Kentucky’s history, identity and economy are tied as close to coal as Loretta Lynn’s career-defining “Coal Miner’s Daughter.”

The Bluegrass state ranks third in the nation in coal production and accounts for nearly a quarter of U.S. coal production east of the Mississippi River, according to the U.S. Energy Information Administration.

Kentucky has been one of the top three coal producers in the U.S. for the past 50 years, according to the Kentucky Coal Association.

Where Kentucky jobs aren’t in the mines or in coal company administration, they are in shipping coal on rivers and railroads.

That identity is set to change, but by how much and how quickly is as uncertain as it is important to the state and region.

State of change

Power companies increasingly switching to natural gas to fuel their electric-generation plants do so at the expense of coal.

The low price of natural gas, and its ample supply forecast, drive the change.

Natural gas prices remain stable after hitting a 10-year low in January at $2.32 per 1,000 cubic feet. Utilities considering using more gas and nuclear energy sources are planning for less coal use.

An example close to home is the Tennessee Valley Authority. TVA published a 20-year development plan that proposes to shutter 20 of its 59 coal-fired boilers before 2017.

From the utility’s perspective, it’s both economic forces, and regulations from the Environmental Protection Agency, driving the trend toward more natural gas as an energy source.

“That blend or that balance point moves around as the cost of those fuels change,” said Gary Brinkworth, TVA’s senior manager of new generation and portfolio optimization in Knoxville, Tenn.

“Natural gas prices have been on a dramatic downslope from where forecasted prices were going to be even a year ago. So what happens as a result of that, our mix moves, too, because obviously our objective is to give our customers the lowest cost power they can get. In some cases, that means moving away from what would have been historically our bread and butter generation, the coal fleet.”

Brinkworth said two years ago, TVA projected the cost of natural gas (per 1,000 cubic feet) to be around $9 by summer 2014. That price sits around $3 now, and its ample supply gives reason to believe prices will remain low moving forward.

“That’s huge. That’s millions of dollars of reduced operating costs,” Brinkworth said.

Brinkworth and Scott Brooks, TVA spokesman, estimated that coal makes up about 45 percent of TVA’s power generation with nuclear representing 32 to 35 percent, hydroelectric power around 8 percent and oil and gas from 3 to 5 percent.

Brinkworth said by 2013, TVA’s estimates for coal will go down to 35 percent and with natural gas comprising 23 percent of its power generation.

By 2023, TVA’s estimates coal to represent 20 percent of its power generation compared to 32 percent natural gas and 26 percent nuclear.

The move toward natural gas isn’t confined to TVA. The U.S. Energy Information Administration reported that coal-burning facilities are expected to slip to 10 percent of total new capacity in the U.S. in 2013. Gas is expected to rise to 82 percent of new capacity in 2013, up from 42 percent last year.

In Kentucky, TVA operates one hydroelectric dam (Kentucky Dam), eight combustion turbines in Marshall County and two coal-fired power plants, including the Shawnee Fossil Plant near Paducah.

Fuel source costs aren’t the only considerations for TVA when considering its future in power generation. “A lot of folks are beginning to move toward a cleaner portfolio,” Brinkworth said. “TVA’s vision for a cleaner portfolio doesn’t mean that coal goes away. It means it occupies a smaller part of the pie.”

Part of TVA’s decision to shut down coal-fired boilers before 2017 came from an agreement it made with the EPA in April to resolve alleged Clean Air Act violations at 11 of its coal-fired plants in Alabama, Kentucky and Tennessee.

Increased regulations for coal-fired plants raise their operating costs, further driving a switch to other power sources. Coal companies, and industry associations, point to the increased regulations as a significant factor.

‘Organic and artificial factors’

Bill Bissett is president of the Kentucky Coal Association based in Lexington.

He said organic and artificial factors are driving power companies to natural gas away from coal.

“Organic factors are ones we cannot control, which include 61 degree temperatures in January where people are using less electricity and thus we use less coal,” Bissett said.

“You also have an administration in the White House that is very critical of eastern Kentucky coal.”

“Due to market fluctuations as well as political ideology in Washington, we’re seeing some changes in what’s been a very consistent market for Kentucky coal.”

While the environmental impact and politics of coal are at the heart of the industry’s future, projecting where the industry is heading can be done without knowing what will come of political wrangling.

“This country uses more electricity every year and with an estimated 40 percent increase in electricity demand by 2025, we can all agree that there’s going to be a need for any form of electricity that can exist in the marketplace,” Bissett said.

Representatives for the natural gas industry feel its increased use is a given.

“Over the last decade, shale gas production has increased more than 12-fold,” said Daniel Whitten, vice president of strategic communications for America’s Natural Gas Alliance in Washington. “As a result, the Energy Information Administration has raised production estimates and affirmed that natural gas will be a major part of our country’s energy portfolio and economy in the foreseeable future.”

What could that mean for Kentucky?

Most of the state’s natural gas production comes from the Big Sandy field in eastern Kentucky, according to the EIA.

The majority of Kentucky’s natural gas is supplied by pipeline from the Gulf Coast and its own production accounts for less than 1 percent of total U.S. natural gas production.

Less domestic demand for its coal may lead to more Kentucky coal being exported.

“Right now we only export about 5 percent of our coal and that number could increase especially by 2030,” Bissett said.

“China is expected to need 5 billion tons of coal a year, and even at current estimates, they’re going to need a billion from the outside world to meet that.”

“Now will that be Kentucky coal? I don’t know.”

Western Kentucky employers that aren’t mines are just as interested in coal’s future.

What’s it mean for the region?

TVA is Paducah & Louisville Railway’s largest customer, said Tom Garrett, P&L president.

“We are seeing a trend where power companies are reducing their reliance on coal to generate power,” Garrett said.

“It could have a serious impact on P&L. Basically we have three railroads that we operate, and at least 80 percent of our carloads are coal. Any move away from coal could be devastating on our company.”

Garrett said many people realize coal’s impact on Kentucky’s economy, but assume it is all through coal mines and coal generator stations.

“A lot of people in western Kentucky don’t realize its impact on the region because of its impact on P&L and the barge companies,” Garrett said.

Half of the product shipped on the river is coal, with grain and food products making up 25 percent or so and the remaining 25 percent is about everything under the sun, said Ken Wheeler, a retired river industry executive still heavily involved in the industry.

The river shipping companies pushing all that coal around make up some of the region’s largest employers.

Crounse Corp. employs around 350. Nashville, Tenn.,-based Ingram Barge employs 1,821, as of late 2011, making it the region’s second-largest employer behind Western Baptist Hospital.

James Marine employs 840, although most of its business comes from barge building and repair work.

Any development that would slow down demand from coal would affect the river industry.

Wheeler said the timeline for changes in the coal and natural gas industries will be key.

“At this point there is a lot of conversation going on, not a lot of physical action,” Wheeler said. “Just how long lived that price swing between gas and coal will predominate is yet to be seen.”

Brinkworth said TVA isn’t putting all its eggs in the natural gas basket.

“I think our forecasts right now are showing us that we think gas prices are going to remain competitive with coal. We even see gas prices staying at this low level for a long period of time,” Brinkworth said.

He said TVA’s coal-fired boilers set to be shut down will be idled, not discarded. The breakdown of the 20 TVA plans to idle:

• 10 at Johnsonville Fossil Plant near Waverly, Tenn.

• 6 at Widdows Creek Fossil Plant in northeast Alabama.

• 4 at John Sevier Fossil Plant on the Holston River near Rogersville, Tenn.

Brinkworth said TVA can decide to idle those units or retire them outright after considering the costs of operating them under EPA regulations.

“Again, we’re not going to zero coal,” Brinkworth said. “We know we have consequences for employment and communities that host those power plants. ... We try to balance those (concerns) and at some point we have to do what makes the most sense for all of our customers across the valley.”

Call Adam Shull, journal editor, at 270-575-8653.