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Copyright 1998 by the Wyoming Department of Employment, Research & Planning


Wyoming Mining Industry: An In-Depth Analysis

by: Gregg Detweiler and Xiaohong (Sherry) Yu

The Mining industry has been a major contributor to Wyoming’s economy for many years. It changes over time just like other economic sectors due to global and domestic economic changes. This article will discuss the main components of Wyoming’s mining sector, what has happened to each mining industry in the past, how the employment level has changed, and what will be more likely to happen in the future regarding production, price, and employment for each mining industry.

The Mining Industry as a Whole

The history of Wyoming’s mining industry has played and will continue to play a vital role in the progress of Wyoming’s economy. During the past thirty years, Wyoming’s mining sector has seen drastic fluctuations in its overall employment. Throughout the 1960’s and early 70’s, average annual employment for the mining industry was around 20,000; however, during the next ten years annual employment grew by approximately 19,000 jobs with the highest level being recorded at 38,500 in 1981.

Presently, Wyoming’s mining industry directly employs 16,700 people with an annual payroll of $713,580,359. Although the loss of nearly 22,000 jobs over the last seventeen years may have slowed the economy, Wyoming’s mineral resources are still major contributors to the economic well-being of the state. Minerals are the only class or kind of property in Wyoming valued and taxed at 100 percent of their actual value. Also, they are the only class of property which pay two direct taxes (property and severance).

In 1995, about half (49%) of the total property taxes levied in Wyoming were contributed by the mining industry. Oil and gas production accounted for 28 percent ($128,241,945), coal, trona and all the other minerals contributed the other 21 percent ($95,637,426). Meanwhile, the mining industry paid a total of $194,909,775 in severance taxes to the state. Severance tax revenues are distributed to a variety of funds including the General Fund, cities and towns, highways, counties and water development funds.

In addition to property and severance taxes, Wyoming collects a royalty for petroleum produced on state and federal owned land. The state receives only half of the royalties paid to the federal government for production on or from federal lands, but this accounts for 82 percent of royalty income to the state.

Wyoming’s mining industry includes four major industries: Standard Industrial Classification (SIC) 13 - Oil and Gas Extraction, SIC 12 - Coal Mining, SIC 14 - Mining and Quarrying of Nonmetallic Metals (over 90% is trona mining) and SIC 10 - Metal Mining. Figure 1 shows how each mining industry is distributed within the state (as of second quarter 1997). For example, 66.8 percent of total statewide coal mining is found in Campbell County, 22.5 percent of the total oil and gas employment is in Natrona County and 72.2 percent of the total non-metallic & quarrying (trona, bentonite, soda and potash) is in Sweetwater County.

Oil and Gas

During the past 20 years, the natural gas industry has seen the gradual decontrol of natural gas wellhead prices and the unbundling of pipeline company transportation and sales services. The energy crisis of the 1970’s posted the price of oil upward to $34 per barrel compared to $20 in today’s market (see Figures 2 and 3). However, a combination of stable prices, new technology, high demand and a healthy national economy has led to increased drilling activity in Wyoming and elsewhere in the last five years.

The use of horizontal drilling in oil exploration, development and production operations has grown rapidly over the past 10 years. Horizontal drilling technology achieved commercial viability during the late 1980’s. Most horizontal wells have targeted crude oil reservoirs. The commercial viability of horizontal wells for production of natural gas has not been well demonstrated yet, although some horizontal wells have been used to produce coal seam gas. Offsets to the benefits provided by successful horizontal drilling are its higher cost, decrease in employment and the inability to find qualified and experienced labor.

In the early 1990’s, the cost premium associated with horizontal wells had shrunk from the 300 percent level experienced with some early experimental wells to an annual average of 17 percent. It is probable that the cost premium associated with horizontal drilling will continue to decline, leading to its increased use. Despite the entry of small independent producers into a state industry long dominated by major oil companies and new technology (such as horizontal drilling), employment in Wyoming’s oil and gas industry has declined.

Figure 4 illustrates a historical view of employment in the oil and gas industry as well as an outlook for the future. Crude petroleum and natural gas employment has slowed significantly due to the downsizing and reorganization of the major producers in the state. Even the independent producers, with their low overhead costs, cannot fill the employment loss created by the departure of these long-term companies. However, the oil and gas field services industry shows future promise with the increased success of natural gas exploration throughout the southwest region of the state.

Wyoming has 13 gas fields in the top 100 U.S. fields ranked by gas production within the Proved Reserves Group. Five out of the 13 fields are ranked in the top 20 with one of them ranked ninth in the nation. Comparing oil to gas, Wyoming has a total of five oil fields in the top 100 U.S. fields ranked by oil production. All five fields rank in the bottom 50 nationwide.

Coal Mining

Coal mining is the second largest mining industry in Wyoming (in terms of employment) following oil and gas. It provided an average employment of 4,706 (29% of total mining employment) in 1996 and produced about 278 million tons of coal (26% of total U.S. coal production) in the same year.

Wyoming is the largest coal producer in the U.S. and has the third largest coal reserves. Wyoming has 129 years of coal mining history and has been the largest coal producer in the U.S. for ten years. In 1996, Wyoming contributed just over one-fourth (26%) to the total U.S. coal production. There were 42.6 billion tons of underground coal and 26.1 billion tons of surface coal (a total of 68.7 billion tons) reserves in the state, which equals 14.4% of the total U.S. reserves(1). Only two states, Montana and Illinois, have more coal reserves (120.1 billion tons and 78.5 billion tons, respectively) than Wyoming.

Almost all (99% in 1996) of Wyoming’s coal was from surface mining. The application of gigantic excavating (e.g., dragline) and coal-loading equipment and computer controlling (e.g., hopper and conveyer belt) makes Wyoming coal production less labor intensive and more productive compared with other states. According to Energy Information Administration (EIA), the coal productivity in Wyoming was 32.06 short tons per miner per hour in 1996, which was 5.6 times higher than the U. S. average level (5.69 short tons). Less labor input and higher production makes it possible to reduce the unit production cost.

All Wyoming coal is bituminous or sub-bituminous which has higher heat energy than lignite. Meanwhile, low-sulfur content makes Wyoming coal even more valuable and competitive since it helps the power plants to meet the legislation’s environmental protection requirements. The EIA defined "low-sulfur coal" as having less than 0.6 pound of sulfur per million British thermal units (Btu’s). Wyoming has much more low-sulfur coal reserves (24.5 billions tons, about 24% of U.S. total) than any other states except Montana (50.4 billion tons, about 50% of the U.S. total).

Coal is a major source of electricity. More than 80 percent of U.S. coal is burned by the power plants each year. It is also used by the steel industry as a major source of coke (the residue of coal left after destructive distillation and used as fuel). In addition, some manufacturing plants also need to burn coal to produce their products such as paper, chemicals and metal products. According to the Wyoming Mining Association, more than 96 percent of Wyoming coal was used by power plants in 22 other states in 1994, 2.5 percent was used by industrial plants, 0.6 percent was exported to other countries and only 0.2 percent belonged to residential or commercial heating use.

Most of Wyoming's coal mines are located in the Northeast region of the state, especially in Campbell County. More than 88 percent of the state's total coal production was contributed by mines in those regions in 1996. The Central and Southwest regions produced the other 12 percent of Wyoming's coal (7.3% and 4.5%, respectively).

Usually, price, production and employment are highly positively correlated. In other words, when price goes up, production and employment would go up too, since the higher price would encourage producers to invest more and hire more so that they can produce more and receive more profit and vice versa. Is this economic pattern applicable to Wyoming’s coal mining industry? Figure 5 shows historical data; the annual average coal price increased from 1980 ($10.54 per ton) to 1982 ($12.75 per ton) and then had a continuous decrease until 1996 ($6.23 per ton). The coal production, however, consistently increased from 1980 (94.99 million tons) to 1996 (278.4 million tons) except in 1986 and 1992 which both had slight declines compared with the previous years. The employment stayed flat, almost the same level from 1980 (4,612 annual average) to 1996 (4,706 annual average).

In other words, the average coal price has been almost cut in half (decreased by 41%) in the past 16 years, but total production more than doubled and employment remained unchanged (only a 2% increase). Price and production seem to have a negative correlation, and employment appears to have no correlation with the other two factors at all. Is this situation normal? Yes, but it is unique to Wyoming’s and some other western states’ coal mining industries. As mentioned before, higher reserves of surface coal make it easier for Wyoming miners to apply modern heavy equipment, utilize computer control and have less labor input in their production. This special advantage brings a much higher coal productivity and possible lower production cost compared with other states (especially eastern states which mostly have underground coal mines).

Lower production costs would absorb some degree of lower price and yet still allow producers to make good profits. However, eventually a "break even" point will be reached, and producers will not be able to make any profit if the coal price continues to decrease. The lower sulfur content is another major advantage which makes Wyoming coal more valuable due to the environmental protection requirements. Those two features make Wyoming coal very competitive at getting more and more market shares. This growth trend in Wyoming coal production should continue unless there are some new policy changes; for example, restrictions on coal burning due to the greenhouse effect, other economic changes (e.g., railroad transportation) or the "breaking even" of the coal price.

Historical data showed that employment in coal mining did not have a significant correlation with its production level at all because of the automatic feature in coal producing. This means that all the factors that would influence the coal production (such as price, cost, supply and demand, transportation, loan interest rate, etc) would not have a strong influence on the employment level. In this case, using employment’s own time series to project its near future (short term) may yield the best results. According to the Standard Industrial Classification (SIC) system, coal mining employment in Wyoming is classified into three groups: SIC 1221- bituminous coal and lignite surface mining (Wyoming has only bituminous coal), SIC 1222- bituminous coal underground mining and SIC 1241- coal mining services. Ninety percent of the total coal mining employment is in surface mining, 2.8 percent work at underground mines and 7.2 percent are in coal mining services.

Surface mining employment shows many more seasonal fluctuations than the other two industry groups (see Figure 6), but the fluctuations are small; only six percent of the total is due to seasonal workers (around 200 employees). Around the second quarter of each year when the weather starts getting warmer, employment begins to increase. Employment typically reaches the highest level of the year in the third quarter of the year and then starts to go down, arriving at its lowest level in the first quarter. Underground mining employment did not show any seasonal changes. The employment in coal mining services has a similar seasonality to surface mining employment, but for the past eight quarters, it has shown an unseasonal continued decrease for some reason. The shaded area of Figure 6 represents the projected employment levels for the next 12 quarters. Total coal mining employment should remain about 4,700 in the third quarter each year and about 4,500 in the first quarter.

Trona and Soda Ash Industry

With a total of 3,102 annual average employment in 1996 (19.5% of total mining employment), the trona and soda ash industry was ranked as the third largest mining industry in Wyoming. Annual production of soda ash in 1996 was 9.1 million tons, which amounts to 90 percent of the total soda ash production in the United States and about 25 percent of the world’s supply. Wyoming’s trona and soda ash industry was ranked as the number one (largest) soda ash producer in the world. According to the U.S. Geological Survey (USGS), Wyoming has about 127 billion tons of trona reserves, the world’s largest trona reserve. Most of the trona deposits occur in the southwest part of the state, especially in Sweetwater County.

Trona was first found in Wyoming during the oil and gas explorations 60 years ago. Eight years later, the first trona shaft was excavated and in 1946 commercial production began(2). Before then, chemical (synthetic) methods were the only way to produce soda ash in America. By the late 1970’s, the enforcement of environmental legislation to reduce pollution and the higher selling price of synthetic soda ash caused by higher energy costs led almost all of the synthetic soda ash plants in the Southern and Eastern U.S. to close. The present American soda ash industry is dominated by the West’s natural soda ash operations which include five companies in Wyoming and one in California.

Trona is a naturally occurring mineral, and soda ash is a refined product of trona. The standard industry conversion is that 1.8 tons of trona produce one ton of soda ash. All soda ash companies in Wyoming do both mining of trona ore and refining it to soda ash. They could be classified in the trona mining industry or the soda ash manufacturing industry. To be consistent with the historical classification, this study includes all of those companies and classifies them in the trona mining industry. Only soda ash production and soda ash price are used in this research since soda ash is the final saleable product even though it is based on trona production.

Soda ash is a main chemical component in producing glass, laundry detergents, baking soda and caustic soda (a special chemical product for building masonry block). It is also used to produce paper, water softeners and pharmaceuticals. The Table shows the distribution of U.S. soda ash supply in 1996 and the end use of soda ash in the U.S. More than one-third of U.S. soda ash was exported to other countries. Nearly half (47%) of the domestic consumption ended in producing glass products, 26 percent for producing chemical products and 12 percent in soaps and detergents.

An overview of the history of the trona and soda ash industry regarding production, price and employment (see Figure 7) shows that the price of soda ash in constant dollar terms dropped from $59.29 per ton in 1989 to $47.23 in 1994, then rose back to $50.73 in 1996. The production remained at the same level (around 8 million tons) from 1989 to 1994, then rose to nine million tons in 1995. Average employment stayed flat for the past seven years, even when the production increased one million tons in the past two years. Correlation and multiple regression analysis show that Wyoming’s soda ash production is highly correlated with soda ash exports and selling price. In other words, the recent increase of soda ash production was mainly due to the increase of soda ash exports and the selling price.

U.S. domestic consumption is the largest component that affects soda ash production, but it cannot explain the recent changes since it has been staying at the same level (fluctuating between 6.2 and 6.5 million tons) for the past eight years. During the same time period, exports of soda ash increased by 45 percent (from 2.65 to 3.84 million tons) and are expected to continue increasing at an annual rate of 1.5 to 2.0 percent for the next four years according to USGS. With the increasing demand on the world market, three of Wyoming’s five international soda ash companies were planning to expand their production capacity in 1997. As a result of these expansions, the total soda ash production capacity in Wyoming is expected to increase by 24 percent. Average employment will increase somewhat, along with these expansions, but it will be very limited. As in other mining industries, improved mining techniques and modern equipment enable the soda ash producers to continue to increase their production with little or no increase in employment level. Figure 8 shows historical annual average employment and projections for the next three years. Basically, the annual average employment will remain around 3,138 through the rest of the century if there are no major changes in the soda ash demand internationally and/or domestically.

Metal Mining

Discovery of uranium in Wyoming took place in 1949, but the most famous discovery took place in 1953 when Neil McNeice discovered uranium in the Gas Hills of Wyoming. Production during the 1950’s centered around the Gas Hills and Shirley Basin in Fremont and Carbon Counties, respectively. Production continued to increase until the 1960’s when the demand for defense purposes started to decline. Employment and production in the U.S. and Wyoming peaked in 1980 when employment hit a record 21,521 in the U.S. and over 1,500 in Wyoming. Total production in the U.S. peaked at 44.4 million pounds with 12 million pounds of U308 (commonly known as "yellow cake") from Wyoming. Since 1980, production has declined to 3.4 million pounds nationally (1994 production) and 1.2 million pounds from Wyoming(1). The price hit a low of $7.50 in 1991, down from $40 in the early 1980’s. The price has rebounded to almost $12 per pound in 1995.

Wyoming mines have produced 193 million pounds of U308 since production first began. The energy contained in one pound of "yellow cake" is equivalent to 31 barrels of fuel oil or 10 tons of coal, so the total energy produced from Wyoming uranium is equivalent to 5.9 billion barrels of fuel oil or 1.9 billion tons of Wyoming coal. Production from conventional mine/mill operations ceased in 1992. While there were nine operating uranium recovery mills in 1980, there is only one still standing and it is on standby status. The opportunity for future production from that facility is market dependent.

Figure 9 depicts how Wyoming’s metal mining industries have fared throughout the last nine years and where they are heading in the future. From 1992 to 1996, employment demonstrates erratic fluctuations in the time series with no seasonality. However, in January 1997 the time series shows a highly seasonal pattern which makes it easier to predict employment events. Other variables affecting the industry have remained constant.

Conclusion

Mining as a whole should remain relatively constant over the next few years. Normal seasonal variations will continue to occur. While employment in this industry has slipped to roughly half of what it was during its peak, Mining still plays a vital role in Wyoming's economy.


1 Wyoming Mining Association.

2 Southwest Wyoming Economic Development Association.

Gregg Detweiler is a Principal Statistician, specializing in Current Employment Statistics (CES); Xiaohong (Sherry) Yu is a Senior Economist, specializing in Unemployment Insurance (UI) Trust Fund projections with Research & Planning.


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