Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, September 23, 1993                   TAG: 9309230096
SECTION: BUSINESS                    PAGE: B8   EDITION: METRO 
SOURCE: GREG EDWARDS STAFF WRITER
DATELINE:                                 LENGTH: Medium

VIRGINIA MAY HAVE PASSED ITS PEAK AS COAL PRODUCER

Three researchers in Tech's mining and minerals engineering department based their forecast on the market outlook for Virginia coal and on estimates of the state's remaining mineable coal reserves.

Norfolk Southern Corp.'s top executive for coal marketing agreed with the group's basic conclusions, but was not pessimistic about the future of the state's coal industry.

The researchers - Walter Crabtree, John Mastoris and Ertugral Topuz - presented a progress report on their research on the future of Virginia coal production at Clinch Valley College in Wise.

They see market opportunities for Virginia coal at U.S. electric utilities and in Europe, but predict that the market price and the reduced importance of coal to steel making will hold back the industry in Virginia.

High-quality Virginia coal traditionally has gone to the steel industry. But more and more - about 42 percent, now - is being sold to utilities. Because it is cleaner burning, Virginia coal is attractive to utilities seeking to comply with the regulations of the 1990 Clean Air Act, the researchers said.

On the downside, Virginia coal doesn't compete well with coal from other Central Appalachian states because of higher mining and transportation costs, the researchers said. Making that problem worse is the fact that coal burned to produce electricity brings a lower price than coal used to make steel.

Coal production in Virginia depends on the ability of companies to renew production contracts, which are set to expire within three to five years. But coal prices in many contracts are above market prices, according to the Tech findings.

Rather than buying Virginia coal, utilities may choose to mix cheap coal from Western states with coal from West Virginia and Kentucky to meet clean-air requirements, the researchers said.

Because it is weak, the domestic steel industry does not offer a promising market for Virginia coal, they found. Also, new technologies will require less coal for steel production in the years ahead.

Foreign steel makers already have invested in those technologies. But Virginia companies may still find export opportunities in European countries when they halt subsidies for their own coal industries.

William B. Bales, NS vice president for coal marketing, agreed that the market for coal in steel making will continue to wane. "They're not building coke plants today," he observed.

But Bales said the state's coal producers are starting to see a market in the utility industry for the high-quality coal they have traditionally sold to steel makers. The railroad has been working aggressively to help them market that coal, he said.

Bales said he would have to agree with the study's conclusions about the lack of future growth in the Virginia coal industry, because the price of coal is not high enough to encourage the industry to grow.

But he said the railroad expects Virginia to have a strong and viable coal industry for many years.

Coal shipments make up about one-third of the railroad's revenues, and NS' business plan still considers coal an important player in the future, Bales said. The company continues to invest heavily in its coal hauling facilities, he said.

Last year 42 million tons of coal shipments originated on NS lines in Virginia, though some of it may have been trucked in from other states to rail sidings in Virginia. In any case, NS' Virginia tonnage accounted for most of the 44.9 million tons mined in the state last year.

The researchers found Virginia has one of the lowest tonnages of coal reserves among the coal-producing states that can be mined economically. Many coal companies told them the state could have a reserve problem in 15 to 20 years, but added that a $10-a-ton increase in the price of coal could boost reserves 30 percent to 60 percent.

It is doubtful, they said, that any new coal seams will be discovered in Virginia. In 1984, 92.6 percent of the state's output of high-quality metallurgical coal and low-sulfur steam coal came from 24 seams.