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Powder River Basin coal production rises 26.6% YOY in Q2'21 on higher demand

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Essential Energy Insights - October 2021


Powder River Basin coal production rises 26.6% YOY in Q2'21 on higher demand

Second-quarter coal production in the Powder River Basin, the largest coal-producing region in the U.S., increased 26.6% year over year due primarily to higher demand for the bulk commodity, according to data compiled by S&P Global Market Intelligence.

Mines in the basin located along the Montana-Wyoming border produced 62.3 million tons of coal during the quarter, rising from 49.2 Mt in the year-ago period. Output for the 12 months ended June 30 decreased 10.7% year over year to 235.9 Mt.

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The nation's largest coal mine, Peabody Energy Corp.'s North Antelope Rochelle operation, produced 16.0 Mt of coal in the second quarter, rising year on year from 14.0 Mt. Output for the 12-month period that ended June 30 fell 14.7% to 65.8 Mt at North Antelope Rochelle.

Peabody's Caballo mine increased both quarterly and 12-month output. The mine produced 3.6 Mt during the quarter, up year on year from 2.2 Mt, and 12.9 Mt in the 12 months ended June 30, up by 4.7%. At the company's Rawhide operation, production ticked up to 2.9 Mt in the second quarter from 1.8 Mt in the second quarter of 2020, while production for the 12-month period that ended June 30 was up 6.9% to 10.7 Mt.

The thermal coal market remained favorable in the second quarter as natural gas prices increased amid higher demand for electricity, Peabody CEO Jim Grech said during a July 29 earnings call. In the first half of the year, electricity demand in the U.S. grew 4% year over year, and coal's share of electricity generation climbed to about 22%, with utility consumption of coal from the Powder River Basin rising 35%, the executive said.

Grech expects an upward trend in coal demand and prices due to factors that have prevented supply from keeping pace.

"The supply response to these increased demands is just not there like it's been historically. The lack of capital available to the space, the trouble with permitting, the difficulty in getting workers, the elasticity of supply-demand is just not what it used to be," Grech said.

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Arch Resources Inc.'s Black Thunder coal operation, the second-largest coal mine in the U.S., produced 14.0 Mt of coal in the second quarter, up from 10.1 Mt in the second quarter of 2020. Production for the 12 months that ended June 30 dropped 17.3% to 51.8 Mt at the operation.

Second-quarter shipments from the basin are usually weak, but market tightness and high coal demand changed that, Arch COO John Drexler said during a July 27 earnings call, while President and CEO Paul Lang noted higher natural gas prices as a factor.

"I think one of the things that struck me in [the second quarter] was it was an odd quarter for the [Powder River Basin] as I look back over the last 20 years," Lang said. "I can only think of a handful of times where the [second quarter] jumped up in [shipment] volume."

Arch's Coal Creek mine, where operations are ramping down before the scheduled closure of the active pit in 2022, produced 426,000 tons of coal in the second quarter, declining from 454,000 tons in the prior-year period. Production for the 12 months ended June 30 decreased 10.3% to 2.1 Mt.

Navajo Nation's three mines in the basin, Antelope, Cordero Rojo and Spring Creek, produced 13.0 Mt of coal in the second quarter, up from 8.9 Mt in the year-ago period. Coal output from the three operations in the 12-month period ended June 30 totaled 42.5 Mt, down from 45.4 Mt year on year.

Production across Eagle Specialty Materials LLC's Belle Ayr and Eagle Butte mines increased year over year to 6.7 Mt from 5.3 Mt in the second quarter and climbed to 24.9 Mt from 16.6 Mt in the 12 months ended June 30. Belle Ayr recorded the largest percentage increase for the 12-month period, with production jumping 67.6% year over year.

Lighthouse Resources Inc.'s Decker mine did not produce coal during the second quarter following its closure in February.