By - Jim Vess

Powder River Basin coal, accounting for 40 percent of U.S. production, is controlled by troubled companies

Energize Weekly, September 4, 2019

Sixteen mines in the Powder River Basin (PRB), which covers northeast Wyoming and southeast Montana, supply more than 40 percent of the coal produced in the U.S., and the bulk of that production is controlled by four companies, according to an analysis by the federal Energy Information Administration (EIA).

The future of the basin’s production is uncertain as two of those companies – Cloud Peak and Blackjewel – filed for bankruptcy this year. Mining stopped, and each company is looking to sell assets.

At the same time, the two other companies – Peabody and Arch, which have also faced financial challenges – are proposing a joint venture, in which their PRB and Colorado mines would be combined.

“The significant operating synergies will enhance the competitiveness of these assets,” Arch CEO John W. Eaves, said in a statement when the plan was announced in June.

Ten mines controlled by the four companies accounted for 87 percent of the basin’s output in 2018, and EIA estimates that the mines are using about two-thirds of their productive capacity, a measure of how much coal they could produce using existing equipment.

PRB coal productive capacity peaked in 2010 at 575 million short tons and declined to 476 million short tons in 2018.

Most PRB coal is used for electric power generation with many coal-fired power plants switching to the basin’s low sulfur coal in the 1990s to meet tougher clean air standards for sulfur dioxide. By 2003, the Powder River Basin had overtaken the Appalachian coal basins in the eastern U.S. in production.

Coal-fired power plants, however, have become less competitive and begun to close across the country. Coal’s share of electricity generation dropped to 28 percent in 2018 from 48 percent in 2008. Electricity demand has also remained relatively flat.

EIA projects that coal’s share of electricity generation will be 24 percent for both 2019 and 2020 and that western coal production will decline by 21 percent in 2019.

The decline in domestic coal consumption has been partially offset by rising coal exports. The bulk of U.S. coal exports are for bituminous coal used in steel making, but there have also been exports of PRB thermal coal for use in Asian coal-fired power plants.

Still, these exports have been relatively small with the U.S. exporting 7.7 million short tons of subbituminous PRB coal in 2018, just 7 percent of all U.S. coal exports and 2 percent of total PRB production for the year.

Prices for PRB coal have remained stable over the last decade. In 2008, the selling price for PRB coal with a heating value of 8,800 British thermal units (BTU) per pound was $13.21 a short ton. In 2018, the price was $12.31 a short ton.

Transportation rates to deliver coal from PRB mines to power plants, primarily by railroad, make up nearly two-thirds of the total delivered cost of the coal, compared with 56 percent in 2008.

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