Thursday, August 16, 2012

American Coal Industry Continues to Grow (Just Like Tobacco)

Much has been made lately by the U.S. coal industry how the U.S. government is strangling them and killing jobs.  While that sounds like a nice outcome to me, the reality is far different.  True, the U.S. has been instituting pollution policies that move our nation beyond coal (as the Sierra Club likes to say) for power generation, but worldwide the demand for coal is growing stronger because of explosive growth in developing countries, most notably China and India.  This creates an opportunity for the coal industry to export the stuff while the U.S. slowly weans itself off the poison.

While that's bad for the environment, it's economically good for the U.S., which is poised to become a significant coal exporter.  Yesterday, the governor of Kentucky announced a new 25 year deal to export around $7 billion of Kentucky and West Virginia coal to India (also here).  India's Abhijeet Group struck the deal with New Jersey-based FJS Energy, LLC to import around nine billion tons of Appalachian coal per year.

Exporting coal helps maintain and create jobs in the U.S. while helping offset our trade deficit caused by our addiction to electronics, textiles and cheap plastic crap produced in Asia.  But while coal industry representatives complain about Washington, coal industry employment is at a current two decade high. Things aren't all that bad for them.

The current situation is tough for coal companies without an export presence because of a recent decrease in domestic coal consumption, mostly because of low natural gas prices that have led to displacement of coal for natural gas in U.S. energy production.  These weakening companies face bankruptcy and/or become acquisition targets for stronger, better diversified coal producers.  Sucks for them, but that's how free market capitalism works.

The coal industry complains - a lot - but don't weep for them.  They will figure out a way to sell coal to international customers, just like the tobacco companies have done.  The cigarette industry is a good parallel for coal.  Both sell something that is bad for our health but is also deeply rooted in American history.  Both have seen (or in the case of coal, will see) domestic decline in the use of their product because of increased regulation aimed at improving the environment and human health.  But for both industries, the salvation lies overseas.  The tobacco industry figured this out decades ago.  Coal is working on it right now.

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