NEW YORK (Reuters) - The price of coal will rise sharply if a U.S. appeals court upholds a ruling restricting surface mining in the Appalachian mountains, analysts and industry observers say.
NEW YORK (Reuters) - The price of coal will rise sharply if a U.S. appeals court upholds a ruling restricting surface mining in the Appalachian mountains, analysts and industry observers say.
The battle over surface, or mountaintop, mining resumes in a Virginia court on Tuesday, and one expert said there could even be power shortages and brownouts if the judge sides with environmentalists over the miners.
At the least, several mining companies -- Massey Energy Co, International Coal Group, Alpha Natural Resources and Patriot Coal Corp -- will lose production, said analyst Jeremy Sussman of Natixis Bleichroeder. Those companies have a large number of surface mines in the central Appalachian coal fields.
"If the ruling is upheld, we believe that Appalachian prices could spike," he said. "Producers with a significant amount of surface exposure in Appalachia could get hurt."
Conversely, producers with significantly more underground than surface production, such as Consol Energy, should benefit, Sussman said in a research note.
Jim Thompson, editor of industry newsletter Coal & Energy Price Report, said a restrictive ruling would probably drive up costs for any miner with surface operations in Central Appalachia.
He also warned that higher coal prices could lead to increased electricity prices and a potential for brownouts.
"If you lose a big percentage of (Central Appalachian) production, it would be impossible not to have a severe impact on coal prices and the availability of coal," Thompson said. "It does not change the fact that 50 percent of our electricity comes from coal."
On Tuesday, the U.S. Court of Appeals in Richmond, Virginia, will hear an appeal brought by Massey and the West Virginia Coal Association. Surface mines account for about one-third of coal from West Virginia and half of that from Kentucky.
The court will hear arguments on the March 23, 2007, ruling by U.S. District Court Judge Robert Chambers on a petition filed by a number of groups led by the Ohio Valley Environmental Coalition. The ruling said the U.S. Army Corps of Engineers had not fully evaluated the potential environmental damage before approving permits for mountaintop mining for four mines operated by subsidiaries of Massey.
FROZEN PERMITS
Basically, OVEC contended that the Corps of Engineers had violated the Clean Water Act and the National Environmental Policy Act. Since then, the Corps has effectively frozen so-called 404 permits for surface mining.
"We believe that Consol Energy would be the biggest beneficiary if Judge Chambers' ruling is upheld," said Sussman. "Appalachian prices would likely rise as other producers are forced to limit production."
Consol is by far the largest producer in Appalachia, but derived only 4 percent of its 2007 production from surface mining.
By contrast, International Coal Group has 60 percent of production from surface mines, Massey has 47 percent, Alpha 44 percent and Patriot 36 percent, Sussman said.
The National Mining Association, a trade group comprising most of the major U.S. miners, is not a named party in the case, but has filed a "friend of the court" brief.
"We have been in court for many years over challenges to mountaintop mining and have prevailed," said NMA spokeswoman Carol Raulston. "We maintain that the Clean Water Act provides for mountaintop mining, and will continue to press that position."
The United Mine Workers Union is watching the case closely, said spokesman Phil Smith. "Our members just mine the coal, wherever it is, and we press for our members' jobs to be respected."
The UMWA has some 30,000 members, of whom 700 or 800 work in surface mines.
(Editing by Lisa Von Ahn)
