Coal in U.S. West to drop ‘significantly’ — report

Source: By Carlos Anchondo, E&E News reporter • Posted: Tuesday, October 29, 2019

Coal production is expected to drop “significantly” next year in the Powder River Basin and could spell mine closures in the region in the early 2020s, according to a new report from Moody’s Investors Service.

The financial services company said the region, which includes parts of Montana and Wyoming and produces more than 40% of all U.S. coal, is particularly affected by shifts toward renewable energy and social opposition to exports in the Pacific Midwest. The region remains “distressed,” with multiple companies exiting the PRB after filing for bankruptcy protection, Moody’s said.

“All of the rated coal companies that produce PRB coal are now focusing on metallurgical coal production in other basins, which eases their credit exposure from producing in the declining PRB area in Montana and Wyoming,” analysts wrote.

The firm said that both Peabody Energy Corp. and Arch Coal Inc. have “throttled back production” and that it did not expect Tennessee-based Contura Energy Inc. to reenter the region’s market. Earlier this month, Contura announced it was closing a transaction with Eagle Specialty Materials LLC over the Eagle Butte and Belle Ayr thermal coal mines, both located in the basin.

Citing U.S. Energy Information Administration data, the Moody’s report showed the price of PRB coal at just over $12 per short ton, where it’s sat since January 2018 despite two peaks above $13 over that time. EIA also forecasts that production in the broader Western region, which includes the PRB, will drop 79 million tons from 2018 to 2020, the report said.

Powder River Basin coal comes from 16 area mines, according to EIA. But coal production in the PRB peaked in 2008 and has been on a decline since then, the agency said.

The Moody’s analysis comes as the Sierra Club released a report this month that said captive ratepayers of regulated utility coal plants paid $3.5 billion more for energy from 2015 to 2017 because of uneconomical coal practices.

“Our analyses demonstrated that, in periods when energy market prices are low, coal plants owned by regulated, vertically integrated utilities are systematically operating coal plants out of merit, to an extent not seen in merchant-owned coal plants,” the Sierra Club report said.

Last month, a separate Moody’s report also touched on the impact of transportation costs for producers in the PRB. In that analysis, Moody’s forecast that utilities’ demand for coal would fall more than 50% over the next 10 years, which would cut revenue for U.S. railroads by nearly $5 billion by 2030 (Energywire, Sept. 6).

Last month, Ashley Burke, a National Mining Association spokeswoman, described the Moody’s forecast for coal’s percentage of U.S. power generation by 2030 a “wild guess.”

“What we can read between the lines with this forecast is that energy markets are not currently valuing baseload coal power as they should,” Burke told E&E News.

Multiple coal and mining organizations in Wyoming and Montana did not respond to requests for comment.

Railroads can manage the reduction in coal shipments, Moody’s said, with carriers that institute “precision scheduled railroading” to improve overall profitability and service levels.

“Railroads will likely attempt to work with coal customers to help mitigate the impact on export economics during periods of low pricing,” the brief said.

Mike Scott, a senior campaign representative in Billings, Mont., for the Sierra Club’s Beyond Coal campaign, said there’s no doubt that mining in the basin will continue to decline as cheaper and cleaner ways to power the grid come online.

“The big issues that the region will be facing is whether or not these mining companies will put the land and water systems back together,” Scott said, “and how are state leaders going to attract the clean energy projects that consumers are demanding and would maintain the Powder River Basin’s status as an energy exporter.”

Jeremy Nichols, the climate and energy program director at environmental nonprofit WildEarth Guardians, said the report may underestimate the declines facing the region, which he called the “ultimate bellwether” of the U.S. coal industry.

“With utilities making bolder and bolder commitments to move away from coal, the region faces an existential crisis,” Nichols said. “Coal is simply too costly to justify anymore, and no amount of production or hype in the Powder River Basin will change that.”