Coal, once the unchallenged king of Pennsylvania power generation, is set for further erosion in its market share as environmental regulations tighten and abundant natural gas becomes an increasingly attractive alternative for utilities.

The black gold now accounts for less than half the power generated in Pennsylvania, down from 92% in 1969, and the industry likely won’t be able to stop the slide despite growing demand from steelmakers in Europe and Asia.

Although much of the coal exported to steelmakers is metallurgical grade, with properties that make it better for use in coking ovens, high prices for that product have pulled an increased amount of coal with marginal coking properties and usually used for power generation into international export markets.

The change in coal use in Pennsylvania has attracted widespread attention as the rest of the US grapples with shifts in generation fuel choices.

“That’s pretty significant for a state that had a natural advantage with so much coal underground, and is the second-largest power generator in the country,” said Doug Biden, president of the Electric Power Generation Association, a regional trade group based in Harrisburg.

Biden called the outlook for Pennsylvania coal “pretty grim.”

Over the last generation, Pennsylvania utilities have been forced to comply with stricter federal limits for emissions including sulfur dioxide and nitrogen oxide, and face future restrictions on mercury and greenhouse gas emissions.

The environmental rules drove generators to the nuclear industry which now accounts for 36% of Pennsylvania’s power, far higher than the national nuclear share of about 20%.

While coal’s market share has plunged in the last 40 years, it still accounts for 48% of Pennsylvania’s power generation, ahead of the national rate of 45%, and for the moment, well ahead of natural gas with just 13%.

Now, coal faces a new challenge from natural gas which is comparatively cheap, cleaner-burning, and available in vast quantities from the massive Marcellus Shale underlying about two-thirds of Pennsylvania.

With major new supply of unconventional gas coming on stream from the Marcellus and other shale plays, natural gas has bucked a global trend of rising commodity prices over the last couple of years, and in 2010 showed notable stability despite a hot U.S. summer and a cold winter.

The fuel from deep shale deposits is also more reliable than renewable sources, particularly wind, but gas-fired power plants can be brought on line more quickly than coal capacity when wind power fluctuates, Biden said.

While coal can for now compete on price with natural gas, any cost advantage is undermined by its environmental negatives which are expected to result in smaller, older plants being shut down within the next five years, said Biden. Almost all the thermal power generation capacity being built now is for natural gas generation.

Even Pennsylvania coal’s chief booster admits that power generators will be buying less in years to come.

“I think that is probably right for the steam coal market, assuming the price of gas stays where it is,” said George Ellis, President of the Pennsylvania Coal Association, which represents mining companies in response to questions about coal’s declining market share.

Export markets took about a sixth of the 60 million tons of bituminous coal mined in Pennsylvania in 2010, and that overseas demand has been growing, but it is unlikely to offset the decline in domestic power demand given that 74% of the state’s coal goes for power generation.

The state’s coal industry might be able to slow its decline if it can make carbon storage and sequestration economic, but that’s likely to be up to a decade away if it happens, Ellis said.

For now, big coal is working to resist tighter air-quality regulations, particularly on CO2 regulations. “We have to fight that,” Ellis said.

Picture: SOMERSET, PA – JULY 28: Miner Mark Popernack is rescued from the Quecreek Mine in the early morning of July 28, 2002 in Somerset, Pennsylvania. All nine miners were successfully rescued after being trapped in a flooded mine shaft since July 24, 2002 which was located approximately 240 feet underground.