Hearings and Business Meetings
Apr 12 2006
2211 King Boulevard, Casper, Wyoming Wyoming Oil and Gas Conservation Commission Building 01:30 PM
Mr. Marion Loomis
Executive Director, Wyoming Mining Association
WYOMING MINING ASSOCIATION
COMMITTEE ON ENERGY AND NATURAL RESOURCES
ISSUES ASSOCIATED WITH DEVELOPMENT OF
WYOMING COAL INDUSTRY
WYOMING MINING ASSOCIATION
Senator Thomas, ladies and gentlemen. I am Marion Loomis. I am the Executive Director of the Wyoming Mining Association (WMA). Thank you for opportunity to talk to you about the coal industry in Wyoming. WMA represents 24 mining companies in Wyoming producing bentonite, coal, trona and uranium. As you know, Wyoming leads the nation in production of all four of those minerals. This hearing is only about coal, but I think it is important to note that Wyoming provides 85-90% of the soda ash used in the United States and contributes positively to the foreign balance of payments with the soda ash exported from the United States. Our bentonite goes all over the world for oil and gas drilling and Wyoming leads the nation in production of uranium.
On the coal front, Wyoming producers supply over 35% of this nation’s coal. Last year 17 mines produced over 405 million tons. Those 17 mines generated over $670 million for Wyoming in the form of severance taxes, ad valorem production taxes, federal mineral royalties, bonus bids on new coal reserves, Abandoned Mine Land Reclamation fees, local property taxes on equipment and facilities, state royalties, and sales taxes. They provided another $364 million to the federal government in the form of federal mineral royalties, Abandoned Mine Reclamation fees, and Black Lung fees. I am sure they also paid a significant amount in federal income taxes, but I don’t have those numbers. The industry employed over 5,300 miners with an annual payroll of $475 million. That is money that flows through our economy buying houses, cars, food, clothes and provides for an excellent quality of life for those miners.
Revenue to Wyoming from Coal Produced in 2005
Severance Tax $160,000,000
Ad Valorem Tax on Production $133,000,000
Ad Valorem Tax on Real and Personal Property $11,000,000
Federal Mineral Royalty - Wyoming share $180,000,000
Abandoned Mine Reclamation Fee Returned to
Bonus Bids Returned to Wyoming $102,000,000
Sales Tax $44,000,000
State Royalties $8,000,000
Total Revenue returned to Wyoming $667,000,000
Production in tons 405,000,000
The Wyoming Geological Survey estimated that the average selling price for coal in 2005 was $7.75 per ton so the total value of Wyoming’s coal production is projected to exceed $3 billion. I think it is interesting that 34% of the selling price of the coal goes to state and federal government and, as I stated above, that does not include any income taxes to the federal government.
Wyoming has the third largest coal reserves in the nation and, as stated above, leads the nation in production. Our proven coal reserves exceed 45 billion tons, but the total resource, i.e. proven reserves combined with coal uneconomic today, exceed 1 trillion tons.
Most of our coal is shipped out of state as steam coal for electric plants across the nation. The latest figures show that Wyoming consumers used 25 million tons of coal in 2004. The other 372 million tons were shipped to 35 states from New York to Oregon, from Texas to Wisconsin and most states in between. That distribution demonstrates the ability for Wyoming coal to be shipped economically across considerable distances due primarily to the low sulfur content. As plants across the country install wet scrubbers, Wyoming producers will lose that competitive advantage. But, we believe that Wyoming’s efficiency and effectiveness will prevail when it comes to producing coal at a competitive price per million BTU’s. Additionally, the quality and contemporaneous nature of reclamation at Wyoming coal mines will provide this resource in a low impact manner.
You asked what we thought the future of Wyoming coal might look like. While the future is going to be much different than the past, we are very optimistic about the future of coal, not only in Wyoming, but also for the United States. As we see it, coal will not only play a continued major role in the electricity generation mix, it will also provide a source of supplemental liquid fuels. It is our view that the trends in oil production will play a potentially significant part in the future of coal. We believe that as the world oil production nears a peak, the value of domestic coal reserves and production, in conjunction with energy conservation, will be even more important to our nation’s economy and security.
Many forecasters say that world oil production will peak in the next 20 years. There are some that say world oil production actually peaked in 2005. Although we won’t know for some time how close we are to a peak in world oil production, it is accepted that U.S. oil production peaked in the 1970’s and nothing, including development of ANWR, is projected to turn that around. At best ANWR will improve the decline curve, but U.S. production will continue to decline. Maybe with Enhanced Oil Recovery and ANWR we will be able to hold our production flat, but no one seems to suggest that we can increase production.
There has been a great deal of recognition about how vulnerable the United States is to a disruption in oil supplies. Sixty percent of our oil consumption comes from foreign sources. Some comes from friendly allies such as Canada, Mexico and Ecuador, but a good portion comes from countries much less friendly to the United States such as Nigeria, Venezuela, and Iraq. OPEC countries supply over 2 billion barrels per year of our annual consumption of 7 billion barrels. Just from a national security position, it is critical that the United States become more self reliant on our own reserves. To not address this most important issue puts our nation at risk. Combine the security concerns with our balance of payment deficits and it just makes so much sense to develop the resources available in the U.S.
Coal is a major part of the answer. The U.S. has 250 billion tons of proven coal reserves. Some of this could be converted to supply 100 million barrels per year in the near future. It would require 30 coal-to-liquid plants producing 10,000 barrels per day. However, the coal reserves could supply much more than that if the U.S. takes the position that energy security is worthy of an effort similar to putting a man on the moon. This will need to be approached as strategic and sustainable development, including measures that address emissions or other environmental considerations related to additional coal production and utilization.
Coal-to-liquids and coal-to-gas has to be a big part of the answer to our future supplies. It takes 0.7-0.9 tons of coal to make a barrel of liquid. In order to generate 100 million barrels per year of coal derived fuel, we would have to devote approximately 80 million tons of coal per year to conversion plants. That is only 20% of the 2005 Wyoming coal production rate. At an average thickness of 70 feet for Wyoming’s coal seams it would take 726 acres per year to supply the coal to generate 100 million barrels of fuel. Last year the United States imported 145 million barrels of oil from Russia, 418 million barrels from Nigeria, 549 million barrels from Venezuela and 556 million barrels from Saudi Arabia. We need to find new sources of fuel.
The cost of coal conversion plants averages about $750 million for a 10,000 barrel per day plant. The proportional costs decrease with increasing plant size, but it will conservatively take over $20 billion of investment to reach 100 million barrels per year. It is important to recognize, however, that this will represent only 5% or less of the 2 or 3 billion barrels per year of new sources that the U.S. will need to find.
One coal to liquids plant has been announced in Wyoming. It would produce 11,000 barrels per day with the plans to take it to 40,000 barrels per day if the money and technology is available. It would be located in Carbon County near where the first coal mine in the state opened in 1869. There are several other announced plants in the U.S., but there is nothing built yet.
As I stated above, in the future coal will be burned differently than it is today. Existing technology will allow new coal fired power plants to capture the particulates, NOx (nitrogen oxide), SOx (sulfur dioxide), and maybe mercury. Further in the future coal fired power plants will need to develop approaches to address CO2 emissions. Coal still has so much energy that it cannot be ignored; it will be a major part of our electricity resources for generations to come.
The U.S. electricity demand is increasing at a rate of 2% per year. All projections indicate that demands for electricity will continue to increase. From 1993 to 2004, total generation increased 24%. If that growth rate continues over the next ten years, we will need an additional 15,000 to 23,000 MWe of generation capacity each year. That is 10 plants the size of the Wheatland coal fired power plant every year.
In summary coal must play a key role in addressing our future energy needs. While renewables and enhanced oil recovery can do a lot to address our needs, only coal has the reserves to produce significant amounts of new fuels. The technology exists to produce these new fuels. Now is the time for the United States to take the position that reducing our reliance on foreign imports of fuel is critical to our security and our economy.