates has widened. From time to time--first with changes in long-standing coal supply arrangements in Phase I, and then with the approach of Phase II of the Clean Air Act Amendments of 1990 (CAAA90)--productive capacity has been temporarily overtaxed at some mines. Uneven utilization rates, related to declines in production at some Western mines, occurred as customers turned to other Western coals with still lower sulfur content. On occasion, lower-sulfur coals have been temporarily unavailable to new customers.

Table 6. Regional Profiles of Coal Reserves, Productive Capacity, and Capacity Utilization, 1991, 1994, and 1997

Region and Item 1991 1994 1997

Total United States

Recoverable Reserves at Producing Mines (million short tons) 21,999 21,017 19,164

Production (million short tons) 996 1,034 1,090

Productive Capacity (million short tons)

The U.S. Coal Industry in the 1990's: Low Prices and Record Production

by Richard Bonskowski

September 1999

Contents

Tables

Figures

Introduction

Coal Industry Adaptations in the 1990's

Increased Mine Size

Recoverable Reserves and High-Grading

Concentration of Productive Capacity

The U.S. Coal Industry in the 1990's:
Low Prices and Record Production