While production numbers have fallen across the Uinta Basin over the past five years, Utah's mines have shown a larger degree of resilience than Colorado's.
"By proportion, the market has been much more kind to the Utah side than the Colorado side. That's why I think that the Utah portion is a lot more insulated than Colorado," Andy Blumenfeld, head of market analytics at Doyle Trading Consultants, told S&P Global Market Intelligence.
Over the past five years, production has dropped significantly in the Southwest. In 2012, Utah and Colorado produced 44.8 million tons, while 2016's output was 26.4 million tons. In 2012, Utah's portion of that production was much smaller than Colorado's share, but in 2016, Utah produced 13.8 million tons compared to Colorado's 12.6 million tons.
In the first half of 2017, Colorado is back on top, primarily fired by huge gains at Arch Coal Inc.'s West Elk mine.
Blumenfeld said the primary market for Colorado coal, especially from West Elk and Peabody Energy Corp.'s Twentymile (Foidel Creek) mine, has moved out of state.
Peabody has some business at Xcel Energy Inc.'s Hayden station in Routt County, Colo., which Blumenfeld said has been its baseload for some time, but both Arch and Peabody lost a major Colorado customer with the closing of Xcel's Valmont plant in March. Colorado Springs Utilities announced in January that it was closing one coal-fired unit at its Martin Drake Plant and the facility would be decommissioned no later than 2035.
"In the front range, there's very little Colorado coal being used right now," Blumenfeld said. "You're seeing the level of production fall off dramatically at some of these mines, particularly in Colorado."
Some of Colorado's coal demand gets picked up by industrial markets, he said, but the commodity is otherwise shipped out of state or internationally.
Daniel Vaughn, the principal at pricing service Coaldesk LLC, agrees.
"Growth opportunities of those coals are really on the international markets," Vaughn told S&P Global Market Intelligence.
However, he said, Uinta Basin coal represents the "last tier" of international demand, as the region usually gets shipments only when customers have particular blending needs or when there is a shortage of Central Appalachian coal.
Utah has more opportunities to ship its coal west toward Vancouver's Westshore Terminals LP while Colorado has to get its coal over the Rocky Mountains, Vaughn said, but even so, Utah coal does not get brokered much.
Murray Energy Corp. CEO and President Robert Murray has said that a rapid decline in the Uinta Basin could drive westbound coal production to zero by 2030.
A story of stability
Healthier long-term contracts are the major factor bolstering Utah's mines. Over the past five years, Utah has always shipped a larger proportion of its coal in state compared to Colorado, which Blumenfeld attributed in part to Utah having more mine-to-mouth operations.
The Huntington and Hunter plants, wholly or mostly owned by PacifiCorp, are two of the major coal customers in the Utah market with much of their demand tied up in long-term contracts with Bowie Resource Partners LLC, according to Blumenfeld.
A federal appeals court agreed in September to stay a plan that would require the two plants to install $700 million in pollution controls, bringing further stability to coal demand in the state.
"It looks like they're going to be around for quite a while," Blumenfeld said, adding that Murray Energy's Lila Canyon mine also has contracts with those plants.
Utah's out-of-state coal shipments have shrunk over the past five years as plant closures reduced demand. NV Energy Inc.'s Reid Gardner plant closed its final coal-fired unit earlier this year, and the Nevada utility plans to close its North Valmy Station coal-fired plant early as well. North Valmy is co-owned by Idaho Power Co.