2013 Coal Prep Show: Coal Still Key to U.S., Global Economic Growth

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Researched by Loretta Clark for Industrial Info Resources (Sugar Land, Texas)--As a boy who grew up on a tobacco farm just 50 miles south of Lexington, Kentucky, Nick Carter, President and Chief Operating Officer of Natural Resource Partners LP (NYSE:NRP) (Houston, Texas) never imagined his calling in life would be in the coal business, but at this year's 2013 Coal Prep trade show in Lexington, Kentucky, he highlighted his 31 years in the industry Tuesday in his keynote address: "Coal Industry: Past! Present. Future?"

Carter did not go to law school intending to be a coal lawyer.

"To be perfectly honest, I had my eye on a career in politics," Carter said. "That career came to a screeching halt [during] my first race when I ran for state representative in 1978 against [Henry Clay "Hank" List,] here in Lexington, and I got beat by 25 votes out of the 12,000 that were cast. And when I look back on it, it was probably the luckiest day of my life."

Carter said he wonders what would have happened if he had won that election. During his first year of law school, he had a class with a guy from Hazard, Kentucky, who just happened to be Joseph Craft III, who is now the President and CEO of Alliance Resource Partners LP (NASDAQ:ARLP) (Tulsa, Oklahoma).

"We became great friends, and we still are today," Carter said. "A few years after law school [in 1982], I was practicing law here in Lexington, representing primary real estate developers and contractors. I got a call from Joe, reading me a job description that sounded like I might have written it for myself, and it was a life changing event. I went to work for MAPCO coal [which evolved into Alliance Natural Resources in 1996]."

At the time, Carter was told that he could not have gotten into the coal business at a better time, saying it "had never been worse than what it was" and could only get better with the average selling price of coal in 1982 going for $20 per ton. Carter left MAPCO eight years later to go to Western Pocahontas, where they were also selling coal for $20 per ton.

Coal: A Love Affair

"I want to talk to you today for a short time about a love affair," Carter said. "My love affair with the coal industry, I believe with all my heart that the ability to work every day in this industry is a calling from God--one of the most important callings that we'll get from him. In fact, I believe there are only two greater callings that we as individuals get from God: One is to spread the gospel, and the second is to raise good kids who will become good citizens."

Carter believes nothing contributes to the well-being of an individual as much as a good job, which he feels the coal industry can provide.

"Nothing contributes to the decline of a person, a region or a country as the lack of good jobs," Carter said. "They are the basis of our entire economy. Nothing contributes to environmental degradation more, as much or as quickly as poverty, which is brought about by the lack of meaningful employment."

Without an employment base for the citizens, Carter said, every government will fail. There will be no economic foundation upon which it can build or fund its system of government.

"I'm blessed to be in this industry just like you are, not just fortunate, way beyond lucky to be here, we are truly blessed. You see our calling impacts nearly every person in the [U.S.] and increasingly, today, in the world."

Coal makes many jobs in this country possible directly and indirectly, he said.

"Without low-cost electricity that is produced from coal that you mine, without the high-quality steel that is made from the [metallurgical] coal that you mined, many, many people would not have the jobs that they have, whether it's selling shoes, making computers, building automobiles..."

Carter spoke of the parallels between farmers and coal miners. He challenged the audience to sit in the corner of a restaurant in rural America and listen to conversations of farmers.

"Those farmers contribute to our welfare just like our coal miners do," Carter said. "They provide the cheapest, highest-quality food of any country in the world. You have probably seen the bumper sticker, 'If it cannot be grown, it has to be mined.' That's very true. We, along with the farmer, provide the necessities of life: food and energy."

Relationship between GDP and Low Cost Electricity

Carter believes the cheaper the cost of electricity in a country, the higher the gross domestic product per capita.

"Without energy, what can you produce?" he asked. "Only what you, yourself can do with your hands, usually subsistence farming. Also think about how much time a person without electricity spends every day gathering wood or dung or whatever, to provide heat and cook the food in order to just survive."

Carter said that just during the three days of this conference, the global population will grow by 600,000 people, and the world will use nearly 60 million tons of coal.

Coal is still the fastest-growing fuel in the world. From 1999 to 2009, coal usage grew by 46% worldwide, natural gas by 27%, hydropower by 25%, oil by 10%, and nuclear by 7%. It's projected that worldwide, incremental coal use for electric generation will surpass that of gas, oil, nuclear, geothermal and solar combined. The growth rate will be faster than all of those growth rates combined.

"What's happening with this growth of coal-fired generation?" Carter asked. "People are living longer and better. People in developing countries all over the world are moving from abject poverty to the middle class, and as they do, their electricity uses will increase dramatically."

He cited China and India as examples, where millions of people are moving out of rural poverty to the cities every year.

"Consider their electric needs or wants, and this is what you learn," Carter said. "If the electricity use of each person in those countries equaled only the per capita electricity use of Europeans, not us--we're the largest users--the world would use twice as much coal each year as we do now; an additional 7 billion tons of coal would be needed just to supply those two countries."

More than 3.5 billion people worldwide lack adequate energy, he continued. More than 1.5 billion people have no energy access at all.

"We lose 1.5 million people every year due to energy poverty," he said.

The global need for coal goes beyond low-cost electricity. Carter shared an example given by Victor Patrick, former president of Walter Energy (NYSE:WLT) (Hoover, Alabama), to illustrate the need for coal in China in particular. If the per capita ownership of automobiles in China is to reach the same level as the U.S., China will have to produce 30 million cars a year for 30 years; not retire a single car that's currently on the road; not retire any of those 30 million cars that they build in any of the next 30 years; and have a population that would not grow from today.

"That's just to get to the same level of automobile usage as we have here," he said, "That's really only 900 million automobiles, but I think of it in how many metric tons of steel, how many metric tons of metallurgical coal it would take to build those 900 million automobiles."

The U.S. coal industry, he said, less than 10 years ago, was merely a fringe player in the worldwide coal business, but today the U.S. is the world's most reliable coal supplier, exporting the world's best metallurgical coal from central Appalachia and high-quality steam coal from all over America.

"We apparently are so good in the U.S. that we can mine, ship and deliver Powder River Basin coal--which is barely better than dirt--to India at prices that compete with coal from anywhere else in the world."

Carter emphasized the importance of everyone involved in coal in any capacity. Coal miners, electricians, engineers and foremen are so much more than their job descriptions.

"You're an economic developer for the world!" he exclaimed. "You produce cheap electricity, which means that 'Joe Plumber' has a job and his kids have a computer and a future. You indirectly make it possible for 'Ho Su Chung' to move from a subsistence farm in rural Inner Mongolia to the city where he and his family...can begin their trek from poverty to the middle class and who knows where in the next generation."

Understanding the Opposition

Despite increased global demand for coal, domestic markets are still suffering for variety of reasons, Carter said. There is still much difficulty getting permits, federal leases. Utilities are closing coal-fired power plants, and any new proposed power plant has to go through years of permitting delays and litigation due to stricter regulations from the U.S. Environmental Protection Agency (EPA).

"I hope it does not come as a surprise to you that there are those that just do not like your industry," he said. "In fact, I think it would be accurate to say that there are those who hate our industry. These now include many of the people in this administration in Washington D.C., who are responsible for regulating our industry. This administration seems to be taking its marching orders from Sierra Club's 'Beyond Coal Campaign,' which has a stated goal to stop all newly proposed coal-fired power plants from being built and to close as many existing power plants as possible."

Carter blamed not only the current administration, but also the mainstream media.

"Many have trained at the same liberal arts colleges that the environmental activists trained at, and have the same distain and distrust for all things business," he said.

Carter spent several years as a lobbyist, deciding it might be easier to influence laws written, rather than trying to live with existing ones.

"In trying to figure out what the agenda is of those people who are opposed to our industry, many it seems to me are well-intentioned, but misguided," he said. "Not a single one that I have ever talked to has a solution to what happens if they are successful. Not a single one has a clue as to how we will run the electric grid if they are successful in doing away with coal. They'll tell you wind and solar, and I'll tell you that don't work."

For Carter, it all comes down to a lack of a national energy policy.

"Why do we always end up fighting for our right to keep electricity while opposing those who would supply electricity at rates three to four times as great as coal-fired power?" he asked.

Carter believes the fundamental difference between the coal industry and environmentalists is that the latter does not view the battle from an economic perspective, but religious one.

"For us the battle is about business," he said. "We cannot imagine hurting other people, in order to save an inanimate mountain. We do not understand protecting snails or bats by asking someone to give up their job and see their families suffer. They in many ways are 'green' religious zealots. They for the most part, do not live here, do not work here, they do not understand our lifestyle or our values. They can go back to their comfortable upper-middle-class existence. They realize that cheap electricity leads to manufacturing plants and subdivisions and shopping centers and in a word: development. We need to realize it is their religion, their core belief, beliefs held so deeply that they're willing to devote their lives to the pursuit of those beliefs."

Activism Key to Coal's Future

Carter challenged audience members to move outside of the comfort zone and become more politically active.

"I know...you were not trained to be an activist," he said. "You just want to go to work and do your job as good as you can and be left alone. I'm sorry. That's not going to happen. You have to be involved. You have to do it for your job. You have to do it for your kids. You have to do it for your country, and yes, you have to do it for 'Ho Su Chung' who's moving from Mongolia to the city. We don't have a choice."

Carter said it's not fun to challenge authority, but in order to make a change, one must take on uncomfortable roles.

"Remember you are among the blessed," he said. "You are a coal miner. You work in the most important industry in this country and it has to survive or this country does not survive in any recognizable way. We cannot be the last generation of blessed ones. We cannot let this administration and these environmental activists succeed in ruining our country."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.