Non-Renewable Energy Innovation: 

Research to Support the Appalachian Energy Initiative 

 

 

BRIEF PREPARED FOR:

Appalachian Regional Commission 

PREPARED BY:

Global Insight, Inc. 

 

 

 

 

September 5, 2006 

 
Table of Contents 

I. Summary of Non-Renewable Opportunity......................................................... 1

II. Research Approach............................................................................................... 2

III. Energy Market Dynamics .................................................................................... 3

IV. Opportunities for Appalachia.............................................................................. 7

V. Conclusions.......................................................................................................... 21
ARC: Non-Renewable Energy Innovation 

page 1

I. Summary of Non-Renewable Opportunity 

All signposts point to fundamental changes in the energy market to a future characterized by a 

sustained higher level of oil and natural gas prices. Based on this expected market outlook, 

Appalachia may have significant non-renewable opportunities. 

The larger opportunities appear to be coal-related, including clean-coal generation and coal 

conversion to liquids, gas, and chemicals. Appalachia has the ability to participate in each and 

every one of these future non-renewable opportunities. The Appalachian Regional Commission 

("ARC") may be able to help the development of these non-renewable resources through regional 

commercial, policy, and research initiatives, as shown in the following table. 

Non-Renewable Opportunities and Possible ARC Initiatives 

Possible ARC 

Initiative 

Smaller 

Opportunity 

Larger 

Opportunity 

Commercial 

Initiatives 

• Clean-Coal Generation 

• Coal Conversion: Liquids, Gas, 

Chemicals 

Policy 

Initiatives 

• Natural Gas & Oil 

• Energy 

Infrastructure 

• Nuclear Generation 

• Clean-Coal Generation 

• Coal Production 

Research 

Initiatives 

• Hydrogen • CO2 Capture & Sequestration 

 

 
ARC: Non-Renewable Energy Innovation

page 2

II. Research Approach 

The purpose of the brief is to provide a market scan of non-renewable opportunities in 

Appalachia for use by ARC and ARC's Energy Plan Advisory Council in developing the Energy 

Blueprint. 

Global Insight's approach to completing this scan of non-renewable energy innovation relied on 

three major sources of information: 

• Global Insight's current forecasts and analyses: The basis for our research was our 

current worldwide energy and economic forecasts, scenarios, and analyses, including the 

Global Petroleum Outlook, 2005 U.S Energy Outlook, 2006 U.S. Energy Price Outlook, 

Natural Gas Monthly, U.S, Coal Monthly, the Global Climate Change Forum, our multiclient study Bridging the Methane Gap: Resolving the Growing Gap between Natural 

Gas Supply & Demand, and the preliminary assumptions underlying our 2006 U.S. 

Energy Outlook. 

• Public information on non-renewables: We reviewed a large body of public 

information on the non-renewables market and opportunities for Appalachia. 

• Outreach: We discussed state initiatives and Appalachian opportunities with members 

of the ARC Energy Plan Advisory Council and selected industry participants. 
ARC: Non-Renewable Energy Innovation

page 3

III. Energy Markets Dynamics1 

All signposts point to fundamental changes in the energy market to a future characterized by a 

sustained higher level of oil and natural gas prices. 

Global Insight's analysis of the future oil market suggests three realistic going-forward scenarios. 

• Supply Constrained: We enter a new oil market era. Tight supply conditions drive the 

market and price spikes to more than $100 per barrel in today's dollars. 

• Market Remanaged: Under this scenario, OPEC re-emerges as the oil market 

"governor." OPEC attempts to manage oil prices in the mid-$40 per barrel range. 

• Cornucopia: Higher prices result in a significant oil supply surplus and prices drop to the 

low to mid $30 per barrel range, approximately at the level of marginal production costs. 

Based on our analysis of future oil supply and demand, Global Insight believes that the Supply 

Constrained and Market Remanaged scenarios are most likely to occur. Our analysis strongly 

suggests that we will not see significant growth in either OPEC or non-OPEC oil production, thus 

yielding sustained higher prices. 

Future Oil Market Price Scenarios, $2004/bbl. 

 

1

 The Energy Markets Dynamics section is based on Global Insight's ongoing energy market analysis. See 

our website, www.globalinsight.com, for additional detail. 

Market Remanaged

Supply Constrained 

Cornucopia

0

10

20

30

40

50

60

70

80

90

100

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

2004 $
ARC: Non-Renewable Energy Innovation

page 4

Analyzing the likely scenarios in inflation-adjusted dollars further highlights the expected oil 

market. For the most likely future scenarios, Supply Constrained and Market Remanaged, we 

expect that long-term, nominal oil prices would average well over $60 per barrel. 

Future Oil Market Price Scenarios, $Nominal/bbl. 

20

40

60

80

100

120

140

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

Market Remanaged

Cornucopia

Supply Constrained

$ per 

barrel 

(nominal)
ARC: Non-Renewable Energy Innovation

page 5

Conditions in the future North American natural gas markets may not be any better than the oil 

markets. Based on our basin-by-basis analysis of key natural gas producing regions, Global 

Insight believes that the U.S. faces the prospect of an accelerated decline in domestic natural gas 

production. 

Future U.S. Natural Gas Production 

We also believe that imported liquefied natural gas ("LNG") will not be able to fill the supply gap 

caused by the accelerated decline in U.S. natural gas production. Despite Federal efforts, there 

are still significant issues in siting the increased number of LNG import terminals that would be 

required to fill this gap. 

Furthermore, the LNG market is a global market with significant worldwide trade. Numerous 

liquefaction plants under construction to serve export markets like the U.S. are facing significant 

cost overruns and delays. The most likely LNG sources for providing incremental LNG supplies 

to the U.S. market are Russia, Qatar, and Nigeria. In each case, project development is slowing: 

• Russia is holding-up several LNG projects

• Qatar has a moratorium in place for new projects

• Nigeria has internal political issues and civil strife

Finally, European customers are geographically much closer to future LNG supplies and appear 

ready to sign long-term supply contracts. In contrast, the unwillingness of U.S. customers to sign 

long-term contracts creates significant financing issues for liquefaction projects aimed at the U.S. 

market. Given this market outlook, we expect high, long-term natural gas prices, with real prices 

at or above $7.50 per thousand cubic feet ("Mcf"), which equates to nominal prices in excess of 

$10 per Mcf. 

35

40

45

50

55

60

1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

 Production (BCFD)

-15%

-10%

-5%

0%

5%

10%

Production 

Year-on-year 

declines 

... which can be attributed to 

accelerating declines in existing wells & 

declining productivity of new wells. 

In recent years, declines have been 

accelerating... 
ARC: Non-Renewable Energy Innovation

page 6

In contrast to oil and natural gas markets, we expect coal prices to be competitive in the longterm. Greater coal-on-coal competition resulting from increased mining capacity investment and 

scrubber installations will help bring coal prices down from their current highs. The near-term 

driver of this competition will come from the massive amount of power plant scrubbing that is 

underway, which will allow generators to pick coal supply from a variety of mining regions. 

Given higher oil and gas prices, we also expect coal companies to expand production capacity 

further enhancing coal-on-coal competition. Lastly, competition from renewable and possibly 

nuclear generation will also exert downward pressure on long-term coal prices. 

Following these national trends, we expect Appalachian prices to be competitive and fall in real 

terms over the planning horizon, as shown in the following chart of representative Northern and 

Central Appalachian coal prices. 

 

In the power segment, a steady 1% to 2% growth in electricity demand (net of demand reduction 

from energy efficiency initiatives) will require significant increases in U.S generation capacity. 

The U.S. will require between 400 and 500 gigawatts ("GWs") of new generating capacity by 

2030 to meet electric demand growth. Given the expected tight supply and high price outlook for 

natural gas, natural gas-fired capacity faces difficult economics, especially for baseload or even 

intermediate generation. We expect significant additions of renewable and possibly nuclear 

capacity. There are significant opportunities for coal capacity additions, especially using cleancoal technology. We expect significant new coal capacity additions, the acceleration of 

construction for planned coal capacity additions, repowering of existing coal-capacity, and 

replacement of coal units that need to be retired. 

New environmental initiatives will overlay these fuels and power market dynamics. There is a 

high likelihood that the U.S. will see a major global climate change initiative at the Federal level 

over the planning horizon. We expect this initiative to be comprehensive, broadly addressing the 

control of greenhouse cases and energy security, and include higher renewable standards, further 

policy enhancements to encourage clean-coal and nuclear generation, as well as the increased use 

of biofuels. Coal's challenge is to capitalize on the market opportunity by focusing on clean-coal 

technology and greenhouse gas capture and sequestration. 

0

10

20

30

40

50

60

2005 2010 2015 2020 2025

Minemouth Coal Prices (2004$/Ton)

NAPP 2.5% 

CAPP 1%
ARC: Non-Renewable Energy Innovation

page 7

IV. Opportunities for Appalachia 

Based on Global Insight's expected market forecasts, scenarios, and analyses, Appalachia may 

have significant non-renewable opportunities, including: 

• Clean-coal generation 

• Greenhouse gas capture and sequestration 

• Coal-to-liquids 

• Coal-to-gas and coal-to-chemicals 

• Coal production and services 

• Natural gas and oil 

• Infrastructure for non-renewables: natural gas, rail, electric, and fuels 

• Nuclear 

• Hydrogen 

Each of these opportunities is discussed individually in this section, addressing: 

• Market overview 

• Appalachian resources and initiatives 

• Possible needs and initiatives for Appalachia and ARC to consider for its Energy 

Blueprint 
ARC: Non-Renewable Energy Innovation

page 8

Clean-Coal Generation 

Market Overview: Lots of Momentum

Given expected North American power and fuel market conditions, significant incremental coal 

capacity is needed to meet future electric demand growth. Nationwide, generators and investors 

have announced plans to build more than 90 gigawatts ("GWs") of incremental coal-fired 

generation.2

 Global Insight expects that it is highly likely that new coal-fired generation will 

expand further if the signposts indicate a continuation of the accelerated decline in North 

American natural gas production. This accelerated decline will further deteriorate the economics 

and increase the risks of future investment in natural-gas fired generation. 

There are a number of clean-technologies that are expected to provide resources to this growing 

market, including: 

• Existing commercial technologies such as pulverized coal combustion ("PC") and 

circulating fluidized bed ("CFB") technologies, using subcritical or supercritical steam 

cycles 

• Emerging technologies such as integrated gasification combined cycle ("IGCC") or 

ultrasupercritical ("USC") PC technologies 

• Future technologies advancing PC, FCB, USC, or IGCC focused on further improving 

efficiencies, reducing environmental impacts, and facilitating the capture of CO2

We expect the generation industry to employ a portfolio of clean-coal technologies to meet future 

needs. 

• There is growing industry and government support for IGCC technology. Current 

research suggests IGCC technology may have cost and environmental benefits over PC 

technologies, especially under the assumption that carbon sequestration may be required 

in the future. Major vendors, such as General Electric, Bechtel, Shell, and ConocoPhillips, have begun to embrace IGCC technology, including offering comprehensive 

"guarantee wraps" for the entire IGCC system and process. As a result, both debt and 

equity financial investors and state regulators have become more comfortable with the 

use of IGCC technology going forward. The emerging benefits are the reason that 

American Electric Power ("AEP") specified IGCC technology for its new generation 

resource to be built in Kentucky, Ohio, or West Virginia.3

• However, companies will also specify PC and FCB technologies depending on the need. 

For example, Dominion Energy has proposed using FCB technology for its new facility 

planned for Wise County in southwest Virginia.4

 

There is substantial market support for clean-technology among equipment vendors, generators 

and utilities, the Federal government (e.g., the FutureGen initiative), and the states (e.g., the Ohio 

Coal Development Office, FutureGen proposals from Kentucky, Ohio, and West Virginia). 

 

2

 For example, see U.S. NETL's analysis, Tracking New Coal-Fired Power Plants: Coal's Resurgence in 

Electric Power Generation, March 20, 2006. 3

 See Claudia Banner's presentation to ARC, Integrated Gas Combined Cycle Technology: AEP's Strategic 

Decision, undated. 4

 See Dominion's presentation, Southwest Virginia Power Station, 2006. 
ARC: Non-Renewable Energy Innovation

page 9

Given expected market trends, generation from clean-coal technology would also be economic to 

support biofuels production processes. The production of ethanol or biodiesel requires significant 

amounts of electricity and heat for the production process. 

Appalachian Resources and Opportunities: Positioned to Participate

The Appalachian region is well positioned to participate in the market for clean-coal generation. 

The Appalachian states and the surrounding market areas5

 will require from 100 to 200 GWs of 

incremental resources (e.g., new or replacement generation and energy efficiency) by 2030 to 

meet the expected 1 to 2% annual growth rate in electric demand. With its abundant coal 

resources and access to electric market areas (e.g., through the PJM Interconnection), Appalachia 

should be able to participate in this development.6

The region can build upon the almost 82,000 megawatts ("MWs") of coal-fired capacity that is 

currently operating, under construction, or planned in Appalachian counties as of 2006. Ohio, 

West Virginia, and Pennsylvania each have over 15,000 MWs of coal-fired generation capacity 

located in Appalachian counties.7

 

Coal Generation Capacity in Appalachian Counties 

0 5,000 10,000 15,000 20,000 25,000

SC

MD

MS

VA

NY

KY

NC

TN

GA

AL

PA

Wv

OH

Megawatts 

New coal-generation development is a multi-year, large scale effort. A new 600 megawatt 

("MW") clean-coal plant is expected to cost from $700 million to $1.1 billion to construct (in 

today's dollars). This type of development could generate about 1,000 construction jobs (at 

peak) with 50 to 100 permanent plant jobs as well as 100 to 300 related permanent coal mining 

and support jobs depending on the individual project circumstances.8

 

 

5

 Including the Middle Atlantic, South Atlantic, East North Central, and East South Central U.S. Census 

Regions. 

6

 Global Insight analysis based on our 2005 U.S. Energy Outlook. 7

 Global Insight analysis of U.S. DOE data. 

8

 Global Insight analysis. 
ARC: Non-Renewable Energy Innovation

page 10

Possible Needs and Initiatives for ARC to Consider for Its Energy Blueprint: Encourage 

Investment in Appalachia

A number of initiatives might be taken to encourage the development of clean-coal generation in 

Appalachia including: 

• Ensuring that state and regional policies enable and encourage investment in clean-coal 

technologies in Appalachia. For example, IGCC is still an emerging power generation 

technology. To encourage IGCC, policies should support the large investment required. 

Options could include pre-approving cost recovery for utilities, allowing long-term 

power purchase contracts, or streamlining siting or regulatory processes. 

• Supporting Federal incentives for clean-coal technology and developing an appropriate 

mix of state incentives 

• Coordinating an Appalachian region-wide approach to matching electric consuming and 

generation/mining areas 

Given the initiatives occurring nation-wide with coal generation, there are numerous investors, 

including utilities, generating companies and developers, private equity firms and funds, and 

infrastructure developers, searching for clean-coal generation opportunities and locations. The 

trick is to lead this eager group of investors to Appalachia. 

 
ARC: Non-Renewable Energy Innovation

page 11

Greenhouse Gas Capture and Sequestration 

Market Overview: Critical Future Need to Keeping Coal in the Money

Global Insight anticipates that major Federal initiatives to address greenhouse gases will be 

enacted and implemented over the planning horizon of ARC's Energy Blueprint. As a result, the 

expected growth in coal generation capacity will require that the industry address greenhouse gas 

capture and sequestration issues to meet expected future environmental laws and regulations. 

Capture and sequestration of greenhouse gases may be costly. For example, for a 600 MW 

clean-coal generator, initial estimates suggest that capture and sequestration requirements may 

increase the construction costs by 35% to 70%, or $200 million to $800 million (today's dollars). 

The delivered cost per megawatt hour of electricity with capture and sequestration requirements 

might rise by 50%.9

Technologies and processes to capture and sequester greenhouse gases are still in very early 

stages of development. The Federal government has taken a leadership role by encouraging 

forums, establishing seven Regional Carbon Sequestration Partnerships ("RCSP"), funding core 

R&D programs, and launching the FutureGen initiative that will have a capture and 

sequestration component. 

Appalachian Resources and Opportunities: Can and Will Participate

The sequestration process involves capture of greenhouse gases such as CO2 at the source, 

compression of the gases, transportation of the gases by pipeline, and injection and storage. The 

most promising technologies involve underground injection. Appalachia has a host of regional 

sequestration opportunities, including depleted oil and gas reservoirs, deep salt/saline geological 

formations, and unmineable coal seams. 

In addition to geological sequestration, there is also the possibility of terrestrial sequestration. 

With this method, CO2 uptake is enhanced by plants that grow on land or in freshwater and 

through carbon storage in soils. 

The Appalachian states currently participate in capture and sequestration efforts through the 

Midwest RCSP (coordinated by Battelle) and the Southeast RCSP (coordinated by the Southern 

States Energy Board). The next phase of these efforts will focus on demonstration projects and 

further analysis (e.g., at AEP's Mountaineer Plant in West Virginia to study geological suitability 

for sequestration.) 

Possible Needs and Initiatives for ARC to Consider for Its Energy Blueprint: Make Appalachia 

Part of the Game

Appalachia could participate in this critical research effort by identifying and supporting gaps in 

the Midwest RCSP and Southeast RCSP agendas including: 

• Identifying and promoting Appalachian opportunities (e.g., specific sequestration 

sites) 

• Providing outreach in Appalachia on capture and sequestration issues 

 

9

 For example, see the Wisconsin Department of Natural Resources and the Public Service Commission of 

Wisconsin, Integrated Gasification Combined-Cycle Draft Report, June 2006. 
ARC: Non-Renewable Energy Innovation

page 12

Coal-to-Liquids 

Market Overview: Significant Interest Given Sustained High Oil Prices

Despite the forecast for high and sustained oil prices, Global Insight expects significant 

worldwide demand growth for petroleum products. At the level of long-term oil and coal prices 

outlined in the scenarios in Section III, the economics of converting coal into liquids appears 

promising. There is worldwide interest in commercializing existing technology to produce diesel 

and related fuels from coal and to enhance energy security by producing more petroleum 

products domestically. The price and availability of petroleum products continues to have a 

significant economic and political impact in the U.S. 

The current favored technology is indirect coal liquefaction. With this process, coal is first 

gasified with steam and oxygen into "synthesis or syngas" and then is catalytically converted to 

liquid hydrocarbons with pressure and temperature using the Fisher Tropsch ("FT") process. In 

the key step of the FT process, the syngas is bubbled through a catalyst/liquid mixture to produce 

the hydrocarbons. 

Coal-to-liquids requires large scale development. Project developers plan for units that produce 

10,000 to 40,000 barrels per day of liquids. The capital cost for such units ranges between 

$75,000 to $170,000 per daily barrel or $1.7 billion to $3.0 billion in today's dollars. There are 

also significant operating and reliability risks to be addressed. Current North American 

developers are focusing on early-stage units in the 5,000 to 10,000 barrel per day range with 

capital costs of $500 million to $1 billion (today's dollars).10 

One of the economic challenges facing coal-to-liquids development is the required investment in 

comparison to simply expanding existing petroleum refining capacity. The cost of a new coal-toliquids facility is multiple times that of expansion projects. The incremental cost of expanding 

an existing refinery ranges between $5,000 and $10,000 per daily barrel, or $50 million to $400 

million for expansions ranging from 10,000 to 40,000 barrels per day. 

The Federal government is providing both R&D and demonstration project funding (through the 

Department of Energy) and commercialization support (through the Department of Defense fuels 

purchasing initiative) to help develop the coal-to-liquids industry. 

Appalachian Resources and Opportunities: States Beginning to Participate in Market 

Development

The Appalachian region has ample coal reserves and possible sites to potentially participate in 

the development of the coal-to-liquids market. Several Appalachian states have begun 

supporting coal-to-liquids project development, including Pennsylvania (with WMPI in 

Gilberton, PA using waste coal), West Virginia (also with WMPI in Mingo County), and 

Mississippi (with Rentech at a site near Natchez). 

Coal-to-liquids plants are capital intensive. This type of development could generate about 1,000 

construction jobs (at peak) with 50 to 100 permanent plant jobs as well as 100 to 300 related 

permanent coal mining and support jobs depending on the individual project circumstances.11 

 

10 Global Insight analysis. 

11 Global Insight analysis. 
ARC: Non-Renewable Energy Innovation

page 13

Possible Needs and Initiatives for ARC to Consider for Its Energy Blueprint: Support 

Commercialization of Investment Opportunity

The Appalachian region may be able to take a number of steps to enhance commercialization of 

the technology. 

• Helping with feasibility studies 

• Assisting with siting and permitting processes 

• Providing leverageable funding 

• Pooling together the fuel requirements of the States to provide long-term off-take 

commitments 
ARC: Non-Renewable Energy Innovation

page 14

Coal-to-Gas and Coal-to-Chemicals 

Market Overview: Developing

With an expected accelerated decline in natural gas production and the expected long-term price 

differentials between gas and coal, converting coal into syngas begins to make economic sense. 

Numerous firms, including Conoco-Phillips, GE, M.W. Kellogg, and Shell offer gasification 

processes that are either commercially available now or under development. The basic 

technology has been around for more than a century. Furthermore, the coal gasification process 

also produces methanol, anhydrous ammonia, and hydrogen that can be used as feedstocks for 

fertilizer, industrial chemicals, and other basic chemicals. 

The gasification process is flexible and can be tailored to individual site or market needs. It 

could include a number of processes including gas production, coal-to-liquids conversion, 

electricity generation, chemical manufacturing, and hydrogen production. The cost for these 

types of facilities may range from $750 million to $1 billion (today's dollars).12 

The coal-to-gas market is not nearly as far along as IGCC or coal-to-liquids conversion. There is 

not a clear path to identify investor groups among natural gas producers, coal producers, or 

chemical companies that would likely participate. Many of these businesses view gasification as 

outside of their core business activity. Coal-to-liquids conversion is more attractive to consumer 

and political stakeholders. 

Appalachian Resources and Opportunities: Some Activity

Appalachia has abundant coal resources to support coal-to-gas or coal-to-chemicals initiatives. 

Some states (e.g., West Virginia) have begun investigating opportunities with project developers. 

Eastman Chemical Company in Kingsport, Tennessee has operated a commercial gasification 

facility since 1983, with apparently strong operational, reliability, safety, and environmental 

performance. Eastman's process produces acetic anhydride, acetic acid, methanol, and methyl 

acetate, and provides chemical building blocks for tape, Tylenol, film, artificial sweeteners, and 

other common products. 

Like coal-to-liquids plants, a single coal-to-gas/chemicals facility could generate about 1,000 

construction jobs (at peak) with 50 to 100 permanent plant jobs as well as 100 to 300 related 

permanent coal mining and support jobs depending on the individual project circumstances. 

Possible Needs and Initiatives for ARC to Consider for Its Energy Blueprint: Support 

Commercialization of Investment Opportunity

As with coal-to-liquids, the Appalachian region may be able to take a number of steps to enhance 

commercialization of coal-to-gas and coal-to-chemicals technology. 

• Bringing together interested investor groups 

• Helping with feasibility studies 

• Assisting with siting and permitting processes 

• Providing leverageable funding 

• Pooling together requirements of the States, and their utilities, to provide long-term offtake commitments (e.g., for gas) 

 

12 Global Insight analysis. 
ARC: Non-Renewable Energy Innovation

page 15

Coal Production and Services 

Market Overview: Thinking Big for the U.S. – "Yeah...Coal Can Do That"

There is significant momentum to embrace coal, especially clean-coal generation and conversion 

technologies, to supply growth needs for electric capacity, transportation fuels, and relatedenergy products. If increased use of coal occurs, significant increases in coal production 

capacity will follow.13 

Coal companies continue to focus on productivity and profitability in a relatively low growth 

industry. 

Appalachian Resources and Opportunities: Positioning to Compete

Appalachia has recoverable reserves of over 52,000 million short tons and a demonstrated coal 

reserve base of over 100,000 million short tons, representing about 20% of U.S. totals. Direct 

employment in Appalachian region mines averaged 49,327 in 2004.14 

U.S. Coal Reserves and Production in the Appalachian Region 

(Million Short Tons)

State 2004 Estimated

Recoverable 

Reserves 

2004 Estimated 

Demonstrated 

Reserve Base 

2005 

Production

Alabama 2,806 4,242 22.6

Georgia 2 4 ---

Kentucky-East 5,960 10,671 89.9

Maryland 366 652 5.5

Mississippi NA NA 3.7

North Carolina 5 11 ---

Ohio 11,507 23,342 24.3

Pennsylvania 11,822 27,597 65.2

Tennessee 462 779 3.2

Virginia 1,022 1,740 28.3

West Virginia 18,104 33,220 151.0

TOTAL 52,056 102,258 393.7

 

13 For example, see the National Coal Council's comprehensive report, Coal: America's Energy Future, 

March 2006. 

14 U.S. EIA, Annual Coal Report: 2004, November 2005. 
ARC: Non-Renewable Energy Innovation

page 16

A number of factors will shape the future competitive position of Appalachian coal. 

• Investment and productivity improvements in Appalachian mines, which will be the 

most significant driver of future competitiveness 

• The impact of scrubber investments in the electric power segment and the demand for 

high/low sulfur products 

• Barge and rail transportation economics 

• World-wide coal market dynamics 

The Appalachian states place a significant focus on the coal workforce, safety, and 

environmental issues. 

Possible Needs and Initiatives for ARC to Consider for Its Energy Blueprint: Support Marketing 

and Productivity Growth

A number of regional initiatives may help improve the competitiveness of Appalachian coal. 

• Helping to identify niches (e.g., waste coal) or support marketing initiatives that the coal 

companies do not carry out themselves 

• Supporting company-driven continuous improvement initiatives in the Appalachian 

region to encourage investment and productivity improvement 
ARC: Non-Renewable Energy Innovation

page 17

Natural Gas and Oil 

Market Overview: Supply Constrained

Global Insight believes (1) an accelerated natural gas production decline in key U.S. basins is a 

distinct possibility, (2) imported LNG will not be able to fill this supply gap, and (3) sustained, 

high natural gas prices will result. Furthermore, we are also entering an environment of 

sustained, high world oil prices. As a result of these market conditions, opportunities exist to 

economically develop unconventional gas and oil resources. 

Appalachian Resources and Opportunities: "Mature Region, Youthful Potential"15

The Appalachian region contains between 50 and 70 Tcf of technically recoverable natural gas 

resources, primarily in Kentucky, New York, Ohio, Pennsylvania, Virginia, and West Virginia. 

These natural gas resources include proved and probable reserves as well as unconventional 

resources, including coalbed methane, tight gas sands, and gas shale. These resources represent 

about 5% of the technically recoverable natural gas resources in the U.S. In 2004, eight 

Appalachian states produced over 680 Bcf of natural gas or about 1.9 Bcf per day from the 

Appalachian Basin. 

In addition, the Appalachian Basin contains 3 to 4 billion barrels of unconventional oil resources, 

primarily oil sands and oil shale in Kentucky. In 2004, oil production from the Appalachian 

Basin was over 38,000 barrels per day. 

The oil and gas extraction industry employs almost 17,000 workers in the Appalachian Basin. 

Most of these workers are employed by small and independent oil and gas exploration and 

production companies and service firms. 

A number of states have programs to help the industry: many are focused on oil and gas 

information exchange. 

Possible Needs and Initiatives for ARC to Consider for Its Energy Blueprint: Help Promote 

Information Exchange

There may be a need to undertake regional initiatives to support this small business community 

focused on oil and gas exploration and production. 

• Sharing information and best practices on oil and gas exploration and production 

technology 

• Helping provide access to resources for drilling, including addressing gas resource 

ownership issues 

• Providing enhanced access to geological information for the Appalachian Basin 

 

15 See Interstate Oil and Gas Compact Commission, Mature Region, Youthful Potential: Oil and Gas 

Resources in the Appalachian and Illinois Basins, September 2005. 
ARC: Non-Renewable Energy Innovation

page 18

Infrastructure for Non-Renewables: Natural Gas, Rail, Electric, and Fuels 

Market Overview: Participate or Perish 

Nationwide, there are a host of important policy issues where new rules, regulations and laws 

will be developed or enacted concerning energy infrastructure. 

• Reliability and price of rail and barge transportation for coal shipments (e.g., to expand 

coal production from the Appalachian region) 

• Access to and adequacy of the electric transmission system (e.g., for siting of new cleancoal generation) 

• Natural gas pipeline and underground storage adequacy and access (e.g., for new coal-togas facilities or to expand production such as coalbed methane from the Appalachian 

Basin). For example, in a recent presentation to stock analysts, CONSOL Energy's touted 

the Appalachian production and reserve base of its natural gas affiliate, CNX Gas – the 

second largest producer in the Basin. CONSOL outlined the growth potential in 

connecting to a second pipeline in 2006 that will allow better access to northeastern and 

southeastern markets.16 

• Petroleum product distribution system adequacy (e.g., for new coal-to-liquids facilities) 

The outcomes of these proceedings have a profound impact on the competitiveness of energy 

resources from any one particular region. 

Appalachian Resources and Opportunities: States Are Engaged 

Appalachia faces similar adequacy and cost issues concerning the energy infrastructure serving 

the region. The Appalachian states are active in assessing, monitoring, and participating in the 

various Federal, regional, and state and local proceedings on infrastructure issues. 

Possible Needs and Initiatives for ARC to Consider for Its Energy Blueprint: Take the Regional 

Perspective

There may be opportunities to analyze and address region-wide infrastructure issues and barriers 

to non-renewable growth in the various policy forums. 

 

16 Presentation by CONSOL Energy to J.P. Morgan Basic Materials Conference, June 6, 2006. 
ARC: Non-Renewable Energy Innovation

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Nuclear 

Market Overview: Building Acceptance

The potential lack of future natural gas supply plus expected greenhouse gas initiatives suggest 

there may be a larger role for new nuclear generation. For example, Global Insight believes there 

may be the opportunity to develop 30 to 40 GWs of new nuclear capacity rather than the 6 GWs 

that may result from incentives in the Energy Policy Act of 2005. 

There is significant Federal and industry effort to advance new nuclear generation, including 

initiatives to streamline processes for new nuclear plant design and certification, to obtain early 

site permits, and to issue a combined construction and operating license. 

A key issue is the public's acceptance of new nuclear generation. 

Appalachian Resources and Opportunities: Interest

There are operating nuclear generation facilities in 11 of the Appalachian states. Six existing 

nuclear stations are located in Appalachian counties including Browns Ferry (AL), Beaver 

Valley (PA), Susquehanna (PA), Oconee (SC), Sequoyah (TN), and Watts Bar (TN). 

Several companies and organizations (e.g., Southern Company; TVA) are moving forward with 

plans for new nuclear generation. The Southern States Energy Board has moved to support 

nuclear development as a way to meet future electricity capacity needs, diversify generation 

resources, preserve the environment, and reduce dependence on foreign energy sources. 

Possible Needs and Initiatives for ARC to Consider for Its Energy Blueprint: Assess Regional 

Acceptance 

There may be a role to assess the Appalachian region's acceptance of new nuclear generation. 
ARC: Non-Renewable Energy Innovation

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Hydrogen 

Market Overview: For the Future 

Longer-term research is being conducted on the potential for a hydrogen economy. There is 

continuing Federal support for R&D efforts. Any near-term hydrogen initiatives will most likely 

be tied to gasification initiatives, where hydrogen can be a product of the gasification process. 

Appalachian Resources and Opportunities: Willing to Participate

There are a number of demonstration initiatives in the region focused on transportation and fuel 

cells. 

Possible Needs and Initiatives for ARC to Consider for Its Energy Blueprint: Educate

There may be a role to educate and communicate the future possibilities for hydrogen within 

Appalachia. 
ARC: Non-Renewable Energy Innovation

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V. Conclusions 

The Appalachian region has significant opportunities with non-renewable resources. The larger 

opportunities appear to be coal-related, including clean-coal generation and coal conversion to 

liquids, gas, and chemicals. ARC may be able to help the development of these non-renewable 

resources through regional commercial, policy, and research initiatives, as shown in the following 

table. 

Non-Renewable Opportunities and Possible ARC Initiatives 

Possible ARC 

Initiative 

Smaller 

Opportunity 

Larger 

Opportunity 

Commercial 

Initiatives 

• Clean-Coal Generation 

• Coal Conversion: Liquids, Gas, 

Chemicals 

Policy 

Initiatives 

• Natural Gas & Oil 

• Energy 

Infrastructure 

• Nuclear Generation 

• Clean-Coal Generation 

• Coal Production 

Research 

Initiatives 

• Hydrogen • CO2 Capture & Sequestration 
ARC: Non-Renewable Energy Innovation

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The coal-related opportunities have attracted significant attention from coal market participants. 

For example, in recent presentations to stock analysts, Peabody Energy, the largest U.S. coal 

producer and a company with a stock market capitalization of $13 billion, detailed significant 

non-renewable opportunities for its future, as shown below. These opportunities are based on 

coal conversion and gasification, and include electricity, industrial gas, syngas, specialty 

chemicals, ammonia/fertilizer, ethanol, diesel, jet fuel, and hydrogen.17 Appalachia has the 

ability to participate in each and every one of these future non-renewable opportunities. 

 

17 Peabody Energy 2006 Investor Forum, May 25, 2006.