What’s Wrong Wyoming Coal? You’re Lookin’ a bit Peaked…

May 6, 2014

The Powder River Basin, in Wyoming, is the source of about 40 percent of the US coal supply.

Sightline Daily:

If you’re a coal junkie, you’ve probably read quite a few press accounts touting the bright future for Powder River Basin coal. This story from Gilette, Wyoming, for example, predicts a resurgence in demand for the low-rank coal produced in the region. This one argues that coal is making a comeback, after years of losing ground to natural gas. This one forecasts “tremendous” demand for the region’s dirtiest fuel. I could go on and on.

Articles of this ilk generally offer breathless quotes from coal industry executives, and point to a few factors, such as rising natural gas prices or the cold winter, that make a rapid rise in coal demand seem plausible.

But what these articles don’t do is provide much supporting data. And when you look at theactual production figures from Western coal country, a very different story emerges. After peaking in 2008, coal production in Wyoming has fallen by 17 percent.

And if I’m right, those the trends won’t be reversing themselves any time soon.

I should be clear here: it’s quite possible that Wyoming coal producers will boost production over the next year or so. Many utilities burned down some of their coal stockpiles during the exceptionally cold winter, and are now buying extra coal to replenish their stocks. And we already see higher coal prices, which could lead to a modest boost in coal output.

But the longer-term trend isn’t looking good for the major producers in the PRB.

Take Cloud Peak Energy, the only major coal company that operates exclusively in the Powder River Basin. The company has announced that it will start trimming production at its Cordero Rojo mine by about 10 million tons per year, starting in 2015. The company plans to redeploy some of the equipment from Cordero Rojo to its better-performing Antelope mine. Even so, executives have all but ruled out significant production growth at Antelope; the equipment moved from Cordero Rojo will merely help to stem production declines, not boost output.

Cloud Peak’s management projects that the cuts at Cordero Rojo will reduce Cloud Peak’s annual output from about 90 million tons per year down to about 80 million tons. In short, Cloud Peak has begun to prepare the company’s shareholders to accept shrinking coal volumes as the new normal.

Arch Coal, another major PRB producer, is sending out similar signals. In their most recent 10-K filing with the Securities and Exchange Commission, the financially troubled firm admitted that the coal reserves at its largest Wyoming mine, Black Thunder, will only hold out for another 6 years at present mining rates, but could begin tapering down even sooner than that:

Without the addition of more coal reserves, the current reserves could sustain current production levels until 2020 before annual output starts to significantly decline, although in practice production would drop in phases extending the ultimate mine life.

Industry observers point out that the new reserves near Black Thunder may be as much 400 feet underground—which would entail sharp increases in mining costs that could squeeze Arch’s profits, or simply make the coal uneconomic to mine.

As with Cloud Peak, Arch is preparing its shareholders for flat or declining coal production. Back in February Arch’s CEO said: “I don’t think there’s the excess capacity on the PRB that maybe people think there is.” And referring to the increasing difficulty and cost of mining in the PRB, Arch’s COO added: “[T]his isn’t the basin I left 7, 8, 10 years ago. It’s not quite as easy to turn up the production as it was then.” And like Cloud Peak, Arch is proud to point out that it’s keeping capital spending to a minimum—as clear a sign as any that the company has no plans to spend the considerable sums needed to boost output.

As if we needed more evidence that Wyoming’s production is well past peak, consider the nearly unprecedented failure of two federal coal lease offerings last year. In one, officials from the Bureau of Land Management rejected the sole bid—a paltry 21 cents per ton for federally-owned coal—as too low. The other lease offering received no no bids at all. Apparently, the major PRB producers believe that the coal that’s now on offer is simply too expensive to mine profitably. So even as production at existing mines is flat or declining, the industry is doing very little to find new supplies.

Greentechmedia:

U.S. coal production has peaked, and the miscalculations that have led to estimates of a 200-year supply could create a serious electricity deficit for the nation, according to a new report from advocacy group Clean Energy Action.

“The belief that the U.S. has a ‘200-year’ supply of coal is based on faulty reporting by the EIA,” concludes the report, Warning: Faulty Reporting of U.S. Coal Reserves. “Most U.S. coal is buried too deeply to be mined at a profit and should not be categorized as reserves, but rather as ‘resources.’”

“The U.S. Energy Information Administration’s estimate of the nation’s coal is ‘a faulty fuel gauge’ because the U.S. is rapidly approaching the end of economically recoverable coal,” explained report co-author Leslie Glustrom ofClean Energy Action. “We’re acting like we have a full tank. No one knows exactly when empty will come, but we should be prepared.”

“Easily accessible coal has already been mined and burned. Now reaching the remaining coal is becoming increasingly difficult and expensive,” the report claims. And the price of diesel fuel for the trains that transport most U.S. coal is rising. Finally, supply-constrained European, South American and Asian countries “are often willing to pay more for coal.”

The top sixteen states, which combined produce over 95 percent of U.S. coal, are cumulatively “past their peak production,” the report asserts.

Eastern coal is typically in the $3.00 per MMBTU to $4.00 per MMBTU price range. Western coal is slightly less, but its cost is rising, especially in states that incur transportation costs by importing from the West.

Examples are New Jersey, where the price rose 7.5 percent per year to $4.05 per MMBTU since 2004, and Mississippi, where coal it rose 12.5 percent per year to $4.45 per MMBTU.

U.S. decision-makers should, the reports says, develop “scenarios that require moving the U.S. beyond coal in significantly less than twenty years.”

Based on recent wind and solar bids in the western United States, the report adds, once coal costs rise above about $1.50 per MMBTU, “it can no longer be assumed that coal is the lowest-cost way to generate electricity.”

 

 

9 Responses to “What’s Wrong Wyoming Coal? You’re Lookin’ a bit Peaked…”


  1. Either demand has dropped and/or they passed peak coal.


  2. No analysis would be complete without looking at prices.

    Coal price:  http://www.eia.gov/totalenergy/data/annual/showtext.cfm?t=ptb0709

    Natural gas price:  http://www.eia.gov/totalenergy/data/monthly/pdf/sec9_15.pdf

    Natural gas prices dropped like a rock after 2008, and are just recovering.  Coal prices went up, possibly because of export markets; bituminous prices were coming down as of 2011 (last year on record).  Shipping of coal had new competition for rail network space from all of the Dakotan and Canadian oil that couldn’t get onto pipelines.

    Say what you want, you can’t say it’s simple.

  3. rayduray Says:

    To speak of Western coal as having peaked is a bit misleading. What really curtailed demand was, as Engineer-Poet pointed out, the disparity in pricing favoring natural gas for the generation of electricity in the U.S.

    See: http://www.instituteforenergyresearch.org/levelized-costs-of-new-electricity-generating-technologies/

    Look to the bottom of the page at the graphic labeled “Estimated Levelized Cost….”

    What you’ll see is that industry expects combined cycle natural gas turbines to cost about 1/3 less than conventional coal generation in 2018.

    ***
    See also, this article about how the TVA is retiring a number of coal fired plants and replacing them with combined cycle gas turbines:

    http://seekingalpha.com/article/1843692-king-coal-takes-another-blow-to-the-head

    ***
    Furthermore, the recent Supreme Court ruling on air pollution will accelerate the retirement of coal fired generator stations in the Midwest.

    ***
    And in the meantime, the Asian market for coal is in free-fall.


  4. Coal prices started to rise in 2004. Gas prices rose in 2009. There is no connection between these. Coal companies are starting to export as US domestic markets dry up. Europe can afford it. China perhaps less so. China is importing from SE Asia and Australia.

    The meat of the article is that estimates of coal reserves were incorrect due to the economics of recoverable reserves. Despite this, we are still stuck with the dilemma of “keeping it in the ground”. There are two parts to the solution. One is means. That is how do we supply energy without carbon and implement it. The other is how do we keep the carbon in the ground. That part requires social change. Right now there is no economic limit to FF burning, except incidentally due to competition.

  5. jimbills Says:

    U.S. short term coal production outlook:
    http://www.eia.gov/forecasts/steo/report/coal.cfm

    “EIA projects U.S. coal production will grow 4.4% to 1,028 MMst in 2014, driven by higher consumption. In 2015, forecast U.S. coal production falls by 1.1% to 1,016 MMst. ”

    The U.S. coal production graph above looks pretty dramatic, but we’re talking about a drop from 1.171 billion short tons in 2008 to 1.016 billion short tons in 2012.

    Long-term:
    http://www.eia.gov/forecasts/aeo/MT_coal.cfm

    “From 2016 to 2030, coal production increases gradually as growing electricity demand and rising natural gas prices spur the use of coal for power generation. After 2030, when existing coal units reach maximum utilization rates and virtually no new capacity is built, coal production stabilizes.”

    That projection could drop about 25% per year by 2040 if a carbon tax was initiated.

    There is some relatively good news, as coal prices are only projected to rise in the coming decades. The report also notes that Appalachian coal is seeing greater declines due to higher production costs in that region.


    • I don’t believe EIAs coal predictions. From 2000 to 2010, coal use dropped. In the future, Coal prices rise, and renewables prices fall. How exactly does that lead to a sustained level demand for coal over the next 25 years? On top of that, renewables are projected to stagnate, with no new wind or solar for about 2 decades. It’s confabulated nonsense. Coal will still be in use, but EIA figures are untrustworthy. If coal has been dropping steadily, and considering all that and the CSAPR ruling, coal use reduction appears ready to continue further declines. Our problem is that economics alone is not sufficient to “leave it in the ground”. Coal can still be exported.

      http://cleantechnica.com/2014/01/10/horrible-eia-forecasts-letter-cleantechnica-readers/

      • jimbills Says:

        Glad you mentioned exports, because the EIA estimates are for production, not U.S. consumption.

        My point is that we have two conflicting estimates from two sources. One is from the EIA, and one is from a sustainability think tank. We can pick and choose whom to believe, but time will tell. Yes, the EIA has been wrong many times, but so have all the sources.

        It’s very hard to imagine a future in the U.S. where coal consumption (not production) grows. Most estimates indicate we’ll have a small bump back to coal when NG prices rise a little more (as they need to in order to make fracking profitable), but I agree that the economics don’t really work out for much more future consumption stateside. Regulations are starting to clamp down on coal, and production costs are only projected to rise. I’m skeptical that renewables prices will drop much further (I think we’re in a bit of a fabricated bubble due to Chinese subsidization), but assuming all things remain stable, it does look like most future growth will be met by alternative energy sources (renewables and nuclear). That, of course, still leaves a lot of installed FF capacity, and it doesn’t factor in FF use by developing countries.

  6. rayduray Says:

    Stanford University students win campaign for divestment from coal.

    In brief:

    Published on May 7, 2014

    One of the country’s most prestigious universities, with one of the world’s largest endowments, has joined the student-led movement to divest from the fossil fuel industry. Stanford University’s Board of Trustees voted Tuesday to stop investing in coal-mining companies because of climate change concerns. The board said it acted in accordance with guidelines that let them consider whether “corporate policies or practices create substantial social injury” when choosing investments. Stanford’s endowment is valued at $18.7 billion. The move comes as the divestment movement heats up across the country. Seven students at Washington University in St. Louis were arrested last week following a 17-day sit-in calling on the school’s board of trustees to cut ties with coal industry giant Peabody Energy. Also last week, students at Harvard blockaded the office of Harvard President Drew Faust.


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