tag:blogger.com,1999:blog-42042909147640034312024-03-18T23:41:37.474-04:00BLACKACRE'S COMMENTARIESW. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-4204290914764003431.post-10371726955251952192018-06-05T08:02:00.001-04:002018-06-05T08:02:04.249-04:00WSJ Changes in wages since September 2010<div class="separator" style="clear: both; text-align: center;">
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<br />W. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.com0tag:blogger.com,1999:blog-4204290914764003431.post-36076140226233544822015-12-19T09:03:00.002-05:002015-12-19T09:03:29.712-05:0011-point checklist to prepare for combat<br /><div>
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<!--[if !supportLists]--><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;">1.<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;">Analyze the mission.</span></b><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;"><o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;">2.<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><span style="font-family: 'Times New Roman', serif; font-size: 12pt;">Identify
personnel, assets, resources, and time available. </span></b><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;"><o:p></o:p></span></div>
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</span></span><!--[endif]--><b><span style="font-family: 'Times New Roman', serif; font-size: 12pt;">Decentralize
the planning process. </span></b><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;"><o:p></o:p></span></div>
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</span></span><!--[endif]--><b><span style="font-family: 'Times New Roman', serif; font-size: 12pt;">Determine
a specific course of action.</span></b><span style="font-family: 'Times New Roman', serif; font-size: 12pt;"> <b> </b></span><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;"><o:p></o:p></span></div>
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</span></span><!--[endif]--><b><span style="font-family: 'Times New Roman', serif; font-size: 12pt;">Empower
key leaders to develop the plan for the selected course of action. </span></b><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;"><o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;">6.<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><span style="font-family: 'Times New Roman', serif; font-size: 12pt;">Plan
for likely contingencies through each phase of the operation. </span></b><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;"><o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;">7.<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><span style="font-family: 'Times New Roman', serif; font-size: 12pt;">Mitigate
risks that can be controlled as much as possible. </span></b><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;"><o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;">8.<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><span style="font-family: 'Times New Roman', serif; font-size: 12pt;">Delegate
portions of the plan and brief to key junior leaders. </span></b><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;"><o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;">9.<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><span style="font-family: 'Times New Roman', serif; font-size: 12pt;">Continually
check and question the plan against emerging information to ensure it still
fits the situation. </span></b><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;"><o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;">10.<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><b><span style="font-family: 'Times New Roman', serif; font-size: 12pt;">Brief
the plan to all participants and supporting assets. </span></b><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;"><o:p></o:p></span></div>
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</span></span><!--[endif]--><b><span style="font-family: 'Times New Roman', serif; font-size: 12pt;">Conduct
post-operational debrief after execution.</span></b><span style="font-family: 'Times New Roman', serif; font-size: 13.5pt;"><o:p></o:p></span></div>
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W. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.com0tag:blogger.com,1999:blog-4204290914764003431.post-16540715948835794322015-04-05T14:18:00.000-04:002015-04-05T14:18:03.000-04:00Appalachia Miners Wiped Out by Coal Glut That They Can’t Reverse<div>
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(Bloomberg) -- Douglas Blackburn has been crawling in and out of the coal mines of Central Appalachia since he was a boy accompanying his father and grandfather some 50 years ago.</div>
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The only time that Blackburn, now a coal industry consultant, remembers things being this bad was in the 1990s. Back then, he estimates, almost 40 percent of the region’s mines went bankrupt.</div>
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“It’s a similar situation,” said Blackburn, who owns Blackacre LLC, a Richmond, Virginia-based consulting firm.</div>
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Now, like then, the principal problem is sinking coal prices. They’ve dropped 33 percent over the past four years to levels that have made most mining companies across the Appalachia mountain region unprofitable.</div>
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To make matters worse, there’s little chance of a quick rebound in prices. That’s because idling a mine to cut output and stem losses isn’t an option for many companies. The cost of doing so -- even on a temporary basis -- has become so prohibitive that it can put a miner out of business fast, Blackburn and other industry analysts say.</div>
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So companies keep pulling coal out of the ground, opting to take a small, steady loss rather than one big writedown, in the hope that prices will bounce back. That, of course, is only adding to the supply glut in the U.S., the world’s second-biggest producer, and driving prices down further.</div>
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It’s become, in essence, a trap for miners.</div>
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“You have this really perverse situation where they keep producing,” James Stevenson, director of North American thermal coal at IHS Inc. in Houston, said in a telephone interview. “You’re just shoveling coal into this market that’s oversupplied.”</div>
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<b>Latest Glut</b></div>
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Companies will dig up at least 17 million tons more coal than power plants need this year, Morgan Stanley estimates. Coal is burned at the plants to generate electricity. That’s creating the latest fossil fuel glut in the U.S., joining oil and natural gas.</div>
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The fuel’s share of the electricity market has dropped to 37 percent from about half in 2007, government data show. The industry is bracing itself for the shutdown of coal-burning power plants that can’t meet new clean air rules.</div>
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A year ago, exports and higher natural gas prices offered some hope. Now, a strong dollar makes U.S. coal too expensive for overseas buyers and an oversupply of shale gas is stealing domestic market share. Benchmark European and Australian prices are the lowest since 2007. Prices in the U.S. will average $52.32 a ton this year, down 9.1 percent from $57.54 in 2014, based on the median of seven analyst estimates compiled by Bloomberg.</div>
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<b>Closed Mines</b></div>
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Central Appalachia coal has fallen four straight years on the New York Mercantile Exchange. Even after a rally in February, prices are the lowest for this time of year since 2009. Meanwhile, gas is at the second-lowest seasonal level in the past decade.</div>
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About 72 percent of coal from West Virginia, Kentucky and Virginia, the states that make up Central Appalachia, is mined at a loss.</div>
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It’s partly the result of a 1977 law that requires companies to reclaim closed mine sites. That includes restoring grasslands, removing waste water and sealing the mine shafts.</div>
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So while a 4 million-ton-a-year mine in Central Appalachia, which has the nation’s highest coal costs, may lose $15 on every ton, the one-time expense to permanently close it could reach as much as $44 million, according to Wood Mackenzie Ltd.</div>
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<b>No Relief</b></div>
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Alpha Natural Resources Inc., the second-biggest U.S. coal producer by sales, told investors Feb. 26 that it had $640.5 million in liabilities associated with closing the mines. That’s almost three times as much as the company is worth.</div>
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For Arch Coal Inc., which hasn’t made a profit since 2011, the figure is $418 million as of Dec. 31.</div>
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Temporarily closing an operation doesn’t provide much relief, Seth Schwartz, president of Energy Ventures Analysis Inc., an Arlington, Virginia-based energy industry consultant, said March 2 by phone. Equipment has to be maintained and workers have to make sure the roof doesn’t cave in, the mine is ventilated and that water is pumped out, he said.</div>
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It’s also difficult to obtain government permits to restart idled operations, said Blackburn. The companies have to keep making interest payments on their debt to avoid bankruptcy, so even if they’re selling at a loss, they can get some cash, he said.</div>
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<b>‘Deferred Decisions’</b></div>
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Blackburn, whose clients include banks, utilities and the federal government, said that companies are apt to mine coal until they’re driven to bankruptcy, holding on to optimism that another company will shut down first.</div>
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In the meantime the glut deepens. Utilities are on track to end 2015 with 188 million tons of coal in reserve, 27 percent higher last year, Morgan Stanley estimates.</div>
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“You have all these deferred decisions and it just keeps the price low,” Blackburn said in a thick Appalachia drawl. “What’s expensive is that you’ve walked away from your investment.”</div>
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W. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.com1tag:blogger.com,1999:blog-4204290914764003431.post-33677795693865334342014-04-11T16:16:00.000-04:002014-04-11T16:24:53.200-04:00Global Consumption is Surging<div class="MsoNormal">
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China is now consuming nearly as much coal as the rest of
the world combined, and other emerging markets, ranging from India and
Indonesia to Brazil, are turning to coal to bring tens of millions out of
poverty and drive economic growth. Europe too is burning more coal to balance
energy costs and improve energy security.</div>
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And yet, the U.S., the nation with the world’s largest coal
reserves and energy research capability, is casting aside the domestic use of
coal for power generation. That is nonsensical, given the global need for more
efficient coal-burning technologies.<o:p></o:p></div>
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Coal-generated electricity in the U.S. has fallen in recent
years due to an influx of cheap natural gas, the product of our shale-gas
revolution, and a wave of new environmental regulations. While President Obama
professes to support and all-of-the-above energy strategy, the U.S.
Environmental Protection Agency (EPA), under his direction, is crafting one
regulation after another to phase out our existing coal fleet and make it
virtually impossible to build new coal plants.<o:p></o:p></div>
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EPA’s latest rule, aimed at greenhouse gas emissions, would
require all new coal plants to equipped with carbon capture and storage (CCS)
technology. But CCS technology, for all practical purposes does not exist.<o:p></o:p></div>
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There is not one coal plant in the U.S. using CCS and only a
handful of demonstration projects under development, not one of which is at
commercial scale [SEE: AEP’s unsuccessful attempt in St. Albans, WV.]<o:p></o:p></div>
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Simply put, EPA’s new standard for coal plants cannot be met
with technology that is currently available.<o:p></o:p></div>
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Driving EPA’s anti-coal agenda is the belief that coal is a
fuel of the past and that if the U.S. is to tackle climate change, coal
generation must be phased out. But that approach totally ignores coal’s global
appeal.<o:p></o:p></div>
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The U.S. cannot stop climate change by itself. We are not
even the world’s largest carbon emitter. Abandoning our largest source of
electricity in the misplaced hope the rest of the world might stop using coal
is nonsensical. Unilaterally turning away from coal undermine America’s
economic competiveness.</div>
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Instead of taking the wrong path, let’s adopt an energy
policy that helps drive economic growth, reflecting the reality that coal is
more important than ever globally. Rather than phasing out the use of coal in
this country, we should be leading the world in research, development and
demonstration of clean-coal technology. Technology, not overzealous regulation,
is the key to reducing our carbon footprint.<o:p></o:p></div>
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The Paris-based International Energy Agency has pegged the
development and adoption of clean-coal technology, particularly CCs, as just as
important as the growth of renewable power in reducing global emissions. The
numbers suggest why that is. Wind and solar power generate less than (5) five
percent of the nation’s electricity while coal provides 40 percent of the
nation’s power. In China, coal meets 80 percent of that country’s growing
electricity demand. Many other countries with fast-growing economies, including
Indonesia, India and Brazil, also rely heavily on coal.<o:p></o:p></div>
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Let’s move forward with an honest all-of-the-above energy
strategy. We can develop advanced energy technologies in unison. Such a
strategy, by definition, should not mean picking one technology and casting
aside another.</div>
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The Obama administration’s anti-coal agenda threatens
hundreds of thousands of jobs, state economies and tens of millions of people
who require affordable energy. Bad policy, void of any pragmatism, is not what
the country needs.</div>
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W. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.com0tag:blogger.com,1999:blog-4204290914764003431.post-26893836304116250122012-08-17T14:50:00.000-04:002012-09-16T14:51:36.097-04:00 DODD-FRANK COMMENTARY
President Obama is urging Congress to approve trade agreements that would put people back to work and energize our nation’s economy. But he also wants to clamp additional taxes on the oil and natural gas industry, partly by eliminating a tax credit for royalties paid to foreign governments. That could send billions of dollars and thousands of jobs to foreign competitors who don’t face similar taxes.
Now, the Securities and Exchange Commission (SEC) is on the verge of implementing a provision of the Dodd-Frank financial reform law that would require any oil and natural gas company or hard-rock mineral company to disclose in its annual report payments to the United States and a foreign government. Such payments include taxes, royalties, license fees, production entitlements and bonuses. In other words, the provision covers just about any payments that a company makes in foreign trade.
Together, more taxes and government regulations will undercut the U.S. oil and gas industry, one of the few sectors recording major job gains. Experience shows that eliminating tax credits would encourage some companies to outsource their work to countries with lower taxes, and it could also lead to higher prices for gasoline, diesel and other petroleum products.
The SEC is scheduled to approve the disclosure provision on 22 August. It requires oil and gas and hard-rock mineral companies to make public a summary of expenses by country and possibly by project. The statement of financial payments must be submitted to the SEC and published in a company’s annual report where it can be accessed by foreign competitors as well as the public at large.
This is information that until now was considered confidential and proprietary. The purpose of the disclosure provision is to increase transparency in the oil and gas and hard-rock mining industries. But in practice, it will subject U.S. to a lot of red tape and costly compliance obligations. Never mind that these companies are already subject to the Foreign Corrupt Practices Act that prohibits payments to foreign officials for the purpose of obtaining or retaining business.
U.S. energy companies face tough competition from foreign national oil companies that don’t have to comply with such disclosure requirements, and that could put them at a disadvantage when bidding for contracts. State-owned companies such as Saudi Aramco, Russia’s Gazprom and the China National Petroleum Company control 80% of the world’s oil resources. Non-SEC registered companies would have a great advantage in forming joint ventures with national companies that have ready access to capital.
The big question is whether the SEC will require disclosure by project. That would harm companies large and small, jeopardizing thousands of jobs, while contributing little information that isn’t already made public under other disclosure requirements.
It is bad enough for a government regulation to be inordinately expensive or to be ineffective-it certainly should not be both.
W. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.com0tag:blogger.com,1999:blog-4204290914764003431.post-58543336203437844012011-09-09T07:03:00.000-04:002011-09-09T07:05:37.575-04:00Is it possible that we won’t have enough power plants to meet growing demand for electricity? Not without absurd compromises. Not without giving into the anti-coal environmental zealots so that whatever it is we try<br />To do jeopardizes electric-power reliability. Or are we just going to depend on wind and solar energy to satisfy our electricity needs?<br /><br />Take the U.S. Environmental Protection Agency’s proposal to establish a maximum achievable control technology standard for mercury and other hazardous air emissions, which was issued in March. It would require utilities to install equipment that is prohibitively expensive or, in some cases, doesn’t yet exist. Utilities would have three years to comply with the standard. But that is not enough time to design and install the necessary emission controls. According to a study done for the utility industry, the combination of this rule and another aimed at reducing nitrogen and sulfur dioxide emissions by 70 per cent by 2025 could force the retirement of as many as 140 coal plants, greatly increasing the cost of electricity.<br /><br />Do electricity ratepayers have any rights? Of course. But it is up to the EPA to balance those rights against the public-health benefits from curtailing emissions. And it is also EPA’s responsibility before issuing proposed regulations to work together with the Federal Energy Regulatory Commission (FERC), which is charged by law with ensuring generation reliability, to make certain the constraints do not jeopardize electric-power production. But that is not being done.<br /><br />In letters to Senator Lisa Murkowski (R-Alaska) of the Committee on Energy and Natural Resources, <br />FERC Chairman Jon Wellinghoff and FERC commissioners clearly stated that no formal assessment has been made of the impact the air-quality regulations would have on the nation’s ability to meet the electricity needs of American households and businesses.<br /><br />Senator Murkowski said that this is a serious breach of regulatory responsibility. Some energy officials believe the regulatory pendulum has swung too far toward EPA and that the Agency is riding ruthlessly over the public interest.<br /><br />With the nation’s economy stagnating and 14 million Americans out of work, we can ill-afford regulatory actions that would make matters even worse. Yet EPA is pursuing a no-holds-barred regulatory strategy aimed mainly at coal plants that supply more than half of the nation’s electricity. Those tempted to think that natural gas can replace coal in electricity generation without an adverse effect on the economy should think again. Though natural gas is cheap now, you can be sure that its price will rise sharply as the use of gas increases and the U. S. uses liquefied natural gas (LNG) terminals to export gas to Asian markets. Several LNG terminals are being modified for precisely that purpose.<br /><br />We can look back to the 1980’s when natural gas prices rose precipitously and those gas companies that had contracted to supply low cost fuel to both electric generation and the chemicals/plastics industry had to declare bankruptcy to discharge those contracts. Natural gas has proven that is too subject to volatility to rely upon it for long-term needs such electric generation and the operation of chemical/plastic facilities. Natural gas is, by its very nature, a fuel that is better suited for short term uses. Reliance upon natural gas for long-term needs has been shown to be problematic.<br /><br />So it is fair to ask if EPA has calculated the cumulative cost of stricter air-quality standards. A half-dozen major regulations are in the hopper. For instance, the EPA is preparing to regulate carbon dioxide and other greenhouse gas emissions from power plants and large industries. It is planning to issue tougher limits on smog-causing ozone, an action that the agency itself estimates could cost the economy as much as $90 billion annually by 2020. It is considering regulating coal ash as a hazardous waste, would deprive the construction industry of a valuable resource used in road construction and cost tens of thousands of jobs. And it is preparing to mandate the use of expensive cooling towers at new and existing power plants, which would cost an estimated $300 million per coal fired power plant.<br /><br />Clean air is a worthwhile goal. But electric utilities have made great strides since passage of the landmark Clean Air Act of 1970. Though the use of coal has tripled since I graduated from the WV School of Mines, power plant emissions are down by more than 70%. Acid rain is no longer the issue that it once was. And emissions of nitrogen oxides have been curbed.<br /><br />The next time a factory in Virginia closes down due to high energy costs; ask yourself if you would have forced utilities to curtail the use of coal. Then maybe it will be time for the pendulum to start swinging back.W. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.com0tag:blogger.com,1999:blog-4204290914764003431.post-15591206448418310902010-12-21T18:04:00.002-05:002010-12-21T18:09:24.748-05:00EPA OP EDThe U.S. Environmental Protection Agency (EPA) is rolling out a regulatory agenda that will stunt economic recovery and devastate our manufacturing sector.<br /><br />In January, EPA is going to begin regulating carbon dioxide and other greenhouse gas emissions from the nation’s largest power plants and industrial facilities. EPA says that its action is necessary to prevent climate change. But EPA is doing this without regard for its effect on the economy and without approval from Congress, since the Clean Air Act says nothing about curtailing green house gas emissions.<br /><br />EPA has picked the worst possible time to impose new restrictions on a key part of the nation’s economy. We are struggling to recover from the deepest recession since the 1930’s, but EPA’s plan will make matters more difficult by jacking up electricity prices. The result will be an unwanted and dangerous burden on businesses and consumers when our national priority should be to reduce joblessness and raise state and local revenue.<br /><br />Under EPA’s regulations, utilities and manufacturers must adopt the best available control technology. But it’s not clear to anyone what that is. It could mean raising energy efficiency at a manufacturing facility or requiring a coal plant to switch to natural gas in order to reduce carbon dioxide emissions. In other cases utilities might be ordered to shut down a well-performing power plant that uses fossil fuels, to be replaced with power from less efficient renewable energy.<br /><br />These mandated upgrades, closures and replacements are going to be wildly expensive and the cost is going to be passed directly to consumers and businesses through higher electricity bills – tens of billions of dollars in higher bills.<br /><br />Furthermore, the economic burden brought on by EPA’s regulations will not be shared equally across the country. The states that get the largest portion of their electricity from fossil fuels will be forced to shoulder the heaviest load. Of course, those states that depend most on fossil fuels for electricity generation also happen to home to the core of America’s manufacturing sector.<br /><br />EPA’s regulations could do the greatest harm here in the Virginia’s and in the Midwest states like Indiana, Ohio and Michigan that have large manufacturing facilities that depend on the availability of cheap coal. When the regulations take effect, electricity prices will soar, increasing the cost of products. Companies will be less competitive in the international marketplace and inevitably, some factories might be forced to close. How many Americans have to be added to the unemployment lines before Washington bureaucrats realize their mistake?<br /><br />What is more, EPA’s plan to reduce emissions is fatally flawed because the agency is pursuing an agenda for carbon mitigation that was hatched without cooperation from other countries. Even those who adhere to global warming science recognize that atmospheric concentrations of greenhouse gases can only be reduced through international cooperation – particularly cooperation from the world’s largest carbon emitters, China and India.<br /><br />Unless there are comparable reductions in greenhouse emissions in China and India and other developing countries, the United States could wind up cutting its emissions at great economic cost. But the practical effect on global greenhouse levels would be nil.<br /><br />Simply put, EPA’s plan is a job killer. Not only will it hurt our economy and render U.S. manufacturing less competitive but its environmental value is questionable. Congress needs to stop EPA from taking our country down this path. What America needs are more jobs, not new environmental restrictions that will smother economic recovery.W. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.com0tag:blogger.com,1999:blog-4204290914764003431.post-54138519381078709422009-12-19T10:37:00.001-05:002009-12-19T10:40:04.433-05:00100 reasons why climate change is natural and not man-made (guest editorial)HERE are the 100 reasons, released in a dossier issued by the European Foundation, why climate change is natural and not man-made:<br /><br />1) There is “no real scientific proof” that the current warming is caused by the rise of greenhouse gases from man’s activity.<br /><br />2) Man-made carbon dioxide emissions throughout human history constitute less than 0.00022 percent of the total naturally emitted from the mantle of the earth during geological history.<br /><br />3) Warmer periods of the Earth’s history came around 800 years before rises in CO2 levels.<br /><br />4) After World War II, there was a huge surge in recorded CO2 emissions but global temperatures fell for four decades after 1940.<br /><br />5) Throughout the Earth’s history, temperatures have often been warmer than now and CO2 levels have often been higher – more than ten times as high.<br /><br />6) Significant changes in climate have continually occurred throughout geologic time.<br /><br />7) The 0.7C increase in the average global temperature over the last hundred years is entirely consistent with well-established, long-term, natural climate trends. <br /><br />8) The IPCC theory is driven by just 60 scientists and favourable reviewers not the 4,000 usually cited.<br /><br />9) Leaked e-mails from British climate scientists – in a scandal known as “Climate-gate” - suggest that that has been manipulated to exaggerate global warming<br /><br />10) A large body of scientific research suggests that the sun is responsible for the greater share of climate change during the past hundred years.<br /><br />11) Politicians and activiists claim rising sea levels are a direct cause of global warming but sea levels rates have been increasing steadily since the last ice age 10,000 ago<br /><br />12) Philip Stott, Emeritus Professor of Biogeography at the School of Oriental and African Studies in London says climate change is too complicated to be caused by just one factor, whether CO2 or clouds<br /><br />13) Peter Lilley MP said last month that “fewer people in Britain than in any other country believe in the importance of global warming. That is despite the fact that our Government and our political class—predominantly—are more committed to it than their counterparts in any other country in the world”.<br /><br />14) In pursuit of the global warming rhetoric, wind farms will do very little to nothing to reduce CO2 emissions<br /><br />15) Professor Plimer, Professor of Geology and Earth Sciences at the University of Adelaide, stated that the idea of taking a single trace gas in the atmosphere, accusing it and finding it guilty of total responsibility for climate change, is an “absurdity”<br /><br />16) A Harvard University astrophysicist and geophysicist, Willie Soon, said he is “embarrassed and puzzled” by the shallow science in papers that support the proposition that the earth faces a climate crisis caused by global warming.<br /><br />17) The science of what determines the earth’s temperature is in fact far from settled or understood.<br /><br />18) Despite activist concerns over CO2 levels, CO2 is a minor greenhouse gas, unlike water vapour which is tied to climate concerns, and which we can’t even pretend to control<br /><br />19) A petition by scientists trying to tell the world that the political and media portrayal of global warming is false was put forward in the Heidelberg Appeal in 1992. Today, more than 4,000 signatories, including 72 Nobel Prize winners, from 106 countries have signed it.<br /><br />20) It is claimed the average global temperature increased at a dangerously fast rate in the 20th century but the recent rate of average global temperature rise has been between 1 and 2 degrees C per century - within natural rates<br /><br />21) Professor Zbigniew Jaworowski, Chairman of the Scientific Council of the Central Laboratory for Radiological Protection in Warsaw, Poland says the earth’s temperature has more to do with cloud cover and water vapor than CO2 concentration in the atmosphere.<br /><br />22) There is strong evidence from solar studies which suggests that the Earth’s current temperature stasis will be followed by climatic cooling over the next few decades<br /><br />23) It is myth that receding glaciers are proof of global warming as glaciers have been receding and growing cyclically for many centuries<br /><br />24) It is a falsehood that the earth’s poles are warming because that is natural variation and while the western Arctic may be getting somewhat warmer we also see that the Eastern Arctic and Greenland are getting colder<br /><br />25) The IPCC claims climate driven “impacts on biodiversity are significant and of key relevance” but those claims are simply not supported by scientific research<br /><br />26) The IPCC threat of climate change to the world’s species does not make sense as wild species are at least one million years old, which means they have all been through hundreds of climate cycles<br /><br />27) Research goes strongly against claims that CO2-induced global warming would cause catastrophic disintegration of the Greenland and Antarctic Ice Sheets.<br /><br />28) Despite activist concerns over CO2 levels, rising CO2 levels are our best hope of raising crop yields to feed an ever-growing population<br /><br />29) The biggest climate change ever experienced on earth took place around 700 million years ago<br /><br />30) The slight increase in temperature which has been observed since 1900 is entirely consistent with well-established, long-term natural climate cycles<br /><br />31) Despite activist concerns over CO2 levels, rising CO2 levels of some so-called “greenhouse gases” may be contributing to higher oxygen levels and global cooling, not warming<br /><br />32) Accurate satellite, balloon and mountain top observations made over the last three decades have not shown any significant change in the long term rate of increase in global temperatures<br /><br />33) Today’s CO2 concentration of around 385 ppm is very low compared to most of the earth’s history – we actually live in a carbon-deficient atmosphere<br /><br />34) It is a myth that CO2 is the most common greenhouse gas because greenhouse gases form about 3% of the atmosphere by volume, and CO2 constitutes about 0.037% of the atmosphere<br /><br />35) It is a myth that computer models verify that CO2 increases will cause significant global warming because computer models can be made to “verify” anything<br /><br />36) There is no scientific or statistical evidence whatsoever that global warming will cause more storms and other weather extremes<br /><br />37) One statement deleted from a UN report in 1996 stated that “none of the studies cited above has shown clear evidence that we can attribute the observed climate changes to increases in greenhouse gases”<br /><br />38) The world “warmed” by 0.07 +/- 0.07 degrees C from 1999 to 2008, not the 0.20 degrees C expected by the IPCC<br /><br />39) The Intergovernmental Panel on Climate Change says “it is likely that future tropical cyclones (typhoons and hurricanes) will become more intense” but there has been no increase in the intensity or frequency of tropical cyclones globally<br /><br />40) Rising CO2 levels in the atmosphere can be shown not only to have a negligible effect on the Earth’s many ecosystems, but in some cases to be a positive help to many organisms<br /><br />41) Researchers who compare and contrast climate change impact on civilizations found warm periods are beneficial to mankind and cold periods harmful<br /><br />42) The Met Office asserts we are in the hottest decade since records began but this is precisely what the world should expect if the climate is cyclical<br /><br />43) Rising CO2 levels increase plant growth and make plants more resistant to drought and pests<br /><br />44) The historical increase in the air’s CO2 content has improved human nutrition by raising crop yields during the past 150 years<br /><br />45) The increase of the air’s CO2 content has probably helped lengthen human lifespans since the beginning of the Industrial Revolution<br /><br />46) The IPCC alleges that “climate change currently contributes to the global burden of disease and premature deaths” but the evidence shows that higher temperatures and rising CO2 levels has helped global populations<br /><br />47) In May of 2004, the Russian Academy of Sciences published a report concluding that the Kyoto Protocol has no scientific grounding at all.<br /><br />48) The “Climate-gate” scandal pointed to a expensive public campaign of disinformation and the denigration of scientists who opposed the belief that CO2 emissions were causing climate change<br /> <br />49) The head of Britain’s climate change watchdog has predicted households will need to spend up to £15,000 on a full energy efficiency makeover if the Government is to meet its ambitious targets for cutting carbon emissions.<br /><br />50) Wind power is unlikely to be the answer to our energy needs. The wind power industry argues that there are “no direct subsidies” but it involves a total subsidy of as much as £60 per MWh which falls directly on electricity consumers. This burden will grow in line with attempts to achieve Wind power targets, according to a recent OFGEM report.<br /> <br />51) Wind farms are not an efficient way to produce energy. The British Wind Energy Association (BWEA) accepts a figure of 75 per cent back-up power is required.<br /> <br />52) Global temperatures are below the low end of IPCC predictions not at “at the top end of IPCC estimates”<br /> <br />53) Climate alarmists have raised the concern over acidification of the oceans but Tom Segalstad from Oslo University in Norway , and others, have noted that the composition of ocean water – including CO2, calcium, and water – can act as a buffering agent in the acidification of the oceans.<br /> <br />54) The UN’s IPCC computer models of human-caused global warming predict the emergence of a “hotspot” in the upper troposphere over the tropics. Former researcher in the Australian Department of Climate Change, David Evans, said there is no evidence of such a hotspot<br /><br />55) The argument that climate change is a of result of global warming caused by human activity is the argument of flat Earthers. <br /> <br />56) The manner in which US President Barack Obama sidestepped Congress to order emission cuts shows how undemocratic and irrational the entire international decision-making process has become with regards to emission-target setting.<br /> <br />57) William Kininmonth, a former head of the National Climate Centre and a consultant to the World Meteorological Organisation, wrote “the likely extent of global temperature rise from a doubling of CO2 is less than 1C. Such warming is well within the envelope of variation experienced during the past 10,000 years and insignificant in the context of glacial cycles during the past million years, when Earth has been predominantly very cold and covered by extensive ice sheets.”<br /> <br />58) Canada has shown the world targets derived from the existing Kyoto commitments were always unrealistic and did not work for the country.<br /> <br />59) In the lead up to the Copenhagen summit, David Davis MP said of previous climate summits, at Rio de Janeiro in 1992 and Kyoto in 1997 that many had promised greater cuts, but “neither happened”, but we are continuing along the same lines.<br /><br />60) The UK ’s environmental policy has a long-term price tag of about £55 billion, before taking into account the impact on its economic growth. <br /> <br />61) The UN’s panel on climate change warned that Himalayan glaciers could melt to a fifth of current levels by 2035. J. Graham Cogley a professor at Ontario Trent University, claims this inaccurate stating the UN authors got the date from an earlier report wrong by more than 300 years.<br /> <br />62) Under existing Kyoto obligations the EU has attempted to claim success, while actually increasing emissions by 13 per cent, according to Lord Lawson. In addition the EU has pursued this scheme by purchasing “offsets” from countries such as China paying them billions of dollars to destroy atmospheric pollutants, such as CFC-23, which were manufactured purely in order to be destroyed.<br /> <br />63) It is claimed that the average global temperature was relatively unchanging in pre-industrial times but sky-rocketed since 1900, and will increase by several degrees more over the next 100 years according to Penn State University researcher Michael Mann. There is no convincing empirical evidence that past climate was unchanging, nor that 20th century changes in average global temperature were unusual or unnatural.<br /> <br />64) Michael Mann of Penn State University has actually shown that the Medieval Warm Period and the Little Ice Age did in fact exist, which contrasts with his earlier work which produced the “hockey stick graph” which showed a constant temperature over the past thousand years or so followed by a recent dramatic upturn.<br /> <br />65) The globe’s current approach to climate change in which major industrialised countries agree to nonsensical targets for their CO2 emissions by a given date, as it has been under the Kyoto system, is very expensive.<br /> <br />66) The “Climate-gate” scandal revealed that a scientific team had emailed one another about using a “trick” for the sake of concealing a “decline” in temperatures when looking at the history of the Earth’s temperature. <br /> <br />67) Global temperatures have not risen in any statistically-significant sense for 15 years and have actually been falling for nine years. The “Climate-gate” scandal revealed a scientific team had expressed dismay at the fact global warming was contrary to their predictions and admitted their inability to explain it was “a travesty”.<br /> <br />68) The IPCC predicts that a warmer planet will lead to more extreme weather, including drought, flooding, storms, snow, and wildfires. But over the last century, during which the IPCC claims the world experienced more rapid warming than any time in the past two millennia, the world did not experience significantly greater trends in any of these extreme weather events.<br /> <br />69) In explaining the average temperature standstill we are currently experiencing, the Met Office Hadley Centre ran a series of computer climate predictions and found in many of the computer runs there were decade-long standstills but none for 15 years – so it expects global warming to resume swiftly.<br /><br />70) Richard Lindzen, Professor of Atmospheric Sciences at Massachusetts Institute of Technology, wrote: “The notion of a static, unchanging climate is foreign to the history of the Earth or any other planet with a fluid envelope. Such hysteria (over global warming) simply represents the scientific illiteracy of much of the public, the susceptibility of the public to the substitution of repetition for truth.”<br /> <br />71) Despite the 1997 Kyoto Protocol’s status as the flagship of the fight against climate change it has been a failure.<br /> <br />72) The first phase of the EU’s Emissions Trading Scheme (ETS), which ran from 2005 to 2007 was a failure. Huge over-allocation of permits to pollute led to a collapse in the price of carbon from €33 to just €0.20 per tonne meaning the system did not reduce emissions at all. <br /> <br />73) The EU trading scheme, to manage carbon emissions has completely failed and actually allows European businesses to duck out of making their emissions reductions at home by offsetting, which means paying for cuts to be made overseas instead.<br /> <br />74) To date “cap and trade” carbon markets have done almost nothing to reduce emissions.<br /> <br />75) In the United States , the cap-and-trade is an approach designed to control carbon emissions and will impose huge costs upon American citizens via a carbon tax on all goods and services produced in the United States. The average family of four can expect to pay an additional $1700, or £1,043, more each year. It is predicted that the United States will lose more than 2 million jobs as the result of cap-and-trade schemes. <br /> <br />76) Dr Roy Spencer, a principal research scientist at the University of Alabama in Huntsville, has indicated that out of the 21 climate models tracked by the IPCC the differences in warming exhibited by those models is mostly the result of different strengths of positive cloud feedback – and that increasing CO2 is insufficient to explain global-average warming in the last 50 to 100 years.<br /> <br />77) Why should politicians devote our scarce resources in a globally competitive world to a false and ill-defined problem, while ignoring the real problems the entire planet faces, such as: poverty, hunger, disease or terrorism.<br /> <br />78) A proper analysis of ice core records from the past 650,000 years demonstrates that temperature increases have come before, and not resulted from, increases in CO2 by hundreds of years.<br /> <br />79) Since the cause of global warming is mostly natural, then there is in actual fact very little we can do about it. (We are still not able to control the sun).<br /> <br />80) A substantial number of the panel of 2,500 climate scientists on the United Nation’s International Panel on Climate Change, which created a statement on scientific unanimity on climate change and man-made global warming, were found to have serious concerns.<br /> <br />81) The UK’s Met Office has been forced this year to re-examine 160 years of temperature data after admitting that public confidence in the science on man-made global warming has been shattered by revelations about the data.<br /> <br />82) Politicians and activists push for renewable energy sources such as wind turbines under the rhetoric of climate change, but it is essentially about money – under the system of Renewable Obligations. Much of the money is paid for by consumers in electricity bills. It amounts to £1 billion a year.<br /> <br />83) The “Climate-gate” scandal revealed that a scientific team had tampered with their own data so as to conceal inconsistencies and errors. <br /> <br />84) The “Climate-gate” scandal revealed that a scientific team had campaigned for the removal of a learned journal’s editor, solely because he did not share their willingness to debase science for political purposes.<br /> <br />85) Ice-core data clearly show that temperatures change centuries before concentrations of atmospheric CO2 change. Thus, there appears to be little evidence for insisting that changes in concentrations of CO2 are the cause of past temperature and climate change.<br /> <br />86) There are no experimentally verified processes explaining how CO2 concentrations can fall in a few centuries without falling temperatures – in fact it is changing temperatures which cause changes in CO2 concentrations, which is consistent with experiments that show CO2 is the atmospheric gas most readily absorbed by water.<br /> <br />87) The Government’s Renewable Energy Strategy contains a massive increase in electricity generation by wind power costing around £4 billion a year over the next twenty years. The benefits will be only £4 to £5 billion overall (not per annum). So costs will outnumber benefits by a range of between eleven and seventeen times.<br /> <br />88) Whilst CO2 levels have indeed changed for various reasons, human and otherwise, just as they have throughout history, the CO2 content of the atmosphere has increased since the beginning of the industrial revolution, and the growth rate has now been constant for the past 25 years.<br /> <br />89) It is a myth that CO2 is a pollutant, because nitrogen forms 80% of our atmosphere and human beings could not live in 100% nitrogen either: CO2 is no more a pollutant than nitrogen is and CO2 is essential to life.<br /><br />90) Politicians and climate activists make claims to rising sea levels but certain members in the IPCC chose an area to measure in Hong Kong that is subsiding. They used the record reading of 2.3 mm per year rise of sea level.<br /> <br />91) The accepted global average temperature statistics used by the Intergovernmental Panel on Climate Change show that no ground-based warming has occurred since 1998.<br /> <br />92) If one factors in non-greenhouse influences such as El Nino events and large volcanic eruptions, lower atmosphere satellite-based temperature measurements show little, if any, global warming since 1979, a period over which atmospheric CO2 has increased by 55 ppm (17 per cent).<br /> <br />93) US President Barack Obama pledged to cut emissions by 2050 to equal those of 1910 when there were 92 million Americans. In 2050, there will be 420 million Americans, so Obama’s promise means that emissions per head will be approximately what they were in 1875. It simply will not happen.<br /> <br />94) The European Union has already agreed to cut emissions by 20 percent to 2020, compared with 1990 levels, and is willing to increase the target to 30 percent. However, these are unachievable and the EU has already massively failed with its Emissions Trading Scheme (ETS), as EU emissions actually rose by 0.8 percent from 2005 to 2006 and are known to be well above the Kyoto goal.<br /> <br />95) Australia has stated it wants to slash greenhouse emissions by up to 25 percent below 2000 levels by 2020, but the pledges were so unpopular that the country’s Senate has voted against the carbon trading Bill, and the Opposition’s Party leader has now been ousted by a climate change sceptic.<br /> <br />96) Canada plans to reduce emissions by 20 percent compared with 2006 levels by 2020, representing approximately a 3 percent cut from 1990 levels but it simultaneously defends its Alberta tar sands emissions and its record as one of the world’s highest per-capita emissions setters.<br /> <br />97) India plans to reduce the ratio of emissions to production by 20-25 percent compared with 2005 levels by 2020, but all Government officials insist that since India has to grow for its development and poverty alleviation, it has to emit, because the economy is driven by carbon.<br /> <br />98) The Leipzig Declaration in 1996, was signed by 110 scientists who said: “We – along with many of our fellow citizens – are apprehensive about the climate treaty conference scheduled for Kyoto, Japan, in December 1997” and “based on all the evidence available to us, we cannot subscribe to the politically inspired world view that envisages climate catastrophes and calls for hasty actions.”<br /> <br />99) A US Oregon Petition Project stated “We urge the United States government to reject the global warming agreement that was written in Kyoto, Japan in December, 1997, and any other similar proposals. The proposed limits on greenhouse gases would harm the environment, hinder the advance of science and technology, and damage the health and welfare of mankind. There is no convincing scientific evidence that human release of CO2, methane, or other greenhouse gasses is causing or will, in the foreseeable future, cause catastrophic heating of the Earth’s atmosphere and disruption of the Earth’s climate.”<br /> <br />100) A report by the Nongovernmental International Panel on Climate Change concluded “We find no support for the IPCC’s claim that climate observations during the twentieth century are either unprecedented or provide evidence of an anthropogenic effect on climate.”W. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.com0tag:blogger.com,1999:blog-4204290914764003431.post-34896713578357324152009-08-10T22:23:00.001-04:002009-08-10T22:25:01.700-04:00TOP TEN ISSUES FACING THE US COAL INDUSTRY1. PUBLIC PERCEPTION/POLITICS<br />2. COAL ASH/MINING REFUSE DISPOSAL<br />3. PERMITTING<br />4. GREEN ENERGY ALTERNATIVES, RENEWABLES & CONSERVATION<br />5. CARBON DIOXIDE SEQUESTRATION<br />6. DEVELOPMENT OF CLEAN COAL TECHNOLOGY<br />7. WORLDWIDE ECONOMICS/ENERGY COSTS<br />8. MINER ACT IMPLEMENTATION<br />9. MAXIMUM ACHIEVABLE CONTROL TECHNOLOGY (MACT) STANDARD<br />10. AGEING WORKFORCEW. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.com0tag:blogger.com,1999:blog-4204290914764003431.post-2877164697111764552008-12-15T09:16:00.000-05:002009-01-12T22:46:03.093-05:00BLACKBURN OP-ED ON COAL<p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b><span style="LINE-HEIGHT: 115%;font-size:14;" ></span></b></p><p class="MsoNormal"><span style="LINE-HEIGHT: 115%">As the economy worsens, there are signs that political leaders and Americans generally are taking a more positive attitude toward coal. Abundant and cheaper than other fuels, coal is America’s energy mainstay, a domestic resource providing 52% of the nation’s electricity and 45% of Virginia’s power.</span></p><p class="MsoNormal"><span style="LINE-HEIGHT: 115%">Some prominent environmentalists see no future for coal in a clean energy economy. Since coal accounts for about one-third of the carbon dioxide emissions in the United States, they advocate halting the use of coal in this country within ten years and stopping the construction of new coal plants now. Abandoning coal would be folly, since we cannot expect to meet the massive and varied energy needs of American consumers without it.</span></p><p class="MsoNormal"><span style="LINE-HEIGHT: 115%">The financial crisis makes action on clean coal more urgent than ever. If we want to strengthen the U.S. economic competitiveness, generating electricity from coal in an environmentally acceptable manner is one important way to do it.</span></p><p class="MsoNormal"><span style="LINE-HEIGHT: 115%">There is one central reality underlying our nation’s energy situation and we must not lose sight of it; No amount of effort to reduce greenhouse-gas emissions to an acceptable level will succeed unless we end up with a practical way to capture carbon dioxide at coal plants and store the emissions deep underground. That is true for the United States and it is true for other countries like China, Russia and India that rely upon coal to drive their economies.</span></p><p class="MsoNormal"><span style="LINE-HEIGHT: 115%">Coal’s importance globally offers a unique opportunity. Given the success of clean-coal technology in reducing sulfur dioxide-down more than 35% since 1990- the obvious answer to the greenhouse problem is to demonstrate the feasibility of carbon capture-and-storage.</span></p><p class="MsoNormal"><span style="LINE-HEIGHT: 115%">New technologies now on the horizon promise to make that possible. Pilot tests of carbon capture-and-storage are under way in Germany, Australia, and the United States. One approach currently being tested at a large coal plant in Indiana is drawing a lot of attention. Flue gas emitted from the plant’s boiler is cooled to 35 degrees Fahrenheit. Then it is sent to two towers that discharge ammonium bicarbonate slurry onto the gas, which absorbs the carbon dioxide. The solution is pumped to a regeneration system, where the liquid is heated and absorption process is reversed, leaving pure carbon dioxide emissions.</span></p><p class="MsoNormal"><span style="LINE-HEIGHT: 115%">The goal is to capture 90% of the carbon dioxide, then pipe it to a suitable site for injection into a deep geological formation such as a saline cavern or a depleted oil well. Injecting carbon dioxide underground is already a common practice in the oil industry, where companies use carbon dioxide injection, in tertiary recovery, to increase the rate of oil and gas production and reservoir recovery.</span></p><p class="MsoNormal"><span style="LINE-HEIGHT: 115%">The biggest hurdle is economic. Moving from small scale pilot projects to industrial scale will require coming up with ways to reduce the cost of carbon capture-and-storage. Currently 30% of a coal plant’s electricity goes for this process. This requires burning more coal, which drives up utility costs. It is likely that as utilities begin to adopt carbon capture-and-storage, the cost will drop.</span></p><p class="MsoNormal"><span style="LINE-HEIGHT: 115%">Now is the time for large-scale demonstrations of carbon storage, which are expected to take a decade or more to implement. Underground storage promises to reduce greenhouse-gas emissions significantly. Moreover, the technology could be made available around the world; Thereby leveraging America’s ingenuity.</span></p><p class="MsoNormal"><span style="LINE-HEIGHT: 115%">Simply put, the effort to shut down coal plants and prevent new plants from being built is shortsighted. The idea of imposing a ceiling on carbon emissions before the technology for carbon capture-and-storage becomes available makes no sense at all. A carbon cap-and-trade system would force utilities to switch from coal high-priced natural gas, not a good idea, especially at a time when the nation’s economy is in turmoil.</span></p><p class="MsoNormal"><span style="LINE-HEIGHT: 115%">Carbon capture-and-storage is a logical and sensible approach to global warming. The technology would allow the United States to make use of coal, our most abundant and reliable energy source. We need to stay the course and not let our attention be diverted from what is important: the need for a stable and secure supply of clean energy to meet our nation’s economic needs.</span></p>W. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.com0tag:blogger.com,1999:blog-4204290914764003431.post-21336214539243277912008-03-15T10:40:00.000-04:002009-01-12T22:45:08.334-05:00Coal will feed Virginia's power needsVirginia will be using more coal for electricity production in the future than in the past for a number of reasons that become more evident and pressing every day.<br />We cannot go on squandering limited natural gas supplies on unlimited burning for electricity production when coal is so much more economical. Nor can we expect to see more nuclear power anytime soon, not if Congress continues to drag its feet in appropriating funds for loan guarantees to support construction of new nuclear plants. Plants are estimated to cost at least $7 billion each and won't be ready for commercial operation until 2016 at the earliest.<br />Nor can we deface our Virginian coastline and countryside with towering wind turbines on a massive scale, when coal plants require much less space and are so much more reliable. While coal provides more than 50 percent of the electricity used in Virginia and nationally, renewable sources such as solar and wind supply less than 2 percent and only supply peak power because of their unreliability.<br />Coal plants produce "base-load" electricity, the power that is always available around the clock, to keep traffic lights on and household appliances performing when the button is pushed. That is beyond the ability of solar and wind energy, which are available only when the sun is shining and the wind is blowing at the necessary velocity.<br />Advocates of renewable energy shudder at the very mention of coal, arguing that it can never be made acceptable from an environmental standpoint. But contrary to the assertions of environmentalists, coal is neither dead nor dying.<br />In Virginia and around the nation, power plants are using it more efficiently, boosting output while reducing emissions. In fact, according to the Environmental Protection Agency, coal plants are 33 percent less polluting than in 1980 when I began shipping coal to then Virginia Power.<br />Advances in clean-coal technology, particularly carbon capture and storage, are achievable.<br />Researchers at the Massachusetts Institute of Technology concluded in a major study on the future of coal worldwide, "We believe that coal use will increase under any foreseeable scenario because it is cheap and abundant."<br />We are going to build more coal plants, and there is no good reason not to begin soon. Dominion Power is gearing up to build a plant in Southwest Virginia that will use clean-coal technology to improve efficiency and reduce emissions of sulfur dioxide and oxides of nitrogen.<br />Even with conservation, Virginia is approximately 2,000 megawatts short of what it needs when demand for electricity peaks. The proposed plant will help close the supply gap.<br />Meanwhile, the U.S. Department of Energy is giving high priority to research aimed at developing a practical way to capture and store coal-plant emissions of carbon dioxide that are linked to climate change. The department's proposed budget for fiscal 2009 earmarks nearly $500 million for large-scale demonstrations of carbon storage, in which carbon dioxide is compressed into a liquid and injected deep underground into an oil field or salt cavern.<br />Carbon sequestration, as this process is called, has been used for many years to recover oil and gas that otherwise cannot be liberated.<br />In many respects, technology is the easy part. The overarching challenge is to make carbon capture and storage possible at minimum cost and without economic disruption. Achieving solutions on a large scale will take international cooperation involving all countries that use large amounts of coal.<br />The great advantage of coal is its availability and relatively low cost. With natural gas prices rising and more gas coming from overseas, the favorable economics of coal is its virtue.<br />Energy security, not independence, is another factor to consider.<br />The coal used for electricity generation in Virginia is produced in Central Appalachia. Some of it is still mined in Virginia, and all of it is free from the whims of foreign cartels or other interference. The United States has approximately 270 billion tons of recoverable coal reserves. America's thermal coal demand is approximately 1 billion tons per year. Even counting for growth, the reserve base can meet America's needs well into the next century.<br />Now, more than ever, we must do everything possible to keep Virginia's economy strong. It won't happen if we fail to provide enough base-load electricity for households, businesses and industries, or avoid power plant projects that take patience to complete. Only then can we have a stable economy, achieve environmental goals and improve our energy security.W. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.com0tag:blogger.com,1999:blog-4204290914764003431.post-28500014059049813982005-09-01T08:00:00.005-04:002009-05-24T11:35:48.770-04:00Mineral Resources Outstanding Alumni SpeechH2:<br />HUMOR AND HUMILITY IN A PECULIAR CALLING<br />PRESENTED TO: WEST VIRGINIA UNIVERSITY<br />COLLEGE OF ENGINEERING AND MINERAL RESOURCES<br /> <br />23 SEPTEMBER 2005<br /><br />BY: W. DOUGLAS BLACKBURN, JR. <br />CLASS OF 1972 <br /><br />H2<br /> <br />MINING IS A PECULIAR PROFESSION; A PECULIAR CALLING ACCORDING TO AGRICOLA, THE AUTHOR OF DE RE METALLICA, THE FIRST MINING TEXT. IT IS NOT SURPRISING THAT I WAS DRAWN TO IT. I AM A FOURTH GENERATION COAL MINER FROM SOUTHERN WEST VIRGINIA; WELCH THE HEART OF THE BILLION DOLLAR POCAHONTAS COAL FIELD. MY FATHER, GRANDFATHER AND GREAT GRANDFATHER WERE ALL MC DOWELL COUNTY COAL MINERS. FOR OVER 100 YEARS, COAL MINING IS THE ONLY LEGAL THING A BLACKBURN HAS DONE.<br /><br />WHAT IS SURPRISING IS HOW I MANAGED TO GET HERE TONIGHT. THIS AWARD, THE MINERAL RESOURCES OUTSTANDING ALUMNI, IS ESPECIALLY IMPORTANT TO ME. TO HAVE THE RECOGNITION OF MY FRIENDS IN THE MINING COMMUNITY IS THE HIGHEST PERSONAL HONOR THAT I COULD CONCEIVE. I AM HONORED AND HUMBLED. I THANK YOU.<br /><br />IN THE 1960’S, MY FATHER WAS AN ASSISTANT MINE FOREMAN AND ULTIMATELY WENT INTO BUSINESS FOR HIMSELF AT D&O COAL COMPANY. THAT WAS THE GOOD NEWS. UNFORTUNATELY THE 1969 COAL MINE HEALTH AND SAFETY ACT MADE HIS BATTERY EQUIPMENT OBSOLETE AND HE CLOSED THE COMPANY JUST BEFORE THE 1973 COAL BOOM THAT WOULD HAVE PUT US ON EASY STREET. THAT WAS THE BAD NEWS. IT WAS NOT LIKELY THAT MY FAMILY WOULD BE ABLE TO SEND ME TO COLLEGE.<br /><br />I APPLIED FOR AND RECEIVED U. S. SENATOR ROBERT C. BYRD’S APPOINTMENT TO THE UNITED STATES NAVAL ACADEMY FOR THE CLASS OF 1972. NOT ONLY DID THE NAVAL ACADEMY PROVIDE A FIRST RATE EDUCATION, IT WAS FREE. THAT WAS THE GOOD NEWS. THE BAD NEWS WAS THAT I BECAME ILL AND WAS MEDICALLY BOARDED OUT OF THE PROGRAM. SO I CAME HOME TO WELCH WITH AN HONORABLE DISCHARGE BUT NO GOOD PLAN FOR A COLLEGE EDUCATION.<br /><br />WHILE IN HIGH SCHOOL I HAD CONVERSATIONS WITH THE HEAD BASEBALL COACH AT VPI. WHEN I GOT HOME I CALLED HIM ABOUT JOINING HIS TEAM AND HE OFFERED ME A PARTIAL SCHOLARSHIP: FREE BOOKS AND MEALS.THIS WAS SO LONG AGO THAT THERE WEREN’T FULL SCHOLARSHIPS FOR BASEBALL PLAYERS. COACH LAIRD ALSO ARRANGED FOR ME TO TUTOR VPI QUATERBACKS IN MATH FOR EXTRA MONEY. THAT WAS THE GOOD NEWS. <br />THE BAD NEWS WAS (1) I COULDN’T PITCH AT THAT LEVEL AS A FRESHMAN AND (2) I COULDN’T AFFORD OUT OF STATE TUITION.<br /><br />SOMEONE TOLD ME ABOUT WVU’S SCHOOL OF MINES AND GAVE ME THE NAME OF DEAN CHARLES T. HOLLAND. I WROTE DEAN HOLLAND AND EXPLAINED MY SITUATION. THE GOOD NEWS IS THAT HE CALLED IMMEDIATELY AND OFFERED ME A FULL SCHOLARSHIP AND GOT ME A JOB ON THE AFTERNOON SHIFT TO SUPPORT MY NEW FAMILY. THAT WAS THE GOOD NEWS. I WORKED THE AFTERNOON SHIFT 60 HOURS PER WEEK FOR THE NEXT THREE AND ONE-HALF YEARS UNTIL I GOT LAID OFF WHEN THE MINE HAD A MAJOR CUT BACK. THAT WAS THE BAD NEWS.<br /><br />I WENT TO MY ADVISOR, E.J. SANDY AND ASKED FOR PERMISSION TO TAKE 30 HOURS AND MAKE UP A FIVE (5) HOUR INCOMPLETE IN SURVEYING AND GRADUATE IN DECEMBER OF 1972. SANDY IMMEDIATELY TURNED ME DOWN BUT OFFERED TO LET THE DEAN’S COMMITTEE REVIEW MY CASE. THE GOOD NEWS IS THAT THE COMMITTEE ALLOWED ME TO TAKE THE CLASSES. THE BAD NEWS IS THAT SANDY GAVE ME A “B” IN MINE DESIGN THAT KEPT ME OFF THE DEAN’S LIST WITH 35 CREDIT HOURS.<br /><br />THANKS TO A GREAT UNDERGRADUATE EDUCATION AND THE DEVELOPMENT PROGRAM AT A.T. MASSEY COAL COMPANY, I WAS ALSO FORTUNATE TO RECEIVE THE MBA AND JD DEGREES BUT THAT IS ANOTHER STORY FOR ANOTHER DAY.<br /><br />YOU MIGHT SEE A PATTERN FORMING!<br /><br />I HAVE BEEN FORTUNATE TO WORK ON SOME INTERESTING PROJECTS. SOME WERE SUCCESSFUL BUT SOME OF THE MOST SUCCESSFUL WERE PROJECTS THAT I DID NOT DO. AT A.T. MASSEY COAL COMPANY I WORKED ON MOST OF THE DUE DILIGENCE PROJECTS FROM 1977 UNTIL 1990. THIS WAS ALWAYS FUN AND EDUCATIONAL. NOT ALL OF THEM WERE SUCCESSFUL, HOWEVER.<br /><br />ON ONE OCCASION, MORGAN MASSEY, THE LEGENDARY CEO, ASKED ME TO VISIT A DATA ROOM THAT BP OIL HAD SET UP TO SELL THE LARGE, WESTERN PENNSYLVANIA, MANOR PROPERTY THAT THEY HAD ACQUIRED YEARS BEFORE FROM U.S.STEEL. I HAD FOUR YEARS OF EXPERIENCE IN THE PITTSBURGH SEAM AND SOME KNOWLEDGE OF THE MINING CONDITIONS, QUALITY AND MARKET AT THE TIME. <br /><br />MY CONCLUSION WAS THAT THIS WAS A LARGE, 500 MILLION RECOVERABLE TONS, AND VALUABLE TRACT BUT IT WAS OUT OF THE OPERATING FIELD. TRANSPORTATION AND MANPOWER WOULD BE ISSUES. FURTHER, WITH ALL THE PITTSBURGH SEAM MINES OPERATING, I CONCLUDED THAT THE PROPERTY PROBABLY WOULD NOT BE ECONOMICAL DURING MY CAREER. MORGAN ACCEPTED MY RECOMMENDATION AND INFORMED BP OIL THAT WE WOULD NOT BE BIDDING. THAT WAS THE GOOD NEWS. THE BAD NEWS IS THAT CONSOL SAW IT DIFFERENTLY AND DEVELOPED THE INCREDIBLE BAILEY AND ENLOW FORK MINES IN THE TRACT.<br /><br />ON ANOTHER OCCASION, MORGAN HAVING NOT LEARNED HIS LESSON, I WORKED ON A PROJECT TO ACQUIRE THE VESTA AND DEHUE MINES FROM J&L STEEL. THE ACQUISITION OF THESE MINES REPRESENTED OUR FIRST EFFORT TO IMPLEMENT THE STRATEGIC PLAN THAT WE HAD JUST COMPLETED. ONE FACET OF THE PLAN WAS TO ACQUIRE MINES FROM THE STEEL COMPANIES AS THEY EXITED THE BUSINESS AND NEGOTIATE LONG TERM CONTRACTS TO SUPPLY THEM METALLUGICAL COAL IN THE SAME TRANSACTION.<br /><br />THE GOOD NEWS IS THAT WE WERE ABLE TO SUCCESSFULLY ACQUIRE THESE MINES AND BEGIN THE TRANSFORMATION FROM CAPTIVE MINES TO COMPETITIVE MINES. THE BAD NEWS IS THAT WITHIN FOUR (4) MONTHS, J&L STEEL FILED FOR BANKRUPTCY PROTECTION AND TERMINATED THE COAL SUPPLY AGREEMENTS. WE WERE LEFT WITH UNECONOMICAL PROPERTIES THAT ONLY BECAME VALUABLE WITH THE PRICE RISE OF THE LAST FOUR YEARS,TWENTY YEARS LATER. WE ALSO HAD SPENT VALUABLE CAPITAL AND CREDIBILITY WITH OUR BOARD AT A TIME WHEN INVESTMENT FUNDS FOR COAL DEVELOPMENT WERE DIFFICULT TO ACQUIRE. WHERE DID THAT COME FROM? <br /><br />AS MINING MEN WE PRIDE OURSELVES ON EVALUATING THE ECONOMIC, SOCIAL AND POLITICAL RISKS OF OUR DECISIONS. THERE ARE KNOWN KNOWNS, KNOWN UNKNOWNS AND UNKNOWN UNKNOWNS. UNKNOWN UNKNOWNS CAN KILL YOU.<br /><br />AS SENIOR VICE PRESIDENT OF OPERATIONS FOR ZEIGLER HOLDING COMPANY I GOT TO PARTICIPATE IN THE CONSOLIDATION OF THE COAL INDUSTRY DRIVEN BY THE MARKET DECLINE OF THE 1980’S AND THE CLEAN AIR ACT OF 1990. ZEIGLER WAS A SMALL REGIONAL PRODUCER OF HIGH SULFUR STEAM COAL UNTIL ITS ACQUISITION OF BP COAL IN 1990. <br />AT THAT MOMENT, THE THREE (3) MILLION TONS PER YEAR ILLINOIS BASIN PRODUCER ACQUIRED 14 MILLION TONS OF PRODUCTION IN THE CENTRAL APPALACHIA AND ILLINOIS BASINS. THIS WAS A STRETCH BUT THE MANAGEMENT WAS NOT THROUGH AND IN 1992 FOLLOWED THIS WITH THE ACQUISITION OF SHELL MINING THAT WAS TWICE THE SIZE OF THE BP ACQUISITION. AFTER WE GOT THE INDIGESTION UNDER CONTROL WE FILED FOR AN IPO AND BECAME A PUBLIC COMPANY AND EVERY PROBLEM WE HAD WAS PUBLIC KNOWLEDGE. THE COAL MARKET WAS NO HELP BUT INSPITE OF DECLINING AVERAGE SALES PRICES IN EACH OF OUR FIVE (5) YEAR PUBLIC LIFE WE RAISED THE STOCK PRICE BY 242%.<br /><br />ZEIGLER HAD DEVELOPED A STRATEGIC PLAN THAT MIRRORED A.T. MASSEY’S SOMEWHAT. ACQUSITIONS OF OIL COMPANY OPERATIONS AFTER THEY MADE THE DECISION TO EXIT THE INDUSTRY HAD PAID OFF HANDSOMELY FOR THE ZEIGLER SHAREHOLDERS. IN 1997, WITH THIS IN THE BACK OF OUR MINDS, WE PURSUED THE ACQUISITION OF THE COAL OPERATIONS OF ARCO PETROLEUM, IN THE POWDER RIVER AND INTERMOUNTAIN BASINS OF THE WEST.<br /><br />THE GOOD NEWS IS THAT WE WERE THE WINNING BIDDER OF THESE POWERFUL PROPERTIES. OUR BID OF $1.1 BILLION WAS SELECTED AND WE WERE INVITED TO LOS ANGELES, CALIFORNIA TO MEET WITH ARCO’S CFO, MR. FERNANDEZ. AFTER A SUCCESSFUL MEETING WE RETURNED TO PREPARE OUR AUTHORIZATION FOR EXPENDITURE FOR THE OPERATIONS AND A SPECIAL BOARD OF DIRECTORS MEETING WAS CALLED IN CHICAGO, ILLINOIS TO REVIEW THE ACQUISITION.<br /><br />I MADE THE PRESENTATION TO THE BOARD AND RECOMMENDED THAT WE GO FORWARD TO CONCLUDE THE TRANSACTION. ZEIGLER WOULD HAVE BEEN THE SECOND LARGEST COAL COMPANY IN THE NATION AND WOULD BE ABLE TO RESPOND TO OUR CUSTOMER’S NEEDS FROM FOUR MAJOR COAL BASINS AND OUR PORTFOLIO OF COALS WOULD HAVE BEEN EQUIVALENT TO ANY PRODUCERS. THIS WAS A MATCH MADE IN HEAVEN. THE GOOD NEWS WAS THAT ZEIGLER HAD SUCH A GOOD REPUTATION FOR BORROWING AND REPAYING LARGE SUMS FOR ACQUISITIONS THAT FUNDING WOULD NOT BE A PROBLEM.<br /><br />BUT AS HAPPENED SO MANY TIMES DURING MY CAREER THERE WAS BAD NEWS. THE BOARD SAID THAT IF ARCO WAS WORTH $1.1 BILLION THEN ZEIGLER WAS WORTH THAT MUCH AND WE SHOULD SELL THE COMPANY FOR THE BENEFIT OF THE SHAREHOLDERS. THAT WAS THE BAD NEWS. ON OCTOBER 4, 1998 WE SOLD ZEIGLER TO ADDINGTON ENTERPRISES FOR $1.1 BILLION OF CASH AND DEBT ASSUMPTION AND THE ORIGINAL SHAREHOLDERS RECEIVED AN 11,000 % RETURN ON THEIR INITIAL INDIVIDUAL INVESTMENTS. THAT WAS THE GOOD NEWS. THE BAD NEWS WAS THAT ADDINGTON ALREADY HAD A MANAGEMENT TEAM AND I WAS ONE OF THE MANAGERS THAT DID NOT TRANSFER TO THE NEW COMPANY.<br /><br />THE GOOD NEWS IS THAT I HAD MADE LOTS OF CONTACTS OVER THE YEARS AND WAS ABLE TO ACQUIRE CLIENTS SUCH AS GOLDMAN SACHS, AEP, AIG AND OTHERS FOR MY NEW CONSULTING PRACTICE.<br /><br />IN JANUARY 1979, I REVIEWED AN OPPORTUNITY TO BRING MODERN MINING PRACTICES TO CHINA. THE SHANXI PROVINCE OF CHINA IS VERY SIMILAR TO CENTRAL APPALACHIA. HOWEVER, IT IS MORE SIMILAR TO THE CENTRAL APPALACHIA OF THE 1930’S. THE GOOD NEWS WAS THAT WITH MODERN U.S. TECHNOLOGY AND MANAGEMENT, CHINA WAS A GREAT OPPORTUNITY.<br /><br />THE FIRST THING THAT WAS NOTICEABLE ABOUT THE MAP OF THE TWO PROJECTS UNDER CONSIDERATION WAS THAT THEY WERE SURROUNDED ON THE SOUTH AND EAST BY COMMUNITY AND PRIVATE MINES. KNOWING THAT ALL RESOURCES IN COMMUNIST COUNTRIES ARE OWNED BY THE PEOPLE, I WAS REMINDED OF A THEORY OF ECONOMICS AND A DOCTRINE FROM LAW SCHOOL CALLED THE “TRAGEDY OF THE COMMONS”. THE THEORY HOLDS THAT WHEN EVERYONE OWNS AN ASSET, NO ONE HAS AN INCENTIVE TO TAKE CARE OF IT.<br /><br />THIS PLAYS OUT IN MINING BY TRESPASS. IN CHINA THAT IS OFTEN FATAL. CHINA REPORTS OVER 7,000 FATALITIES PER YEAR COMPARED TO 25-30 FOR THE U.S. COAL INDUSTRY. SEVENTY PERCENT OF THE FATALITIES ARE FROM EXPLOSIONS OF METHANE AND THE NEXT LARGEST CATEGORY OF FATALITIES IS INUNDATION. <br /><br />CHINA HAS THOUSANDS OF PRIVATE AND COMMUNITY MINES AND MOST OF THESE DO NOT CONFORM TO ANY COMMON STANDARDS OF SAFETY.<br /><br />THESE MINES OFTEN COVER VAST LINEAL DISTANCES WITHOUT ANY ATTEMPT AT ACCURATE SURVEYING. THIS MEANS THAT MOST MINING REGIONS FACE THE “QUECREEK PROBLEM” CONSTANTLY. WHEN THE CHINESE MINE UPDIP INTO ABANDONED, UNMAPPED WORKS THEY ENCOUNTER WATER AND INUNDATE THEIR MINE. WHEN THEY MINE DOWNDIP IN TO ABANDONED, UNMAPPED WORKS THEY HIT EXPLOSIVE LEVELS OF METHANE.<br /><br />NOW THE BAD NEWS. AFTER THREE YEARS OF DIFFICULT DUE DILIGENCE, WE FOUND THROUGH SURFACE OBSERVATION AND SEISMIC LINES THAT, IN FACT, TRESPASS HAD OCCURRED ON EACH PROJECT. THIS MADE THE LIKELIHOOD OF SUCCESS MUCH MORE DIFFICULT. WE, IN FACT, ABANDONED THE LARGEST PROJECT BECAUSE THE TRESPASS WAS SO EXTENSIVE AS TO MAKE THE OPERATIONS UNECONOMICAL AS WELL AS UNSAFE.<br /><br />ALTHOUGH THE FIRST PROJECT HAS GONE FORWARD, ITS IMPACT ON THE CHINESE MINING INDUSTRY HAS BEEN NEGLIGIBLE AND ITS FUTURE AS A LAUNCHING PAD FOR MODERN MINE MANAGEMENT IS UNCERTAIN.<br /><br />IT SHOULD HAVE BECOME CLEAR BY NOW THAT AN INTERESTING CAREER IS NOT BUILT SOLELY ON YOUR SUCCESSES. OFTEN TIMES IT IS HOW YOU HANDLE THE FAILURES THAT YOU INEVITABLY ENCOUNTER THAT TIPS THE SCALE.<br />I HAVE TRIED TO APPROACH THE SUCCESSES AND THE FAILURES OF THIS PECULIAR CALLING WITH A DEGREE OF HUMILITY AND A DOSE OF HUMOR. IT HAS ALLOWED ME TO CONTINUE THIS AFFECTION FOR THIS PECULIAR PROFESSION. <br /><br />THE POET WROTE:<br />“IT FORMS AS A HABIT AND SEEPS IN YOUR SOUL, TILL THE STREAM OF YOUR BLOOD RUNS AS BLACK AS THE COAL. LIKE A FIEND FOR HIS DOPE OR A DRUNKARD FOR HIS WINE, A MAN WILL HAVE LUST FOR THE LURE OF THE MINE”. THIS OLD APPALACHIAN BALLAD RINGS TRUE TO ME TODAY AS I LOOK BACK ON A LONG AND INTERESTING CAREER.<br /><br />HOPEFULLY, YOU WILL ALSO PARTICIPATE IN MANY PROJECTS OVER A LONG AND INTERESTING CAREER IN THIS PECULIAR PROFESSION; THIS PECULIAR CALLING.<br /><br />H2 YOU ASK? I HOPE YOU HAVE AN OPPORTUNITY, AS I HAVE HAD, TO MAKE GREAT MISTAKES AND FAIL GLORIOUSLY AND HEROICALLY. I HOPE THAT YOU DO IT WITH HUMILITY AND HUMOR.W. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.com0tag:blogger.com,1999:blog-4204290914764003431.post-56846071029984207762003-05-01T08:00:00.002-04:002009-05-24T11:30:01.519-04:00Eastern Fuel Buyers ConferenceEASTERN FUEL BUYERS CONFERENCE:<br />CHANGED CIRCUMSTANCES AND THE<br />FORCE MAJEURE CLAUSE<br /><br />PRESENTED BY: W. DOUGLAS BLACKBURN, JR.<br />BLACKACRELLC<br />09 MAY 2003<br /><br />INTRODUCTION: CHANGED CIRCUMSTANCES<br /> <br />The year 2003 may follow the plot line from the movie GROUNDHOG DAY. As you may recall, Bill Murray was forced to relive this day until the critical life lessons were learned. The volatility and challenges that were experienced in 2001 may well be repeated. I'd like to point out some of the reasons that supply interruptions should be anticipated in the future. I would also suggest some issues that can be addressed in the fuel procurement stage to mitigate some of the worst features of this future. Finally, I would like to draw some conclusions about a possible future for the new relationships between supplier and customer.<br /> <br />First, I want to at least table some of the challenges the four major coal producing basins face going forward. The four basins are: Northern Appalachia; Central Appalachia; Illinois and Powder River. Studies such as the ones produced by Hill & Associates and Marston indicate an average seven-year economic life of current Pittsburgh Seam mines in the Northern Appalachian Basin. This is comprised of a number of mines already nominated for closure and a group of mines with 10-15 year lives. In Central Appalachia depleting reserves offer less opportunity for large long-lived mines. In the Illinois Basin, mines continue to close and reserves await a market shift driven by the utility decision to scrub their plants. In the Powder River no new mines are contemplated in the Southern part of the Basin and material handling limits quick short term response to market opportunities.<br /> <br />Specifically, Northern Appalachia will require $3 billion of recapitalization in the next decade to maintain current production. Interestingly the mines that are closing are the ones with historically high seam heights thereby insuring lower mining heights on average in the future. This, in and of itself, might not seem particularly challenging, but combined with geological hazards (for example Mine 84) and intense gas well drilling, will operate to constrain tonnage and productivity improvement. Subsidence challenges for gas priority and historical structures is a real danger for the Basin. <br /> <br /> Additionally, the consolidation, no pun intended, of the seam will continue. As Federal #2 approaches the end of its economic reserves, Peabody Energy (Peabody) must decide to move east toward reserves which the Blacksville #2 mine and Martinka mine found non-competitive due to mining conditions. <br /> <br />In Central Appalachia, the USGS has published a study that concluded that reserves were depleting in several major seams. An informal study by Caperton Management found few opportunities for major producers to develop the next large long-lived project. In fact, the best opportunity was probably the return of Arch Minerals to DAL-TEX. However, Judge Haden of the Federal District Court for the Southern District of WV has delayed this development by suspending permit approvals by the US Corps of Engineers under Section 404 of the Clean Water Act. Although the US Fourth Circuit of Appeals overturned this ruling in 2003, challenges remain. Not only are surface mines affected by this decision but also underground mines and preparation plants are implicated. Additionally, CHIA litigation that forces regulatory agencies to consider the combined hydrologic impacts on a watershed is adding uncertainty and delays to the permitting process.<br /> <br />Central Appalachia is experiencing a period not seen since the late 1960's. After 18 years of a declining coal market, the workforce has lost many of its talented and most highly credentialed employees. An inability to attract youth and talent is a critical constraint on production. Where will the industry find certified supervisors, EMT's and electricians? Massey Energy (Massey) and others have set up in-house training to address this problem only to lose many of their students to layoffs resulting from poor market conditions. Underground mines are exploiting thinner seams with higher levels of reject and geological hazards. And it is taking 18-24 months to permit these mines. During the period 1969-1979, Central Appalachia productivity was cut in half as new employees were hired to deal with new regulatory schemes and more difficult seam conditions. <br /> <br />MSHA data indicates that USBM District 8 (Central Appalachia) surface mine productivity peaked in the second quarter of 2000 and underground productivity peaked in the first quarter of 1999. Unlike the 1980's, there is no technology fix on the horizon to offset this secular trend. <br /> <br />A recent longwall census reports that 55 longwalls operate today against a peak of 128. Arch Mineral (Arch) has the only long-term successful installation in Central Appalachia steam coal and it has announced that it will cease operation in 2006, if permitting allows continuance. Arch also has the last significant dragline property at DAL-TEX. However, concerns over valley fill litigation have forestalled further development. Longwalls and draglines will not turn the productivity slide as they did in the mid- 1970's.<br /> <br />Adding insult to injury, quality degradation is also becoming an issue. Compliance Coal reserves, originally found in 22 counties from Pikeville, KY in the southwest to Summersville, WV in the northeast are depleting at an ever increasing rate. A study commissioned by Zeigler Coal Holding Company predicts that only five counties will produce substantial compliance tonnage by 2010 and only two counties will produce substantial tonnages by 2020. Sulfur levels will continue to rise through this decade and availability of direct ship coal will decline dramatically.<br /> <br />These challenges and the lack of earnings that followed from 18 years of revenue declines, have led to financial uncertainties and lender reluctance to fund projects. In fact, many of the "Coal Banks" no longer participate in mine development financing. This has driven the industry to expensive mezzanine financing. The smaller reserve blocks that are available for development don't justify major mining houses attention. Independent operators will become the miner of choice for new development in Central Appalachia. Query, where will the financing come from for these players? Query, in project financing, who will be the guarantor until development risks are conquered?<br /> <br />It should come as a surprise to no one that the historical reliability of Central Appalachian producers is at risk. This reliability has allowed customers to draw down stockpiles to historical lows and interruptions such as the closure of Marrowbone Development Coal have the potential to trigger 2001 like market conditions.<br /> <br /> The Illinois Basin has evolved into two regions going in different directions. Mine closings in Illinois continue the slide driven by the Clean Air Act of 1990. In fact, of the nine significant mines in Illinois, most are closing or moving to new lower quality reserves. Reserves of low sulfur coal found in Franklin County are essentially depleted. Recent additions such as Willow Lake may reverse this trend. However, the story of Indiana is one of restructured growth, although dominated by one producer. Indiana is expected to lose 40% of its surface mine production and triple it underground production by 2011.<br /> <br />The good news for the ILL Basin is that Phase II of the Clean Air Act and proximity to utilities argue for a resurgence of the Illinois mining industry. In fact, the only elephant (major) reserve blocks of low cost, mid-sulfur coal left for development east of the Mississippi occur here. Arch and Peabody have announced intentions to develop mine mouth generating projects on coal lands held by them. Recently, TVA announced the first auctions of their tracts. The award went to Central Appalachian independents, Cline Resources and Larry Addington's Illinois Fuels Co. Assuming water and power line capacity issues can be addressed economically, Southern Illinois may indeed become the next generation's coal basin. With the sale of Exxon's Monterey Coal Company, the short life of Horizon Natural Resources Mine #11 and the constant threat of closure of RAG's Wabash mine and Freeman United's Crown #2 mine, the field seems left to Peabody. Constraints in the Powder River Basin may, in fact, assist in the resurrection of this Basin.<br /> <br />Although the Powder River Basin has looked invincible for the last 20 years, limits to growth are appearing. First, the railroads reached a capacity level of 63 trains per day during 2001 but could not sustain that level for any ninety-day period. Obviously, railroad capacity will grow but it will take time and money. Short- term constraints exist for all the mines material handling systems in general and crushing capacity in particular. One material handling system required a year's construction time. This does not include permitting time that is always a consideration in the Basin.<br /> <br /> Secondly, the acquisition of reserves has become an increasingly costly exercise. Uncontested reserves cost $0.20 per ton in 1998. A recent contested Lease By Application (LBA) cost in excess of $0.70 per ton of reserves. More interestingly, this represents approximately $1.00 per produced ton for the next five years for the acquirer. The next LBA's to be contested could well drive the figure toward $1.00 per ton of reserves. Returns on assets over the last ten years make it increasingly likely that capital rationing will occur and further consolidation will take place as well. With the results announced by Vulcan Capital Management (Vulcan) for the last two years, an argument can be made that there is still one too many producers in the Basin.<br /> <br />Finally, the Powder River Basin is not immune to regulatory risks. Recent proposals by the Executive and Legislative Branch of government will limit releases of mercury into the atmosphere. Under either scenario, the Powder River Basin will be significantly (100 million tons) impacted. Comparatively, the PRB has the highest levels of organic mercury and therefore, since there is no best available mercury removal technology, will face limits on its application as a fuel source. For several years, permits have been contested and inspections have focused on fugitive dust produced by cast blasting techniques and haul road usage. This attention will only increase as the industry relies on these techniques. Additionally, with increasing depth, the highwalls that are developed by the draglines will attract scrutiny from MSHA. Should MSHA choose to require ground control plans, the ability of draglines to operate would be severely constrained. <br /> <br />For the forgoing reasons, interruptions in supply from the major coal producing basins can and should be expected. The historian's question: Then what is the concentration of this paper.<br /> <br /> FUEL SUPPLY CONTRACTING REGIME<br /> <br />Given the challenges outlined above and the market realities expressed in the OTC trading regimes of the Pittsburgh, Big Sandy and Powder River typical coals, the question naturally arises: Then What? At this time I'd like to consider some thoughts on contracting for fuel supply that might effect a new risk sharing mechanism and allow operators to plan and operate their mines most efficiently and finance the necessary capital plant to remain reliable suppliers of cheap energy. Short of significant increases in price these are contractual issues that may improve the operators' ability to continue a stable, dependable supply.<br /><br />Suspension/Termination<br />Fuel supply agreements must allow either party to suspend shipments until disputed quality issues can be settled. The UCC provides for operators to offer reasonable assurances for future compliance. In the most alarming cases both parties need the option of terminating the contractual relationship short of corporate suicide. In the future, sources of coal will become more susceptible to geological and quality aberrations and the fuel supply agreement should be drafted to acknowledge the increased variability and risks associated with producing coal from more difficult and less attractive reserve bodies. Additionally, the agreement should provide as much flexibility for the operator on scheduled deliveries as is practicable. It is not clear that the historical reliability of shippers can be depended upon going forward. Therefore, in order to avoid costly arbitration and/or litigation, a more flexible approach to suspension/termination is necessary.<br /><br />Warranties<br />It becomes, for operators, important to limit express warranties and disclaim any implied warranty for fitness of purpose and merchantability. In the current environment when source agreements are increasingly turning to supply agreements operators face evermore risks with the possibility of an agreement being traded.<br /><br />Additionally, the agreement should explicitly acknowledge the sole and exclusive remedy for breach. This allows the operator and his banker to accurately evaluate and price this risk.<br /><br />Uniformity of Supply<br />As coal fired plants reach for higher utilization rates, one of the significant contributions suppliers can make is uniformity of supply. Boiler efficiency is particularly sensitive to feedstock variability. With the certain knowledge that direct-ship coal is becoming rare, it is obvious that steam coal will increasingly rely on coal preparation. An economic argument can be made that a shipper that can reach 3 SIGMA quality control can add significant value to its customers. In fact, one utility has consistently exceeded nameplate rating by 10-15% due to the consistency of feed from Marrowbone Development Company. It would seem to be natural to consider a new contractual clause that would provide an inducement (gain sharing) for the operator that could and would commit to such tight control of quality.<br /><br />Term<br />Most mining equipment has a useful or depreciable life of five (5) to seven (7) years while preparation plants and concomitant material handling systems have lives of 20 plus years. Typically, financing for plants however are limited to eight (8) to nine (9) years. Financing for typical mining equipment is of much shorter term. With the needed recapitalization of the eastern industry, some thought should be given to match the contractual term to the financing needs of the project. That is, a ten-year term may be the determinative factor that allows construction of a new efficient plant. The plant's ability to deal with increasing reject levels and efficiently extract coal from shale and clays may be the difference in green lighting the project.<br /><br />Reopeners/Indexing<br />Coalmines must be assured of a fixed tonnage level in order to correctly size the equipment and provide for the knowledge, ability, skills and habits of a competitive workforce. Capital intensity in the east requires investments of $25 per annual ton of capacity. Capital intensity in the west requires investments of $10 per annual ton of capacity. These large capital burdens require high utilization rates. Fuel supply agreements should acknowledge this by fixing the tonnage requirement during the term of the agreement. Flexibility can be found in the pricing mechanism. Frequent reopeners can protect both parties from 2001 shocks. <br /><br />Prices can be indexed to provide the operator protection against shocks such as the Powder River has experienced with the price of diesel fuel. A rise from $0.85 to $1.15 per gallon has cost one mine $500,000 per month. Careful construction of an index that represents the market conditions of the operation can protect the operator and reopeners can provide both parties protection against the once in a lifetime market swings.<br /><br />Reopeners require an evaluation of the market. Parameters for this examination should be limited and set forth clearly in the document. Forcing a highly capitalized operation to compete against the marginal tonnage of a competitor in a reopener is a major deterrent to development. A clear definition of a comparable mining operation, for purpose of this clause, is critical.<br /><br />Another contractual response is offering the shipper the Right to Match. Tonnage is thus assured, risk of forfeiture is minimized and the draconian effects of a market anomaly are reduced or eliminated.<br /><br />Finally, Baseball Arbitration should be the exclusive remedy for this type of dispute. Both parties must begin with reasonable positions to eliminate this powerful lever in negotiations. Baseball Arbitration, because of its "one side prevails" mechanism provides drastic risks for the unreasonable negotiating position.<br /><br />Option Tonnage: The 2001 Problem<br />The coal-trading regime has shown conclusively that real options have significant value whether to increase or decrease annual coal takes or extend term beyond the fixed term of the agreement. However, these options have significant risks for the operator. First and foremost, the operations that are still competing today are running at close to optimal levels and significant, costly changes are required to reschedule tonnage. Options to increase or decrease shipments by more than 5% imperil operators. <br /><br />In fact, in 2001 much of the shock came from demands by most customers to exercise option tonnage at the same time. Option tonnage is only taken when cheap spot alternatives are not available and option tonnages not to take are only exercised when no other shipping options are available to the operator.<br />Large eastern mining companies, when faced with a 10% call, may be forced to adjust their performance by 50,000 tons per month. Western operators face up to six (6) million tons per month adjustment. This is neither realistic nor reasonable. 2001 performance has shown that this is an industry-wide problem and a rational contracting approach will recognize this fact.<br /><br />Finally, performance under this clause may not be excused by force majeure protections. The risks to the operator are great as experienced in 2001 and the protections afforded otherwise are not available. Now that trading is a reality, perhaps the utility should assume this risk and revert to the OTC markets instead of jeopardizing the relationship with critical suppliers in a difficult producing environment.<br /> <br />Remarketing<br />Subject to Anti-Trust provisions, utilities should allow shippers the first right of refusal for the remarketing of coal that does not fit with their current burn-schedule. Anti-Trust rules probably discourage covenants that purport to limit the utility's right to resale after title has transferred. However, it can be of particular moment for a distressed operator, limited in shipping ability, to have to face his own coal in the market for the remaining customer universe.<br /><br />FORCE MAJEURE<br />In a source contract, the supplier dedicates reserves and ships from those reserves with a right of limited substitution. Agreements typically provide an excuse for performance for Acts of God, i.e., nature not human induced, and certain other conditions beyond the control of the operator and without claimant's fault or negligence. The party claiming force majeure develops a duty to mitigate the effects of the claim within a reasonable time and expense. <br /><br />If the agreement is silent on this term or the writing is ambiguous, the UCC at 2-615 provides the background rule of Commercial Impracticability to fill in the gap. Commercial Impracticability requires that a contingency exists that makes performance impracticable and that the non-occurrence of the contingency was a basic assumption on which the contract was formed.<br /><br />2001 exhibited an extreme case of large-scale non-performance across the industry. Geological conditions, regulatory decrees, floods, trucking disputes, rail/barge availability, storage, lack of available mining talent and other reasons were offered for the failures. It is evident that claims of force majeure should offer protection for the party that confronts conditions beyond its control. However, it is just as clear that not all conditions reach the level of excuse. In fact, this is a factual situation that requires scrutiny. The requirement that the party claiming force majeure be without fault or negligence makes the analysis of forseeability, duty to perform and failure of that duty criticizable. Negligence analysis essentially asks the question; what would a reasonable man, under all the facts and circumstances have done in a similar situation? <br /><br />Economic issues are held not to be force majeure events. Courts have narrowly interpreted this clause. Acts of God have been limited to natural disasters such as floods, tornadoes, hurricanes, fires and other such natural as opposed to human conditions. Often issues or conditions occur that are extraordinary by their very nature. This in and of itself does not make them excusable under this analysis. Are they beyond the control of the party is the question to be addressed. A coal adage is that any condition that leads to a $1.00 per ton loss is a force majeure event. Although it makes for good story telling that is not the standard. Neither can a customer with a history of 100 day inventories (historical anticipation of labor stoppages) maintain the excuse claim when inventories reach an uncomfortable financial but physically possible level. In order for the clause to provide meaningful protection it must say what it means and mean what it says. <br /><br />A force majeure clause in a contract defines the area of unforeseeable events that might excuse non-performance within a contract period (US v. Brooks-Callaway Co.). Force Majeure excuses a party's non-performance due to events outside of its control and without its fault or negligence. (Gulf Oil I). The courts focus upon the element of uncertainty or lack of anticipation. Frequent, almost predictable occurrences take them out of force majeure excuse to non-performance.<br /><br />Courts have held that a party asking to be excused for non-performance must demonstrate accuracy and reasonableness. Further, they must show by substantial evidence the causal connection between the failure to deliver and the force majeure events. Additionally, the party must demonstrate that it was not able to produce from other sources to makeup the deficiency and show that all of its properties were not capable of delivery. Finally, it must demonstrate that other sources were unavailable to mitigate the event.<br /><br />Mitigation requires a demonstration of how the party tried to overcome the event, how it used due diligence to produce. The party is required to show that it did everything within its control to prevent or minimize its occurrence and its effects.<br /><br />Let me highlight a new contracting regime that deals effectively with this contractual difficulty. 2001 is the harbinger for more frequent cessation of supply and rather than contesting the force majeure or commercial impracticability clauses continuously, the parties may wish to consider the following scenario.<br /><br />As opposed to source agreements the industry may move to supply agreements where coal quantity and quality is specified but the source remains open. Now that ten coal companies control over 70% of the supply nationally, multi-sourcing options can work for both parties. Additionally, open transparent OTC markets for the Big Sandy, Pittsburgh and Powder River Coal provide flexibility and insurance for the continuous supply of fuel. Finally, increased stockpile levels can add a shock absorber to the system.<br /><br />FUTURE CHALLENGES<br /><br />In order not to relive GROUNDHOG DAY 2001 suppliers and customers must recognize that the 20-year history of reliable supply faces severe challenges. In this paper I have attempted to table some of the more obvious issues that may impact upon supply going forward. Significant decreases in mineabilty and merchantability of the remaining reserves will act as a drag on earnings. It will also endanger reliable supplies of fuel for the buyer. Interruptions of demand for multi-pollutant regulations will heighten the risk for operators, investors and bankers. Failures of supply will require operators to seek the protection of force majeure increasingly. For the first time in my career we are seeing utilities assert this claim for stockpile capacity. All of this strains the financial security of the coal producers. (Fully 1/3 of all CAPP production is in Bankruptcy proceedings today.) This strain leads to fewer more expensive sources of capital, in an industry facing major recapitalization.<br /><br />Who will we choose to work with? Although beyond the scope of this analysis is the question of credit in a post- Enron environment. This will become another major issue between the supplier and the customer and working out the new arrangements will be time consuming and expensive for both parties. Risk analysis will address the above-mentioned issue, as well as the others discussed in this paper in light of this changed circumstance.<br /><br />What can be done to mitigate some of the worst features of this scenario?<br /><br />CONCLUSIONS<br /> <br />Let the party best able to bear the risk, bear it. There are certain contractual issues that can operate to improve the performance of suppliers by offering added flexibility in the planning, mining and shipping of the product. Relaxing, if not reversing the trend of tightened contractual clauses may be the most reasonable way of assisting the supplier in his efforts to remain a reliable, low-cost supplier of choice. At best, 2001 type supply interruptions are inevitable. The thought process that goes into future contracting can set the arbitration/litigation strategies for the future. Hopefully, consumers are buying coal not lawsuits.<br /><br />Although I have attempted to show non-economic ($price) issues that can impact upon the ability of the utility/supplier relationship in the new environment, I cannot leave the issue without suggesting the relaxation of tight contractual clauses and sharing (efficiencies, power line costs and revenues and fuel pricing against electricity pricing) with an eye towards partnering between supplier and consumer. Sharing, augmented with appropriate insurance coverage, may eventually be the least cost strategy for avoiding GROUNDHOG DAY everyday.W. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.com0tag:blogger.com,1999:blog-4204290914764003431.post-62908919430336535852002-06-01T08:00:00.000-04:002009-05-24T11:51:09.405-04:00EPRI Coal Markets WorkshopEPRI COAL MARKETS WORKSHOP:<br />WILD FLUCTUATIONS, WILD WEATHER<br />WHAT ELSE?<br /><br />PRESENTED BY: W. DOUGLAS BLACKBURN, JR.<br />BLACKACRELLC<br />21 JUNE 2002<br /><br />EPRI WORKSHOP<br />LESSONS FROM COAL MARKET DRAMA<br />20 JUNE 2002<br /> <br />INTRODUCTION: CHANGED CIRCUMSTANCES<br /> <br />The year 2001 may follow the plot line from the movie GROUNDHOG DAY. As you may recall, Bill Murray was forced to relive this day until the critical life lessons were learned. The volatility and challenges that were experienced in 2001 may well be repeated. I’d like to point out some of the reasons that supply interruptions should be anticipated in the future. I would also suggest some issues that can be addressed in the fuel procurement stage to mitigate some of the worst features of this future. Finally, I would like to draw some conclusions about a possible future for the new relationships between supplier and customer.<br /> <br />First, I want to at least table some of the challenges the four major coal producing basins face going forward. The four basins are: Northern Appalachia; Central Appalachia; Illinois and Powder River. Studies such as the ones produced recently by Hill & Associates and Marston indicate an average seven-year economic life of current Pittsburgh Seam mines in the Northern Appalachian Basin. This is comprised of a number of mines already nominated for closure and a group of mines with 10-15 year lives. In Central Appalachia depleting reserves offer less opportunity for large long-lived mines. In the Illinois Basin mines continue to close and reserves await a market shift driven by the utility decision to scrub their plants. In the Powder River no new mines are contemplated in the Southern part of the Basin and material handling limits quick short term response to market opportunities.<br /> <br />Specifically, Northern Appalachia will require $3 billion of recapitalization in the next decade to maintain current production. Interestingly the mines that are closing are the ones with historically high seam heights thereby insuring lower mining heights on average in the future. This, in and of itself, might not seem particularly challenging, but combined with geological hazards (for example Mine 84) and intense gas well drilling, will operate to constrain tonnage and productivity improvement. Subsidence challenges for gas priority and historical structures is a real danger for the Basin. Additionally, the consolidation, no pun intended, of the seam will continue. As Federal #2 approaches the end of its economic reserves, Peabody Energy (Peabody) must decide to move to reserves which the Blacksville #2 mine and Martinka mine found non-competitive due to mining conditions. Any decision by Peabody to postpone this move will essentially leave the Pittsburgh Seam to Consol Energy (Consol) and RAG Coal (RAG).<br /> <br />In Central Appalachia, the USGS has recently published a study that concluded that reserves were depleting in several major seams. An informal study by Caperton Management found few opportunities for major producers to develop the next large long-lived project. In fact, the best opportunity was probably the return of Arch Minerals to DAL-TEX. However, Judge Haden of the Federal District Court for the Southern District of WV has clouded this once again with his recent order suspending permit approvals by the US Corps of Engineers under Section 404 of the Clean Water Act. Not only are surface mines affected by this decision but also underground mines and preparation plants are implicated. Additionally, CHIA litigation that forces regulatory agencies to consider the combined hydrologic impacts on a watershed is adding uncertainty and delays to the permitting process.<br /> <br />Central Appalachia is in a period not seen since the late 1960’s. After 18 years of a declining coal market, the workforce has lost many of its talented and most highly credentialed employees. An inability to attract youth and talent is a critical constraint on production. Where will the industry find certified supervisors, EMT’s and electricians? Massey Energy (Massey) and others have set up in-house training to address this problem only to lose many of their students to recent layoffs resulting from poor market conditions. Underground mines are exploiting; thinner seams, seams with higher levels of reject and geological hazards. And it is taking 18-24 months to permit these mines. During the period 1969-1979, Central Appalachia productivity was cut in half as new employees were hired to deal with new regulatory schemes and more difficult seam conditions. MSHA data indicates that USBM District 8 (Central Appalachia) surface mine productivity peaked in the fourth quarter of 1999 and underground productivity peaked in the first quarter of 2000. Unlike the 1980’s, there is no technology fix on the horizon to offset the secular trend. <br /> <br />A recent longwall census reports that 55 longwalls operate today against a peak of 128. Arch Mineral (Arch) has the only long-term successful installation in Central Appalachia steam coal and it has announced that it will cease operation in 2006, if, permitting allows continuance. Arch also has the last significant dragline property at DAL-TEX. However, concerns over valley fill litigation have forestalled further development. Longwalls and draglines will not turn the productivity slide as they did in the mid-70’s.<br /> <br />Adding insult to injury, quality degradation is also becoming an issue. Compliance Coal reserves, originally found in 22 counties from Pikeville, KY in the southwest to Summersville, WV in the northeast are depleting at an ever increasing rate. A study commissioned by Zeigler Coal Holding Company predicts that only five counties will produce substantial compliance tonnage by 2010 and only two counties will produce substantial tonnages by 2020. Sulfur levels will continue to rise through this decade and availability of direct ship coal will decline dramatically.<br /> <br />These challenges and the lack of earnings that followed from 18 years of revenue declines, have led to financial uncertainties and lender reluctance to fund projects. In fact, many of the “Coal Banks” no longer participate in mine development financing. This has driven the industry to mezzanine, read expensive, financing. The smaller reserve blocks that are available for development don’t justify major mining houses attention. Independent operators will become the miner of choice for new development in Central Appalachia. Query where will the financing come from for these players? Query, in project financing, who will be the guarantor until development risks are conquered?<br /> <br />It should come as a surprise to no one that the historical reliability of Central Appalachian producers is at risk. This reliability has allowed customers to draw down stockpiles to historical lows and interruptions such as the outage at Martin County Coal have the potential to trigger 2001 like market conditions.<br /> <br />The Illinois Basin has evolved into two regions going in different directions. Mine closings in Illinois continue the slide driven by the Clean Air Act of 1990. In fact, of the nine significant mines in Illinois, most are closing or moving to new reserves. Reserves of low sulfur coal found in Franklin County are essentially mined. Recent additions such as Willow Lake may reverse this trend. However, the story of Indiana is one of restructured growth, although dominated by one producer. Indiana is expected to lose 40% of its surface mine production and triple it underground production by 2011.<br /> <br />The good news for the Basin is that Phase II of the Clean Air Act and proximity to utilities will argue for a resurgence of the Illinois mining industry. In fact, the only elephant (major) reserve blocks of low cost, mid-sulfur coal left for development east of the Mississippi occur here. Arch and Peabody have announced intentions to develop mine mouth generating projects on coal lands held by them. Recently, TVA announced the first auctions of their tracts. The award went to Central Appalachian independents, Cline Resources and Larry Addington’s Illinois Fuels Co. Assuming water and power line capacity issues can be addressed economically, Southern Illinois may indeed become the next generation’s coal basin. With the sale of Exxon’s Monterey Coal Company, the short life of Horizon Natural Resources Mine #11 and the constant threat of closure of RAG’s Wabash mine and Freeman United’s Crown #2 mine, the field seems left to Peabody. Constraints in the Powder River Basin may, in fact, assist in the resurrection of this Basin.<br /> <br />Although the Powder River Basin has looked invincible for the last 20 years, limits to growth are appearing. First, the railroads reached a capacity level of 63 trains per day during 2001 but could not sustain that level for any ninety-day period. Obviously, railroad capacity will grow but it will take time and money. Short- term constraints exist for all the mines material handling systems in general and crushing capacity in particular. One material handling system (that I am intimately familiar with) cost $18million and required a year’s construction time. This does not include permitting time that is always a consideration in the Basin.<br /> <br />Secondly, the acquisition of reserves has become an increasingly costly exercise. Uncontested reserves cost $0.20 per ton in 1998. A recent contested Lease By Application (LBA) cost in excess of $0.70 per ton of reserves. More interestingly, this represents approximately $1.00 per produced ton for the next five years for the acquirer. The next LBA’s to be contested could well drive the figure toward $1.00 per ton of reserves. Returns on assets over the last ten years make it increasingly likely that capital rationing will occur and further consolidation will take place as well. With the results announced by Vulcan Capital Management (Vulcan) for the last two years, an argument can be made that there is still one too many producers in the Basin.<br /> <br />Finally, the Powder River Basin is not immune to regulatory risks. Recent proposals by the Executive and Legislative Branch of government will severely limit releases of mercury into the atmosphere. Under either scenario, the Powder River Basin will be significantly impacted. Comparatively, the PRB has the highest levels of organic mercury and therefore, since there is no best available mercury removal technology, will face limits on its application as a fuel source. For several years, permits have been contested and inspections have focused on fugitive dust produced by cast blasting techniques and haul road usage. This attention will only increase as the industry relies on these techniques. Additionally, with increasing depth, the highwalls that are developed by the draglines will attract scrutiny from MSHA. Should MSHA choose to require ground control plans, the ability of draglines to operate would be severely constrained. <br /> <br />For the forgoing reasons, interruptions in supply from the major coal producing basins can and should be expected. The historian’s question: Then what is the concentration of this paper.<br /> <br />FUEL SUPPLY CONTRACTING REGIME<br /> <br />Given the challenges outlined above and the market realities expressed in the OTC trading regimes of the Pittsburgh, Big Sandy and Powder River typical coals, the question naturally arises: Then What?<br />At this time I’d like to consider some thoughts on contracting for fuel supply that might effect a new risk sharing mechanism and allow operators to plan and operate their mines most efficiently and finance the necessary capital plant to remain reliable suppliers of cheap energy. Short of significant increases in price these are contractual issues that may improve the operators’ ability to continue a stable, dependable supply.<br /><br />Suspension/Termination<br />Fuel supply agreements must allow either party to suspend shipments until disputed quality issues can be settled. The UCC provides for operators to offer reasonable assurances for future compliance. In the most alarming cases both parties need the option of terminating the contractual relationship short of corporate suicide. In the future, sources of coal will become more susceptible to geological and quality aberrations and the fuel supply agreement should be drafted to acknowledge the increased variability and risks associated with producing coal from more difficult and less attractive reserve bodies. Additionally, the agreement should provide as much flexibility for the operator on scheduled deliveries as is practicable. It is not clear that the historical reliability of shippers can be depended upon going forward. Therefore, in order to avoid costly arbitration and/or litigation, a more flexible approach to suspension/termination is necessary.<br /><br />Warranties<br />It becomes, for operators, important to limit express warranties and disclaim any implied warranty for fitness of purpose and merchantability. In the current environment when source agreements are increasingly turning to supply agreements operators face evermore risks with the possibility of an agreement being traded.<br /><br />Additionally, the agreement should explicitly acknowledge the sole and exclusive remedy for breach. This allows the operator and his banker to accurately evaluate and price this risk.<br /><br />Uniformity of Supply<br />As coal fired plants reach for higher utilization rates, one of the significant contributions suppliers can make is uniformity of supply. Boiler efficiency is particularly sensitive to feedstock variability. With the certain knowledge that direct-ship coal is becoming rare, it is obvious that steam coal will increasingly rely on coal preparation. An economic argument can be made that a shipper that can reach 3 SIGMA quality control can add significant value to its customers. In fact, one utility has consistently exceeded nameplate rating by 10-15% due to the consistency of feed from Marrowbone Development Company. It would seem to be natural to consider a new contractual clause that would provide an inducement (gain sharing) for the operator that could and would commit to such tight control of quality.<br /><br />Term<br />Most mining equipment has a useful or depreciable life of five (5) to seven (7) years while preparation plants and concomitant material handling systems have lives of 20 plus years. Typically, financing for plants however are limited to eight (8) to nine (9) years. Financing for typical mining equipment is of much shorter term. With the needed recapitalization of the eastern industry, some thought should be given to match the contractual term to the financing needs of the project. That is, a ten-year term may be the determinative factor that allows construction of a new efficient plant. The plant’s ability to deal with increasing reject levels and efficiently extract coal from shale and clays may be the difference in green lighting the project.<br /><br />Reopeners/Indexing<br />Coalmines must be assured of a fixed tonnage level in order to correctly size the equipment and provide for the knowledge, ability, skills and habits of a competitive workforce. Capital intensity in the east requires investments of $25 per annual ton of capacity. Capital intensity in the west requires investments of $10 per annual ton of capacity. These large capital burdens require high utilization rates. Fuel supply agreements should acknowledge this by fixing the tonnage requirement during the term of the agreement. Flexibility can be found in the pricing mechanism. Frequent reopeners can protect both parties from 2001 shocks. Prices can be indexed to provide the operator protection against shocks such as the Powder River has experienced with the price of diesel fuel. A rise from $0.85 to $1.15 per gallon has cost one operator $500,000 per month. Careful construction of an index that represents the market conditions of the operation can protect the operator and reopeners can provide both parties protection against the once in a lifetime market swings.<br /><br />Reopeners require an evaluation of the market. Parameters for this examination should be limited and set forth clearly in the document. Forcing a highly capitalized operation to compete against the marginal tonnage of a competitor in a reopener is a major deterrent to development. A clear definition of a comparable mining operation, for purpose of this clause, is critical.<br /><br />Another contractual response is offering the shipper the Right to Match. Tonnage is thus assured, risk of forfeiture is minimized and the draconian effects of a market anomaly are reduced or eliminated.<br /><br />Finally, Baseball Arbitration should be the exclusive remedy for this type of dispute. Both parties must begin with reasonable positions to eliminate this powerful lever in negotiations. Baseball Arbitration, because of its “one side prevails” mechanism provides drastic risks for the unreasonable negotiating position.<br /><br />Option Tonnage: The 2001 Problem<br />The coal-trading regime has shown conclusively that real options have significant value whether to increase or decrease annual coal takes or extend term beyond the fixed term of the agreement. However, these options have significant risks for the operator. First and foremost, the operations that are still competing today are running at close to optimal levels and significant, costly changes are required to reschedule tonnage. Options to increase or decrease shipments by more than 5% imperil operators. In fact, in 2001 much of the shock came from demands by most customers to exercise option tonnage at the same time. Option tonnage is only taken when cheap spot alternatives are not available and option tonnages not to take are only exercised when no other shipping options are available to the operator.<br /><br />Large eastern mining companies, when faced with a 10% call, may be forced to adjust their performance by 50,000 tons per month. Western operators face up to 6 million tons per month adjustment. This is neither realistic nor reasonable. 2001 performance has shown that this is an industry-wide problem and a rational contracting approach will recognize this fact.<br /><br />Finally, performance under this clause may not be excused by force majeure protections. The risks to the operator are great as experienced in 2001 and the protections afforded otherwise are not available. Now that trading is a reality, perhaps the utility should assume this risk and revert to the OTC markets instead of jeopardizing the relationship with critical suppliers in a difficult producing environment.<br /><br />Remarketing<br />Subject to Anti-Trust provisions, utilities should allow shippers the first right of refusal for the remarketing of coal that does not fit with their current burn-schedule. Anti-Trust rules probably discourage covenants that purport to limit the utility’s right to resale after title has transferred. However, it can be of particular moment for a distressed operator, limited in shipping ability, to have to face his own coal in the market for the remaining customer universe.<br /><br />FORCE MAJEURE<br />In a source contract, the supplier dedicates reserves and ships from those reserves with a right of limited substitution. Agreements typically provide an excuse for performance for Acts of God, i.e., nature not human induced, and certain other conditions beyond the control of the operator and without claimant’s fault or negligence. The party claiming force majeure develops a duty to mitigate the effects of the claim within a reasonable time and expense. If the agreement is silent on this term or the writing is ambiguous, the UCC at 2-615 provides the background rule of Commercial Impracticability to fill in the gap. Commercial Impracticability requires that a contingency exists that makes performance impracticable and that the non-occurrence of the contingency was a basic assumption on which the contract was formed.<br /><br />2001 exhibited an extreme case of large-scale non-performance across the industry. Geological conditions, regulatory decrees, floods, trucking disputes, rail/barge availability, storage, lack of available mining talent and other reasons were offered for the failures. It is evident that claims of force majeure should offer protection for the party that confronted conditions beyond its control. However, it is just as clear that not all conditions reach the level of excuse. In fact, this is a factual situation that requires scrutiny. The requirement that the party claiming force majeure be without fault or negligence makes the analysis of forseeability, duty to perform and failure of that duty criticizable. Negligence analysis essentially asks the question; what would a reasonable man, under all the facts and circumstances have done in a similar situation? <br /><br />Economic issues are not held to be force majeure events. Courts have narrowly interpreted this clause. Acts of God have been limited to natural disasters such as floods, tornadoes, hurricanes, fires and other such natural as opposed to human conditions. Often issues or conditions occur that are extraordinary by their very nature. This in and of itself does not make them excusable under this analysis. Are they beyond the control of the party is the question to be addressed. A coal adage is that any condition that leads to a $1.00 per ton loss is a force majeure event. Although it makes for good story telling that is not the standard. Neither can a customer with a history of 100 day inventories (historical anticipation of labor stoppages) maintain the excuse claim when inventories reach an uncomfortable financial but physically possible level. In order for the clause to provide meaningful protection it must say what it means and mean what it says. <br /><br />Let me highlight a new contracting regime that deals effectively with this contractual difficulty. 2001 is the harbinger for more frequent cessation of supply and rather than contesting the force majeure or commercial impracticability clauses continuously, the parties may wish to consider the following scenario.<br />As opposed to source agreements the industry may move to supply agreements where coal quantity and quality is specified but the source remains open. Now that eight (8) coal companies control over 50% of the supply nationally, multi-sourcing options can work for both parties. Additionally, open transparent OTC markets for the Big Sandy, Pittsburgh and Powder River Coal provide flexibility and insurance for the continuous supply of fuel.<br /><br />FUTURE CHALLENGES<br />In order not to relive GROUNDHOG DAY 2001 suppliers and customers must recognize that the 20-year history of reliable supply faces severe challenges. In this paper I have attempted to table some of the more obvious issues that may impact upon supply going forward. Significant decreases in mineabilty and merchantability of the remaining reserves will act as a drag on earnings. It will also endanger reliable supplies of fuel for the buyer. Interruptions of demand for multi-pollutant regulations will heighten the risk for operators, investors and bankers. Failures of supply will require operators to seek the protection of force majeure increasingly. For the first time in my career we are seeing utilities assert this claim for stockpile capacity. All of this strains the financial security of the coal producers. This strain leads to fewer more expensive sources of capital, in an industry facing major recapitalization.<br /><br />Who will we choose to work with? Although beyond the scope of this analysis is the question of credit in a Post Enron environment. This will become another major issue between the supplier and the customer and working out the new arrangements will be time consuming and expensive for both parties. Risk analysis will address the above-mentioned issue, as well as the others discussed in this paper in light of this changed circumstance.<br /><br />What can be done to mitigate some of the worst features of this scenario?<br /><br />CONCLUSIONS<br />Let the party best able to bear the risk, bear it. There are certain contractual issues that can operate to improve the performance of suppliers by offering added flexibility in the planning, mining and shipping of the product. Relaxing, if not reversing the trend of tightened contractual clauses may be the most reasonable way of assisting the supplier in his efforts to remain a reliable, low-cost supplier of choice. At best, 2001 type supply interruptions are inevitable. The thought process that goes into future contracting can set the arbitration/litigation strategies for the future. Hopefully, consumers are buying coal not lawsuits.<br /><br />Although I have attempted to show non-economic ($price) issues that can impact upon the ability of the utility/supplier relationship in the new environment, I cannot leave the issue without suggesting the relaxation of tight contractual clauses and sharing (efficiencies, power line costs and revenues and fuel pricing against electricity pricing) with an eye towards partnering between supplier and consumer. Sharing, augmented with appropriate insurance coverage, may eventually be the least cost strategy for avoiding GROUNDHOG DAY everyday.W. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.com0tag:blogger.com,1999:blog-4204290914764003431.post-46489769111769631451999-01-21T08:00:00.001-05:002009-05-24T11:54:31.137-04:00The Hunters and the HuntedTHE HUNTERS AND THE HUNTED<br />PRESENTED TO: ENERGY DAILY<br />THREATS TO COAL: CONSOLIDATION, CLEAN AIR, CLIMATE CHANGE,<br />CENTURY21 TECHNOLOGY<br /><br />21 JANUARY 1999<br />BY: W. DOUGLAS BLACKBURN, JR.<br />BLACKACRE LLC<br /> <br />THE HUNTERS AND THE HUNTED<br /><br />COMPANIES FAIL BECAUSE THEY FOLLOW THE WRONG STRATEGY. COMPANIES FAIL BECAUSE THEY FOLLOW THE CORRECT STRATEGY INEPTLY. THERE ARE THE HUNTERS AND THERE ARE THE HUNTED. THE QUESTION I POSE THIS MORNING IS: “CAN THE HUNTED LEARN TO HUNT?”<br /><br />THE LIFE CYCLE OF A BUSINESS HAS THREE STAGES. CREATIVITY, EXCITEMENT, RAPID GROWTH, FINANCIAL CLIFFHANGING AND A CAN-DO ATTITUDE CHARACTERIZE THE EARLY STAGES. AS THE BUSINESS GROWS, IT BEGINS TO INSTITUTIONALIZE ITSELF, INSTALLING ALL THE TRAPPINGS OF BUREAUCRACY. IN ITS FINAL STAGES IT IS ATTACKED BY ITS SUCCESSORS-THE SPIRITED, INNOVATIVE, FAST MOVING HUNTERS. FOR MOST BUSINESSES, THIS STAGE IS THE BEGINNING OF THE END. UNABLE TO COMPREHEND WHAT IS HAPPENING TO THEM, UNABLE TO RESPOND BECAUSE OF INFLEXIBLE CORPORATE MIND-SET, AND LACKING THE PASSION NEEDED FOR THE FIGHT, THEY SUCCUMB.<br /><br />BUSINESS, LIKE COUNTRIES, SURVIVE BY DESIGN. THE HUNTERS ARE NOT ONLY LEAN AND MEAN, BUT THEY RESPOND FASTER, PRODUCE HIGHER QUALITY AND ARE MORE INNOVATIVE THAN THE HUNTED. THEY THRIVE ON THE RAPID CHANGES IN MARKETS, TECHNOLOGY, EXPECTATION OF CUSTOMERS, COMPETITORS, ENVIRONMENTAL CONCERNS, WORLD POLITICS, FINANCE, AND THE WORK FORCE.<br /><br />HUNTERS DON’T FORGET HOW TO HUNT. A COUGAR CAN BE TAMED TEMPORARILY BY CAPTIVITY AND REGULAR FEEDINGS, BUT ONCE RETURNED HUNGRY TO ITS NATURAL HABITAT, A COUGAR QUICKLY REGAINS ITS PRIMACY AS THE DOMINANT HUNTER.<br /><br />MANY FAMOUS MINING HOUSES HAVE SUCCUMBED DURING MY THIRTY YEAR CAREER:<br /> <br />EASTERN ASSOCIATED COAL CORPORATION<br />ISLAND CREEK COAL COMPANY<br />OLD BEN COAL COMPANY<br />ZEIGLER COAL COMPANY<br />AMAX COAL COMPANY<br />MAPCO COAL COMPANY<br />ARCO COAL COMPANY<br />UNITED COAL COMPANY<br />BLUE DIAMOND COAL COMPANY<br /><br />SOON: P&M COAL COMPANY<br />CYPRESS AMAX COAL COMPANY<br /><br />THESE COAL COMPANIES DID NOT EXHAUST THEIR RESOURCES AND DIE AN HONORABLE DEATH; THEY WERE CONSUMED BY THE HUNTERS. DID THE STAKEHOLDERS OF THESE HUNTED COMPANIES RECEIVE THE MAXIMUM VALUE-PROBABLY NOT!<br /> <br />WRONG STRATEGY<br /><br />HOW DID THEY BECOME THE HUNTED? PERHAPS THEY FOLLOWED THE WRONG STRATEGY. THIS MANIFESTS ITSELF IN SEVERAL WAYS. FIRST, A LACK OF FOCUS OFTEN LEADS TO A WRONG CONCLUSION. WE PRIDE OURSELVES, AS BUSINESSMEN, ON ANALYZING THE SOCIAL, POLITICAL AND ECONOMIC RAMIFICATIONS OF OUR DECISIONS. IN FACT, WE ARE TOO GOOD, OR MORE PRECISELY, TOO PRECISE IN OUR ECONOMIC ANALYSIS (THANKS IN LARGE PART TO LOTUS ABUSE). OUR MAJOR ERRORS GENERALLY OCCUR WHEN WE FAIL TO PROPERLY EVALUATE THE SOCIAL AND POLITICAL EFFECTS OF OUR DECISIONS. NOTE ESPECIALLY, THE FUROR WHICH HAS ARISEN OVER MOUNTAIN TOP REMOVAL IN WEST VIRGINIA. ALTHOUGH EXTREMELY LIMITED BY APPLICATION, OVERREACHING BY PERMITTEES HAS JEOPARDIZED THE VERY LEGAL REGIME WHICH CREATED THIS OPPORTUNITY.<br /><br />IN THE ELECTRICAL GENERATING INDUSTRY, WHAT WILL BE THE EFFECT OF THE GROWING GREEN MOVEMENT ON PERMIT EXTENSIONS OF AMERICA’S NUCLEAR GENERATING CAPACITY? IF PLANTS CLOSE PREMATURELY, CAN FOSSIL FUEL STATIONS REPLACE THIS BASELOAD? IF NOT, WHAT? IF NOT NOW, WHEN?<br /><br />INAPPROPRIATE DIVERSIFICATION IS ANOTHER SERIOUS STRATEGIC ERROR. AS THE PUBLIC CLAMORS FOR PREDICTABLE, SUSTAINABLE GROWTH OF EARNINGS, CEO’S TROT OUT THE ELXIR OF DIVERSIFICATION TO SMOOTH EARNINGS’ SWINGS. THIS ALMOST ALWAYS RESULTS IN MEDIOCRITY, NOT VALUE ENHANCEMENT FOR THE SHAREHOLDERS. BESIDES, IF A SHAREHOLDER WANTS TO DIVERSIFY HIS RISK PORTFOLIO, ALL HE HAS TO DO IS DIAL-UP SCHWAB.COM. IT IS MUCH MORE DIFFICULT FOR A CEO TO ACCOMPLISH THIS. FEW DO.<br /><br />ANOTHER FLAWED STRATEGY IS THE NARROW CONCENTRATION ON COST CONTROL. HERETICAL AS IT MAY SEEM, SLAVISH DEVOTION TO COST CONTROL DISTRACTS MANAGEMENT FROM THE OPPORTUNITIES PRESENTED TO IT. REVENUE GROWTH, GROSS MARGIN GROWTH, AND THROUGHPUT EFFICIENCY OFFER GREATER VALUE GROWTH AS THE LAW OF DIMINISHING RETURNS WORKS ITS WILL UPON COST DECLINES.<br /><br />FINALLY, THE FAILURE TO PUT THE CUSTOMER AT THE FOREFRONT OF MANAGEMENT’S SIGHTS IS A SUREFIRE WAY TO MISS MANAGEMENT’S TARGET OF CREATING AND GROWING SHAREHOLDER VALUE.<br /><br />RIGHT STRATEGY POORLY EXECUTED<br /><br />JACK WELCH DESCRIBES GENERAL ELECTRIC AS AN A LEVEL COMPANY WHICH DESERVES A LEVEL PLAYERS. “ LET THE B AND C LEVEL PLAYERS PLAY FOR THE COMPETITION”. NOT ONLY DOES GE RECRUIT A LEVEL PLAYERS, THEY HAVE THE MOST EFFECTIVE AND ADMIRED TRAINING PROGRAM FOR THEIR MANAGEMENT. THIS PROGRAM IS ACTIVELY LED BY WELCH, WHO SPEAKS TO EVERY CLASS AT ITS TRAINING CENTER IN GROTONVILLE, CONN. THE HUNTERS ATTRACT AND RETAIN TOP LEVEL PLAYERS BY OFFERING THEM REAL RESPONSIBILITY, TRAINING AND PERSONAL GROWTH NOT AVAILABLE ELSEWHERE. THE HUNTED DRIVE OFF THE SUPERIOR PERFORMERS WITH THEIR BUREAUCRATIC INEPTITUDE.<br /><br />THE HUNTED FIND THEMSELVES IN THE VICIOUS SPIRAL OF NOT JUSTIFYING EXPENDITURES ON TRAINING, TESTING AND PROCESS IMPROVEMENT BECAUSE OF THE COSTS INVOLVED. THEY DON’T HAVE WELCH’S VISION THAT THESE ARE INVESTMENTS NOT EXPENSES. SOON THE COSTS INCREASE, DUE TO THE SECOND LAW OF THERMODYNAMICS, ANYWAY.<br /><br />THE HUNTER’S MANAGEMENT HAS A COMMITMENT TO THE RELENTLESS PURSUIT OF EXCELLENCE. PROCESS IMPROVEMENT IS NOT A PROJECT, IT THE WAY THEY DO BUSINESS. HUNTED MANAGEMENT HAS THE PROJECT DU JOUR- DEPENDING UPON WHAT SEMINAR THE BOSS LAST ATTENDED.<br /><br />THE MOST CONSISTENT CHARACTERISTIC OF THE HUNTED IS THE INERTIA CREATED BY THE INEXORABLE BUREAUCRATIZATION OF THE COMPANY. INITIALLY, RATIONALIZED BY THE NEED FOR THE SYSTEMIZATION OF PROTECTION OF THE SHAREHOLDER’S ASSETS, IT INEVITABLY BECOMES THE PROTECTOR OF THE STATUS QUO AND THE STATUS QUO’ERS. EARLIER, I SPOKE OF THE THREE STAGES OF A CORPORATE LIFE CYCLE. THE THREE CONCOMMITENT STYLES OF MANAGEMENT ARE RISK TAKER – CARE TAKER – UNDERTAKER.<br /><br />THERE MUST BE A LAW OF MANAGEMENT THAT BUREAUCRACY DRIVES OUT ALL THAT MAKES BUSINESS FUN AND FULFILLING. IF NOT, THERE OUGHT TO BE!<br /><br />STRATEGY<br /><br />THE HUNTER MAKES A CHOICE ON TWO LEVELS OF STRATEGY. HE MUST ANSWER ONLY ONE QUESTION, ULTIMATELY. DO I BUY, SELL OR HOLD? IN THE ENERGY EXTRACTIVE BUSINESS, THE HUNTER HAS A BROAD, NATIONAL/INTERNATIONAL PRESENCES OR A STRONG REGIONAL PRESENCE. THE HUNTED IS OFTEN CAUGHT IN THE MIDDLE WITHOUT THE ABILITY TO BE EFFECTIVE IN EITHER. TO BE CAUGHT IN THE MIDDLE IS FATAL!<br /><br />THE MANAGEMENT METHOD EMPLOYED TO IMPLEMENT THE STRATEGY IS OFTEN THE KEY DETERMINANT IN THE SUCCESSFUL EXECUTION OF THE STRATEGY. ALL TOO OFTEN UNDER ACCOUNTING/LEGAL LEADERSHIP, COMPANIES HAVE RELIED EXCLUSIVELY ON THE COST WORLD MODEL. COST CONTROL IS KING; ACCOUNTANTS MAKE THE RULES; ACCOUNTANTS/LAWYERS RULE. RISK TAKING WHICH BUILT THE COMPANY IS REPLACED WITH RISK AVERSION.<br /><br />THIS MODEL IS NOT ABLE TO ATTACH VALUE TO INTANGIBLE BENEFITS AND SYNERGY. THIS RESULTS IN LOST OPPORTUNITIES. THE FOCUS ON LOWEST COST DISTRACTS FROM THE PROPER GOAL OF THE CORPORATION TO MAXIMIZE GROSS MARGIN. TIGHT CONTROLS SLOW DECISION MAKING WHICH RESULTS IN FURTHER LOST OPPORTUNITIES.<br /><br />WITH 76% OF SUPPLY CONTROLLED BY THE TOP 20 PRODUCERS, GAINING ECONOMIES OF SCALE THROUGH MERGERS AND ACQUISITIONS IS NO LONGER THE EFFECTIVE CORROLARY OF THE COST WORLD MODEL. THE LAW OF LARGE NUMBERS IS IMMUTABLE.<br /><br />THE HUNTERS INTUITIVELY SELECT THE THROUGHPUT WORLD MODEL. THROUGHPUT IS ALL THE MONEY MADE THROUGH SALES LESS DIRECT EXPENSES. RETURN IS THROUGHPUT DIVIDED BY EXPENSE. INCREASING PROFIT FROM THROUGHPUT IS THE HIGHEST LEVERAGE FORM OF IMPROVEMENT. PROFIT FROM LIMITING EXPENSE AND INVENTORY IS LESS SIGNIFICANT. EXPENSE, IN THE SHORT RUN IS FIXED. HUNTERS KNOW THAT PRODUCING MORE IN THE TIME PERIOD LEVERAGES PROFITS AND, IS NOT, WITHIN NORMAL OPERATING TOLERANCES, CONSTRAINED. THE THROUGHPUT WORLD PARADIGM IS THE HUNTER’S MODEL.<br /><br />MANAGEMENT’S SECOND STRATEGIC DECISION IS OPERATIONAL. HUNTERS SEEK OPERATIONAL EXCELLENCE THROUGH ELIMINATION. ELIMINATION OF: WASTED MATERIALS, VALUELESS ACTIVITY, VALUELESS TIME, AND VALUELESS VARIANCE. HUNTERS SEEK CUSTOMER INTIMACY WHICH RESULTS IN PRODUCT DIFFERENTIATION AND GROWING MARKET SHARE THROUGH WIN-WIN TRANSACTIONS. FINALLY, HUNTERS DEMAND FAST DECISION MAKING CYCLE TIMES. THEY DON’T TOLERATE BUREAUCRACY. HUNTERS MAKE IT EASY TO DO BUSINESS AND EASY TO DO BUSINESS WITH.<br /><br />CONCLUSIONS AND PREDICTIONS<br /><br />THIS PERIOD OF CONSOLIDATION IS COMING TO ITS NATURAL CONCLUSION. THE TOP 4 COMPANIES CONTROL 40% OF THE SUPPLY AND WILL SEE SMALLER GAINS FROM CONTINUING MERGER AND ACQUISITION ACTIVITIES.<br /><br />COMPETITION IS ALIVE AND WELL! THE ENERGY POLICY ACT OF 1992 WILL FURTHER FOCUS OUR CUSTOMERS. FUEL IS THEIR LARGEST VARIABLE COST AND THEREFORE A MAJOR DRIVER. HUNTERS WILL COMPETE AS STRONG NATIONAL OR REGIONAL PLAYERS TO HELP THESE UTILITIES SOLVE PROBLEMS THEY MAY NOT EVEN REALIZE THEY HAVE. THE HUNTED, CAUGHT LIKE DEER IN HEADLIGHTS, WILL CONTINUE TO DISAPPEAR. THE ECOSYSTEM WILL BE HEALTHIER.<br /><br />FOR THE HUNTED WHO WISH TO REESTABLISH THE LICENSE TO HUNT: DEVELOP A GOOD STRATEGY; FOCUS ON THROUGHPUT DECISION MAKING; SEEK CUSTOMER INTIMACY; STRIVE FOR OPERATIONAL EXCELLENCE THROUGH CONTINUOUS IMPROVEMENT AND FIGHT BUREAUCRACY LIKE THE HUNTER FIGHTS OFF THE BITTER COLD.<br /><br />THE COUGAR IS A MAGNIFICENT ANIMAL. THE PREY LIVES A SHORT LIFE OF QUIET DESPERATION.W. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.com0tag:blogger.com,1999:blog-4204290914764003431.post-33201376208402506931996-05-01T08:00:00.000-04:002009-05-24T11:56:59.582-04:00Safety Summit SpeechZeigler Coal Holding Company<br />1996 Safety Summit Speech<br />Lexington, KY<br />by: W. Douglas Blackburn, Jr.<br />Senior Vice President of Operations<br /> <br />A few weeks ago, I was listening to a favorite song sung by Willie Nelson, Waylon Jennings, Johnny Cash and Kris Kristofferson.<br />It’s called “The Highwayman,” and I bet some of you know it. I’ve listened to it many times, but this time, it suddenly hit me that this song is about me ... and about you.<br />If you’ll indulge me for just a moment, I’d like to play that song for you now...<br /> <br />(Play Song)<br /> <br />The Highwayman<br />I was a highwayman ... along the coach roads I did ride<br />With sword and pistol by my side<br />Many a young maid lost her baubles to my trade. <br />Many a soldier lost his lifeblood on my blade.<br />The bastards hung me in the spring of ‘25<br />But I am still alive,<br /><br />I was a sailor…I was born upon the tide<br />With the sea I did abide<br />I sailed a schooner round the horn of Mexico<br />I went aloft to furl the mainsail in a ‘blow<br />And when the yards broke off they said that I got killed<br />But I am living still.<br /> <br />I was a dam builder…across the river deep and wide<br />Where steel and water did collide<br />A place called Boulder on the wide Colorado <br />I slipped and fell into the wet concrete below<br />They buried me in that great tomb that knows no sound<br />But I am still around<br />I’ll always be around ... and around ... and around...<br /> <br />I fly a starship across the universe divide<br />And when I reach the other side <br />I’ll find a place to rest my spirit if I can<br />Perhaps I may become a highwayman again<br />Or I may simply be a single drop of rain<br />But I will remain<br />And I’ll be back again ... and again ... and again…<br /> <br />(Pause)<br /> <br />I realized that this song was about me ... about the coal miner in me ... because I was there. So I’d like to add a verse or two to that song.<br /> <br />I was there...<br /> <br />I was a coal miner in Algoma, West Virginia in 1902. The Tug River Valley was booming... and the coal companies hired scores of poor and uneducated men to work the mines... the nation’s most hazardous occupation. <br />It was a Monday in Algoma when the foremen led 17 untrained men into the workings. We were wearing open lights on our caps... lights fueled by whale oil. These men didn’t even know what methane was, much less that it had been accumulating all weekend. The explosion and fire killed some of them immediately ... others suffocated. I suffocated. That night, they recovered the bodies of the entire crew.<br />They killed me in Algoma. But I am still around. I’ll always be around ... and around and around.<br />I was there…<br /> <br />I was a coal miner in Zeigler, Illinois in 1904, when a strike turned ugly. Replacement workers and UMW men engaged in a veritable war ... you could see the gunfire being exchanged every night when an underground explosion killed me and 56 of my brothers, they said it was caused by all the gunpowder stored in the mine. Before it was all over, at least two dozen more men died in the accidents and violence that grew out of the labor dispute.<br />They killed me in Zeigler, Illinois. But I am still around. I’ll always be around ... and around ... and around.<br />I was there...<br /> <br />I was a coal miner in Monongha, West Virginia, in 1907, when eight runaway coal cars picked up speed far half a mile before they crashed at the bottom of the mine, where the coal dust was said to be hip-deep. The explosion ... this is the one they call the granddaddy of them all took 361 lives. Not one man who walked into the mine that morning went home to supper that night. But while Monongha left no survivors, it did leave 250 widows ... mine included ... and a thousand orphans. It also left us with some important lessons.<br />They killed me at Monongha, but I am still around. I’ll always be around ... and around - and around.<br />I was there…<br /> <br />I was a coal miner in Farmington, West Virginia in 1.968. During Thanksgiving week, Farmington had an explosion on the midnight shift ... and over the next ten days it exploded nineteen times.<br />That tragedy filled the TV coverage during that holiday season. Twenty-one men were miraculously rescued. But the rest ... me and 77 other miners ... were still in the mine. The families of those 78 men were summoned to the local Methodist church, where they were told that their husbands, brothers and fathers were assumed dead ... and the mine was being sealed to avoid more explosions. My brother asked the coal company president why more safety measures had not been put in place. He asked, “Would it have cost too much?” And the president of the coal company simply walked away.<br />They buried me in that great tomb that knows no sound. But I am still around. I’11 always be around ... and around.... and around. And this time, I was there not only in spirit; I was at this mine body and soul.<br />Fifteen months after that first explosion, I came to Farmington to start my coal mining career. <br />I was part of the recovery team that went in and reclaimed the bodies. It was a hell of a way to begin a career. For five months I saw the devastation of a major coal mine disaster… fourteen bodies reclaimed out of the seventy-eight killed ... unbelievable horror.<br />As you might imagine, seeing that tragedy ... and those lives lost ... made an indelible impression on me.<br />I am still a coal miner in 1996. And I stand in front of you, my fellow coal miners, and I tell you, I was there. They killed the again and again ... and yet I stand here today, knowing that it is my responsibility to remember what I have seen, and knowing that it is also my responsibility to never, ever walk away when I am asked if I have done enough. <br /> <br />To the contrary, I must ask myself, have I done enough?<br />And I must ask you, too ... were you there? <br />Were you there for your miners this year? <br />Did you do enough?<br />Were you there by demonstrating your personal commitment?<br />Did you have an “exceptional attitude” ... if something was out of line, did you take exception with it right then?<br />Did you exhibit zero tolerance? Did you walk the talk?<br />Did you really believe ... and do you continue to believe?<br />Were you there with your personal involvement?<br />Did you personally design and implement a safety program dedicated to hazard awareness and accident prevention?<br />Did you support that program?<br />Did you personally evaluate your operations for hazards?<br />Did you lead a safety meeting?<br />Did you reward safety performance personally?<br />Did you provide first response personally in any situation this year?<br />Were you there by promoting safety awareness?<br />Did you evaluate employees for safe work practices?<br />Did you discuss safe work conditions and practices with employees and families?<br />Did you develop a safety newsletter?<br />Where you there by supporting safety professionals?<br />Did you train safety professionals at your mine?<br />Did you demonstrate your respect and support of your safety professionals publicly?<br />Did you involve your safety professionals in all meetings?<br />Were you there by supporting emergency preparedness?<br />Did you train EMTs?<br />Did you develop an effective mine emergency plan?<br />Did you develop and train a competent mine emergency team?<br /> <br />If you say yes to each o£ these questions, then you were there for your people. And I sincerely hope you will keep these questions in mind as you go forward into 1997.<br />I’d also like for you to keep in mind that we just did a major employee survey ... and some of our employees don’t believe their managers are committed to safety. I know this is not true; I know that this is a matter of perception. But our general managers and senior leaders need to demonstrate that commitment, so no one will doubt that it exists. We need to walk the walk ... and talk the talk.<br />You’ll remember that last year, I asked each of you to make a formal, vocal commitment to safety here in this room. And each of us stood here and read that commitment card.<br />You’ll also remember that very day, even as we were coming together to make our safety plans, a tragic accident killed one of our men. So I don't have to tell you that it is impossible to do too much; that we can never truly say we’ve done enough until we have reached zero incidents.<br />So I ask you again...<br />Will you be there? Will you join with me in 1.997 in safety leadership?<br />Will you, senior management and general managers, come forward and stand as a group and commit to greater safety leadership in the future?<br />Will you join with me today and recommit yourself to an accident-free workplace? To doing everything you possibly can to making sure that each and every one of our miners goes home to his family unharmed?<br />Will you be there?<br />On the table are copies of that safety commitment card. I’d like to ask all of you to stand now ...and let’s read them together: <br />(READ TOGETHER)<br /><br />I, DOUG BLACKBURN, BELIEVE IN AN ACCIDENT-FREE WORKPLACE AND A HEALTHY ENVIRONMENT. I WILL, DEDICATE MY TIME AND LEADERSHIP TALENTS TO PROVIDING A SAFE AND HEALTHY ENVIRONMENT FOR THE PEOPLE WHOSE SAFETY AND HEALTH I AM ENTRUSTED WITH.<br /> <br />I asked you to carry that card in your wallet, or post it on your bathroom mirror or your telephone, and read it to yourself once a day, every day. I’d like to ask you to continue doing that ... and in addition, I’ll be sending each of you a copy of those questions I asked you earlier. I’d like you to look at them and ask yourself, was I there?<br />I am a coal miner. And I will be there to paraphrase Johnny Cash, “And when I reach the other side ... I’ll find a place to rest my spirit if I can ... perhaps I may become a coal miner again.<br /> <br />Thank you.W. DOUGLAS BLACKBURN, Jr.http://www.blogger.com/profile/13734970629418790447noreply@blogger.com0