WV economy poised to become more diversified - Beckley, Bluefield & Lewisburg News, Weather, Sports

WV economy poised to become more diversified

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JIM ROSS / The State Journal.East Coast ports are improving their harbors to accept larger ships and both CSX and Norfolk Southern have made improvements to accommodate rail cars carrying double-stacked cargo containers. JIM ROSS / The State Journal.East Coast ports are improving their harbors to accept larger ships and both CSX and Norfolk Southern have made improvements to accommodate rail cars carrying double-stacked cargo containers.
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  • Map to Prosperity

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    "Map to Prosperity" is a long-term project of The State Journal that will deeply examine government and business in West Virginia — both the perceptions and the reality.
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Coal and the lottery can't be expected to continue providing outsized portions of state revenue forever, but what will take their places? 

The apparent answer: A broader mix of businesses, including some built on old standbys using new technologies. 

"Coal is West Virginia," the West Virginia Coal Association proclaims in its advertising. That's a stretch nowadays, given the fact that the industry, by its own count, directly employs fewer than 20,000 people. That's less than 3 percent of the 747,000 people employed in West Virginia.

But when viewed another way, coal's impact remains impressive. 

"The coal industry and the coal-burning, electric-generating industry together represent nearly 60 percent of the business taxes paid to the state of West Virginia," according to the Coal Association.

No one is predicting the coal industry will continue at this level. Coal production peaked in West Virginia at 165 million tons in 2008. The coal association estimates that production totaled 110 million tons in 2013 — a 33 percent decrease from the peak. 

The U.S. Energy Information Administration predicts production will increase slightly this year but decline in 2015 as utilities retire coal-fired power plants rather than equip them to meet federal mercury and air toxics standards. 

The West Virginia Lottery, another pillar of the state budget, has deposited more than $6.8 billion in the state's education, senior services and tourism accounts since its inception in 1986. But lottery sales peaked in 2007 and are expected to decline or be flat in coming years as competition from surrounding states continues to intensify. 

One sign lottery revenue growth has ended: In December Standard & Poor's Ratings Services downgraded its ratings outlook for the state School Building Authority's bonds that are backed by excess lottery revenue. The independent rating agency said there is a one-in-three chance declining lottery revenues will require it to downgrade the bonds within two years. 

The ratings outlook downgrade is bad news because the lottery helps finance many projects and programs beyond what comes to mind when one thinks of education, senior services and tourism. Examples: Lottery money helps pay for improvements at the Capitol Complex and helps pay down the old workers' compensation debt.

The lottery, in the wake of stiff competition, is expected to have flat revenues over the next half-dozen years.

The newest opportunity for economic revitalization is based on natural gas, which has been produced in West Virginia for more than 200 years.

By combining horizontal drilling and hydraulic fracturing, drillers can harvest vast quantities of natural gas locked in shale formations. The quest for this gas has sparked a gold rush-type atmosphere in parts of the northern half of the state.

Companies already have spent billions of dollars in northern West Virginia, southwestern Pennsylvania and southeastern Ohio. Natural gas produced from shale in West Virginia has grown from almost zero in 2006 to 301.7 billion cubic feet in 2012. The assessed value of property in Marshall County has doubled since 2007. The natural gas industry paid $70.3 million in West Virginia severance tax in 2012.

Remarkably, this may be just the beginning.

In November, Gov. Earl Ray Tomblin announced Brazilian-based Odebrecht would explore the possibility of developing an ethane cracker and three polyethylene plants in Wood County.

In his Jan. 8 State of the State speech, Tomblin said, "The construction phase of this project alone is expected to create approximately 10,000 jobs. This cracker is a game changer."

So what's ahead? Well, to start with, neither coal nor lottery revenues are going to disappear.

Bill Raney, president of the West Virginia Coal Association, estimates that about 13 billion tons of coal has been mined in the state over the past 100-plus years and about 50 billion tons remain.

Although coal production has been hurt by low natural gas prices, federal environmental regulations and higher production costs, exports of metallurgical coal — used to make steel — have soared in recent years.

There are several promising metallurgical coal-related developments on the horizon, including:

 

  • An expansion of the Panama Canal, scheduled for completion in 2015. It is expected to improve the eastern United States' — and West Virginia's — access to world markets.
  • Arch Coal invested $400 million in its Leer Mining Complex in Taylor County, which began using the longwall technique to mine metallurgical coal in 2013.
  • Private business cast a big vote of confidence in the underground mining industry in 2011 when Caterpillar bought Bucyrus International, a major manufacturer of underground mining equipment, for $9 billion. The next year Monty Boyd announced his Walker Machinery dealership in southern West Virginia and his Whayne Supply dealership in Kentucky would sell and service Caterpillar's underground coal mining equipment.
  • Texas-based Carbonyx Inc. announced in November it would build a plant in Jackson County that uses West Virginia coal to make a carbon alloy replacement for coke, an essential ingredient for steelmaking.