Coal Resources and Reserves: a Review of the USGS Assessment

1. Coal Resources and Reserves: a Review of the USGS Assessment by Dr. Dan Alexander, PE Visiting Assistant Professor Department of Mining Engineering West Virginia University

2. 1971 AIME Centennial ”Free World Energy Resources”, by Wayne Glenn • There is no end to this energy race • The very best of the young engineers and scientists will continue to be needed to do the job • People say to us as mining people, “Do your part. Give us the energy.” • What we need now are more incentives than restrictions. More initiative than suppression. More confidence than despair. More coordination and less fragmentation of energy supplies.

3. SCOPE • Review of resource and reserve criteria • Background of our current 1974 assessment • USGS coal assessment • Quadrangle based • Basin based • EIA forecast of future production • Conclusions

4. Resource or Reserve? • These words have preferred definitions and should be used carefully by mineral professionals. • Resource refers to geologic existence of a mineral deposit that could someday be extracted. • Reserve refers to that part of the resource believed to be economically and legally recoverable with today’s or near future mining technology.

5. Resources • Resources are subdivided into three categories in order of decreasing knowledge or geologic confidence. • Measured Resource • Indicated Resource • Inferred Resource

6. Geologic Confidence Based on distance between drill hole samples that have useable data. Note that drill holes exist in the SW quadrant but do not have quality data; therefore this region’s quality is INFERRED. Example from Jordan & Boyce May 2004 Mine Design Report

7. Reserves • Reserves can be subdivided into two categories in order of decreasing economic confidence and geologic confidence at some point in time. • Proven Reserve • Probable Reserve

8. “When geologic knowledge increases, exploration information may become sufficient to calculate a resource. When economic information increases, it may be possible to convert part or the whole of a resource to a reserve. The double arrows between reserves and resources indicate that changes in any number of factors may cause material to move from one category to another.” Figure 1, from the SME Report of Working Party #79, A Guide for Reporting Exploration Information, Resources, and Reserves.

9. EIA US Coal Data: 1997 Update Numbers are in billions of short tons. Darker shading means greater data reliability DRB Estimate from EIA as of 1-1-1997 Identified and Total Resources from USGS 1-1-1974 in Coal Resources of the US. http://www.eia.doe.gov/cneaf/coal/reserves/front-1.html

10. Demonstrated Reserve Base (DRB) US Energy Information Admin. • An estimate of the in-place coal resources in the US (The DRB estimates are not reserves) • USBM for the first time used uniform definitions and criteria for the entire US in 1974 • Fourth estimate issued by the EIA in 1997 is the only “publicly available, nationwide data file of the quantities of minable coal conforming to a uniform set of criteria” • Updated 1-1-2006 the DRB = 493 billion stons • Estimated Recoverable Reserves = 268 bil. stons

11. National Coal Council • In 1987 the National Coal Council questioned the widely held numbers reported for coal reserves (EIA 1985 DRB was reported 486 billion tons) • They found where state reserve report revisions were undertaken the old numbers were overstated by 70% • NCC reported a recoverable US coal reserve base of 170 billion tons (vs. EIA at 275 bt) • State, federal and local laws, rules, regulations and policies adversely impact the amount coal that can be recovered

12. First USGS Coal Assessment Plan • Produce a representative sampling of 7.5 minute quadrangles (57 square miles) • GIS technology and PC capacity could do the calculations • Apply results statistically to larger areas

13. U.S. Geologic SurveyNational Coal Resource Assessment • In 1986 USGS and Kentucky GS started Coal Availability (CA) studies • Program methodology determined coal resources available for mining in one quadrangle • Project was expanded to other coal states • Each coal state has produced and published a CA study • 100 cooperative CA studies have been completed in the Appalachian, Illinois, Powder River, Green River, and San Juan Basins and Colorado Plateau

15. Available Coal Resources That part of the original coal resource that is accessible for mine development after removal of areas based on environmental, societal and technological constraints Eggleston and Carter, 1987

17. Recoverable Resources and Reserves Recoverable Resources are those parts of the coal resource that may be physically recovered after normal mining and cleaning losses are subtracted from the available coal resources. Reserves (economically extractable coal resources) includes marketability and an acceptable rate of return. Rohrbacher, et al, 1993, 2000, 2001

18. USGS Coal Assessment • USBM was invited in 1989 to add mining and processing recovery and economics to calculate Coal Recoverability (CR) studies • CoalVal computer program was created to estimate production cost and profit • Economic criteria applied over a wide area was used for reserve classification • No locally specific mine plan possible

21. Coal Availability Studies – Central Appalachia Fire Clay, Pond Creek, Pocahontas 3 and other coal beds

22. USGS Coal Assessment • Topographic, geologic and geographic differences between quadrangles • Recoverability data could not be projected to other quadrangles • PC computing power increased by mid 1990s • Entire coal basin databases could be handled by the Geographic Information Systems (GIS) • 200 quads or over 10,000 square miles

23. USGS Coal Assessment • CDs have been issued for the five main coal producing basins in the US • Includes 28 coal fields or basins • Only the major seams are included • States continue to work on completing the assessment as funds are available

25. USGS Coal Assessment • Mine models for each mining method • MINEMODEL program developed to select the mining method most appropriate for each available area • Discounted Cash Flow analysis was included in 2003 CoalVal program (10% ROR) • Cost curves for the available coal in a basin/seam can be estimated

26. USGS Coal Assessment • New programs are automated • Older assessments have been remodeled (PGH, IL, PRB) • New estimates significantly reduce the amount of coal that is economically recoverable

27. Pittsburgh Coal Bed • Entire basin modeled • 39 billion tons of original resources • 16.7 billion tons of available resources • 9.7 billion tons of recoverable resources (25%) • 1.5 billion tons of reserves (10% ROR, $23.42.ton sales price)

28. Illinois Coal Beds • Danville, Herrin, Springfield and Colchester seams modeled • 261 billion tons of original resources • 185 billion tons of available resources • 112 billion tons of recoverable resources (43%) • 28 billion tons of reserves (10% ROR, $22-25 ton sales price)

29. Powder River Basin • Wyodak, Canyon, Gates/Kennedy seams modeled • 136 billion tons of original resources • 121 billion tons of available resources • 109 billion tons of recoverable resources (80%) • 14 billion tons of evaluated resources (model being revised now)

30. Overall Assessment • No current overall assessment for the US is available • According to Marshall Miller (part of the external review team of the USGS) the Coal Resource Assessment Program is severely underfunded • Only Kentucky has adequate funding • Of 60 coal seams in WV only 6 are mapped and qualified under state and federal funding

31. “Where Does Coal Stand,”Dr. Thomas Falkie, Director USBM,1974 Illinois Mining Institute Proceedings • The 1975 budget for the USBM was $221 million with a heavy emphasis on energy • Mining research included $96 million • Of which $46 million was to make coal mining more productive and on devising the kind of mining technology that will be needed for producing coal from deep, difficult deposits we know we’ll have to start mining between now and 1985 to meet the domestic demand for energy • The Bureau of Mines was disbanded in 1996

32. Future Mining Projects • Mine the best first • Geology always gets worse • Coal seams are thinner • Coal quality is poorer • Cost increases with thinner seams and higher ratios • Need better equipment • A mine is not a factory – conditions change • Few companies will build new mines without truly new coal contracts for new generation capacity Paraphrased from a speech by Pete Lilly, President, Consol Energy 2005 International Ground Control Conference

33. EIA Production Forecast

34. Current Situation • The mining enterprise must be innovative, adaptive, persistent and optimistic • Research funding exists for Health & Safety initiatives • Environmental restrictions are expanding • Downstream utilization assumes coal will be there at reasonable prices • R&D productivity research funding is needed • Administer through industry advisory councils • Long term planning horizon

35. Logical Mining Unit • Western US concept applied to Federal coal permits • European method to insure maximum resource recovery • overall society benefits • Some people and towns are moved as mining progresses • Lowest Cost mine plan and Maximum resource recovery • Ignores property boundaries and surface development • May require delaying surface development until coal mined • How much more recoverable coal would be available?

36. Thank you ?