SD50 - Senate Joint Resolution No. 208 Export Plan for Virginia Coal
The economic activity of the coalfield region of Virginia is linked to the state's mining firms' ability to access markets beyond the state's borders. In 1992, 296 active Virginia mines produced 42,561,785 tons of coal, making Virginia the nation's seventh largest coal producing state. Virginia is considered to be a high production cost state. According to the U.S. Energy Information Administration (EIA), the average 1992 mine price for coals produced in Virginia was $27.55 per ton, vs. $21.03 per. ton for the nation as a whole. Virginia's coal producers depend upon the ability of the state's high quality coal reserves to draw price premiums in the market place, and overcome high costs of mining.
Virginia's coal mining industry serves two distinct end-use markets: metallurgical and steam. The metallurgical market purchases coals used for coking. Electric utilities are the primary purchasers in the steam coal market. In 1992, 37 percent of the coal produced in Virginia was sold to overseas buyers, and more than 80 percent of that tonnage was metallurgical grade.
Virtually all of Virginia's overseas exports are transported by rail from the southwest coalfields through the state, and shipped from the Port of Hampton Roads, which exports greater quantities of coal than any other U.S. port. Coal shipped through Hampton Roads in 1992 generated $2.4 billion in economic benefits, 23,000 jobs and $800 million in wages in the state.
The United States, Australia and Canada are the world's primary metallurgical coal suppliers. Over 70 percent of the U.S. metallurgical grade export coals have been shipped through the Port of Hampton Roads in recent years.
Primary metallurgical coal markets are the Far East, Europe, and Brazil. The United States holds a 60 percent share of the west European coal market and a 51 percent share of Brazil's metallurgical coal market. Hampton Roads is the dominant U.S. port for the European metallurgical coal market. The Far East is the world's largest metallurgical coal market. Japan is the world's largest metallurgical coal importer, yet Hampton Roads exports amounted to just 7 percent of that market share in 1992. In the past, trade agreements for the purchase of U.S. coal by Japan has helped to offset our staggering trade deficit with that country.
The EIA 1993 projections showed the Far Eastern metallurgical coal market shrinking by 10percent during the decade. EIA's 1993 projections also show a relatively steady demand for metallurgical coal in Europe over the next decade. However, the United States is expected to lose market share to Australia in both the Far Eastern and European markets. Due to an expected decline in traditional metallurgical coal suppliers to Eastern Europe (i.e., from the former USSR) through the year 2000, there may be opportunities for United States metallurgical coal suppliers in this market.
The world's major steam coal exporters are Australia, South Africa and the United States. New Orleans, Hampton Roads and Baltimore are the three major U.S. ports of international steam coal supply. Non-Virginian Appalachian steam coal producers have the option of transporting their product by barge to New Orleans for export. This barge transportation alternative tends to be cheaper than rail transportation from Virginia mines to the Port of Hampton Roads.
Primary steam coal markets are western Europe and the Far East. The United States competes most effectively in the Netherlands and Britain. The major Far Eastern steam coal importer is Japan. Hampton Roads exporters are not expected to compete in the Far Eastern steam coal market.
Unlike declining projections for the metallurgical coal market, experts expect the world's major steam coal exporters to increase tonnage over the next decade. This increase will come from a continually expanding market in Europe and Eastern Asia. Major factors impacting this increased demand include economic growth and the resulting increased demand for electricity, decreasing subsidies to high cost European coal suppliers, and stringent environmental restrictions in the European marketplace.
Changing technologies will have a major impact on future international markets for Virginia coal. Metallurgical coal use will be influenced by changing technologies for both steel production and materials utilization. The existing clean coal technologies for steam coal are divided into three categories: pre-combustion; combustion and post-combustion. All of these technologies are being researched, developed and tested worldwide. Strong markets for clean coal technologies include Italy, Japan, and Turkey.
The United States is encouraging clean coal technology utilization in international markets under provisions of the Energy Policy Act of 1992. Through this Act, the U. S. Department of Energy will provide financial assistance for participation by U.S. industries in targeted international markets.
In analyzing the findings it was found that: Western Europe should be viewed as a primary market opportunity for future exports of Virginia coal; Brazil should continue to be a strong market; Eastern European markets should provide some market opportunities for Hampton Roads coal suppliers; and trade relationships with Far Eastern buyers and the ability of Virginia to act as a dependable source of high quality coal supplies, will be assets in efforts to maintain exports of metallurgical coals to the Far East.
• Coal exports through the Port of Hampton Roads has a substantial benefit to the Virginia economy ($2.4 billion in 1992). Consequently, what is good for Hampton Roads coal exports is good for Virginia. It is appropriate for Virginia state government to do what it can to enhance Hampton Roads' coal exports.
• Critical factors affecting the world coal trade and the Hampton Roads market share (the state of the global economy, international environmental regulations, and foreign subsidies) are beyond the influence of state government.
• Price is the most important factor in exporting coal. Efforts by producers, transporters of coal, and governments to mitigate coal costs will enhance the overall competitiveness of Virginia coal.
• Trade agreements between governments have been effective in maintaining coal shipments to certain countries. Such agreements are often justified to rectify trade imbalances or to maintain a reliable supply source.
• It may become increasingly difficult for Hampton Roads coal exporters to compete on the world market based on price alone. In order for them to compete effectively, coal exporters may have to develop and employ creative trade packages of coal and coal related technologies. These packages may include clean coal technologies and low sulfur coal in the steam market and advanced coking technologies or value-added coke in the metallurgical market.
• The metallurgical coal market will likely continue to be the mainstay of Virginia's coal exports, with Western Europe continuing to be the primary market opportunity for Hampton Roads coal sales. However, exporters of metallurgical coal must try to maintain a foothold in all markets, including Japan, Korea, and Brazil. The metallurgical coal market is expected to shrink and become more competitive in coming years, especially in Western Europe. Because of this expected situation, Hampton Roads exporters must look for opportunities in the expanding steam coal market to maintain tonnage. While the Eastern European coal trade is now small, this market may increase with economic modernization.
1. Conduct a Governor's Symposium with leaders of the coal industry and coal related industries to (1) review the findings of the study required by SJR 208 related to international markets for Virginia coal; (2) receive advice on the appropriate role of the Commonwealth in promoting coal exports; (3) identify federal and state regulations, tax policies, and other factors affecting the sale of Virginia coal and recommend executive action to minimize regulations that constrain trade; and (4) discuss emerging technological advancements and ecological issues in Virginia's major coal export markets. This proposed Governor's Symposium would be coordinated by the Virginia Department of Economic Development with assistance by the Virginia Center for Coal and Energy Research, the Virginia Port Authority, and the Virginia Department of Mines, Minerals and Energy.
2. Introduce a joint resolution during the 1994 Session of the General Assembly requesting the Virginia Congressional Delegation to encourage and work for the export of United States coal which will positively impact the export of Virginia coal. The increase in coal exports could reduce the current dramatic trade imbalances with selected foreign governments, including Japan.
3. Advocate through the Governor's Office to the President and the U.S. Secretary of Commerce, for the export of United States coal which will positively impact the export of Virginia coal. The increase in coal exports could reduce the current dramatic trade imbalances with selected foreign governments.
4. Encourage the development of state and national strategies to export combined packages of coal, coal-use technology. and coal equipment through a consortia of Virginia agencies. the National Coal Council, the U.S. Secretary of Energy, and the U.S. Department of Energy, for market opportunities including Eastern Europe.
5. Have the Virginia Department of Economic Development aggressively pursue available federal funds to support export assistance in the coal industry.
6. Encourage and promote the use of export financing programs available through the Virginia Department of Economic Development's Small Business Financing Authority (SBFA). These pre-export working capital and credit guarantee programs of the Export-Import Bank of the United States, accessed through the SBFA could be used to help smaller technology and equipment suppliers develop competitive export pricing deals for their goods and services.