Dirty Illinois Coal Revived by Mining Deaths, Obama Crackdown

By Mario Parker

June 9 (Bloomberg) -- Coal has been cruel to Carlinville, Illinois, robbing it of hundreds of jobs in the past two decades. Tragedy and tougher regulation in Appalachia promise to reverse those fortunes in a state where the unemployment rate hovers near a 26-year high.

Illinois coal, once considered too dirty to be burned by utilities, is on the rise after the worst U.S. coal disaster in 40 years. The April 5 blast at Massey Energy Co.’s Upper Big Branch mine in Montcoal, West Virginia, killed 29 workers.

“The coal mine has always paid a good salary for doing very dangerous work,” Carlinville Mayor Robert Schwab said on a recent humid afternoon. “I just hope everything goes well.”

Schwab’s town of 6,000 in southern Illinois stands to benefit as Central Appalachia’s deposits get more perilous and costly to mine. Carlinville’s fate has been tied to coal since the early 20th century, when Standard Oil Co. needed it to power a refinery and ordered 156 catalog homes from Sears Roebuck & Co. in Chicago to house miners.

The Massey disaster revived safety concerns less than two weeks after President Barack Obama’s administration for the first time moved to revoke an approved permit due to environmental issues. The U.S. Environmental Protection Agency is trying to prevent St. Louis-based Arch Coal Inc. from filling streams and valleys with debris from a West Virginia mountaintop mine one county away from Upper Big Branch.

Rosier Than Appalachia

“The Illinois basin is poised for growth and we fully expect to see an environment over the next several years with companies vying for that market,” said John Hanou, vice president of coal research at Edinburgh-based Wood Mackenzie Consultants Ltd., an energy advisory firm. “It looks rosier than Central Appalachia.”

Cline Resource & Development Co., a closely held coal producer based in Palm Beach, Florida, last year reopened a former Exxon Mobil Corp. operation on Carlinville’s outskirts. Macoupin Energy LLC, a subsidiary of Cline, began producing coal there in the fourth quarter, when it added 43 workers to the five it had early in the year, according to the U.S. Mine Safety and Health Administration.

Employment in Illinois’s coal industry has plummeted to 3,500 workers from 10,000 in 1990, said Phillip Gonet, president of the Illinois Coal Association. Mining jobs pay $60,000 to $70,000 a year, requiring only a high school diploma, he said.

Circumventing Regulations

St. Louis-based Peabody Energy Corp., the nation’s largest coal producer, holds the most reserves in Illinois. Arch and Alpha Natural Resources Inc., the second- and third-biggest coal companies, respectively, have expressed interest in Illinois deposits to circumvent the safety and regulatory challenges in the eastern U.S.

That’s what concerns environmental groups such as the Sierra Club.

“This country needs to move beyond coal,” said David Graham-Caso, a spokesman for the San Francisco-based group. “As that transition happens, there needs to be very careful regulation of any coal mining, whether it be in Appalachia or the Illinois basin.”

The U.S., which holds the world’s largest reserves of the fuel, relies on it for about half the nation’s power generation, according to the U.S. Energy Department, and producers are targeting the Asia-Pacific region for increased exports.

Challenging Peabody

While Arch Coal said it doesn’t plan to bring its Illinois properties into production for several years because they still aren’t as profitable as its reserves in Wyoming, rivals expect to challenge Peabody sooner.

“It certainly does make us more receptive to more serious evaluations of other basins, and the Illinois basin is clearly a basin where we have some interest in some further investigation,” Kevin Crutchfield, chief executive officer of Abingdon, Virginia-based Alpha Natural Resources, said in an interview.

Illinois also is getting a boost from an EPA rule established in 2005 that requires utilities to add scrubbers, a mechanism that reduces the amount of sulfur released from coal, Hanou said. The scrubbers, which cost $100 million to $400 million, erase the competitive advantage that Appalachia had over Illinois coal, he said.

High-Sulfur Coal

While Illinois coal has the third-highest energy content of any U.S. basin, it releases more than four times as much sulfur dioxide as Central Appalachia deposits. That scared utilities away as the U.S. cracked down on pollution when President Jimmy Carter was in office and later in the 1990s when Congress amended pollution laws.

“The Clean Air Act put a huge disadvantage on the Illinois coal industry, and it saw a significant decline in production as a result of that over time,” said Warren Ribley, director of the Illinois Department of Commerce and Economic Opportunity.

Coal is a combustible rock of carbon and hydrocarbon, formed from dead plants, heat and pressure from as long as 300 million years ago. In the mountainous Appalachia region, which has been mined continuously for almost two centuries, the rocky geology makes the coal more difficult to extract and increases the possibility of stumbling into pockets of trapped methane gas, suspected of playing a role in the Massey disaster.

‘Easy Stuff’ Gone

“We’ve been mining Central Appalachia for 150 years, every year,” said William Burns, an analyst at Johnson Rice & Co. in New Orleans. “Geology says that we’ve mined the easy stuff. It’s not going to get easier, especially when you look at what happened with Upper Big Branch.”

More than 600 miles away, the grain crop-blanketed land above Illinois’s coal deposits is mostly flat. This makes it easier to mine and less likely to contain hard-to- spot methane pockets, said Pearce Hammond, a coal analyst at Simmons & Co. International in Houston.

Mine workers in Carlinville, 250 miles (400 kilometers) southwest of Chicago, suffered two blows in the past two decades. Employment at the local mine dropped to 358 people in 1990 from 586 in 1983, according to the mine safety administration, as Clean Air Act regulations took effect. Employment sank to 58 in 2008 after Exxon announced in November 2007 that it would shutter the operation.

Reversal of Fortune

Macoupin’s work at the former Exxon mine is starting to reverse that trend. The company plans to increase payroll to 100 employees from the 66 it has now, Schwab said. Macoupin wouldn’t give the exact number of jobs to be added, though it confirmed a boost in hiring during the next 12 to 18 months.

Any new jobs help a state where the unemployment rate was 11.2 percent in April, more than the national average of 9.9 percent.

“The sales tax would be beneficial to the county, and anything that benefits the county benefits the municipalities and the people of the county,” said Schwab, 58. “So yeah, it’s a good thing.”

Illinois accounts for 21 percent, or 104 billion tons, of the U.S. coal reserve base. That’s enough to power the country for 52 years, second to Montana, according to Energy Department data.

Three New Mines

The turnaround in Illinois, led by Macoupin, helped boost production 2.7 percent in 2009 to 33.8 million tons, the most since 2001, according to data from the Energy Department. Three new mines under development in southern Illinois will add 20 million tons, Gonet said.

Coal mined from the eastern interior, which includes the so-called Illinois Basin, will jump 43 percent to 138.1 million tons by 2035, according to the Energy Department. By comparison, the agency expects coal taken from Central Appalachia, which includes parts of southern West Virginia, eastern Kentucky, southwest Virginia and eastern Tennessee, to dive 54 percent to about 100 tons a year, from an estimated 215.5 million in 2009.

“The Illinois basin will steal some share in the coming years from Central Appalachia,” Simmons’s Hammond said.

That’s welcomed by the citizens of Carlinville, which was built on coal. The town still has the largest collection of Sears-catalog homes in the world with 152, said Laurie Flori, author of “Additionally Speaking: A Chronological History of the Sears, Roebuck & Company Homes in Carlinville, Illinois” (Brown Paper Package Publications, 192 pages).

“This community wouldn’t be here if it weren’t for coal,” she said.

--With assistance from Christopher Martin and Dan Stets in New York. Editors: Flynn McRoberts, Brenda Batten.

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net

To contact the editor responsible for this story: Flynn McRoberts at fmcroberts1@bloomberg.net