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Some analysts optimistic about PRB coal amid consolidation, exports


Forecast PRB demand of 250 million st through 2035

Spring Creek 'uniquely positioned' for exports

Houston — Demand for Powder River Basin coal is expected to continue declining because of coal-fired utility retirements, although some analysts are optimistic over mine consolidations and possible export growth.

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Energy Ventures Analysis expects a continued decline in domestic purchases of Powder River Basin coal, "but the pace of this decline will slow, as there are few new gas-fired plants being built to replace PRB coal plants in its market regions."

Since 2014, about 25,000 MW of PRB coal-fired plants have been retired, while "only 10,000 MW of new retirements have been announced through 2025," the September report released last week said.

According to an Institute for Energy Economics and Financial Analysis report released this month, the PRB is "in irreversible decline owing to the market forces that are reshaping the power sector."

Current energy trends will "put continued pressure on the PRB's mines and lead to rising economic uncertainty in the region," it added.

IEEFA noted several risks for PRB mines, including energy trends moving away from coal-fired power generation, significant financial stress for coal producers and dropping production.

EVA noted that receipts of PRB coal by domestic power plants, which make up the majority of the market for PRB coal, fell from 405 million st in 2014 to 290 million st in 2019.

Despite the decline, EVA forecast PRB coal demand to be above 250 million st through 2035, in addition to modest growth in export markets.

However, "The role of the power sector is critical for coal producers," IEEFA wrote, noting that 80% of all US-produced coal this year will be used by US electric generators. But "coal consumption is set to decline by 100 million tons this year versus 2018, with more than 50 coal-fired generation units being permanently retired."


EVA expects the Blackjewel bankruptcy, and Contura's plan to repurchase the Belle Ayr and Eagle Butte mines, to result in reduced production at the two PRB mines, removing capacity and allowing for more profitability at the remaining mines in the basin.

"As supply and demand return to balance, company profitability should return to historical levels," the report said.

In 2016, producers' cash margins ranged from $2.19/st to $3.36/st and fell to $0.02/st in the first half of 2019.

"Margins should return to $2 per ton as excess capacity is reduced," EVA said.

EVA said that "most customers prefer to purchase coal from multiple suppliers to increase the reliability of supply and maintain competition," adding that "the likely changes in the supply of PRB coal will increase the attractiveness of Cloud Peak to customers seeking to diversify their supply sources."

The Wyoming PRB market has five large suppliers for the commercial market, and "with the bankruptcy of the Blackjewel mines and the proposed merger of the Peabody and Arch Coal mines, Cloud Peak will be the primary alternative for customers seeking multiple supply sources."


"Spring Creek mine has some significant upside potential from the export market," EVA said, adding that the mine is "uniquely situated" to supply the export market given its location to the export port in Vancouver and its high heat content.

"Export coal sales to Asia have been a significant market for the Spring Creek mine since the demand emerged in 2010," the report said.

Excluding a period between 2015-2016, sales from the mine to Asian customers have been about 4 million st-4.7 million st per year.

Spring Creek has the opportunity to increase its Asian exports above historical levels as more capacity becomes available at the Vancouver-based Westshore Terminal once Teck Resources completes its expansion project at the Neptune Terminal in Vancouver.

Starting in 2021, Cloud Peak has an increased contracted share of shipments through Westshore to 10.5 million st per year.

According to EVA, "exports to the growing thermal coal market in Asia will be the majority of sales from Spring Creek beginning in 2021, with the potential for high profitability if Kalimantan prices return to their average historical level" of $55/mt-$60/mt.

Spring Creek coal becomes economic to export when Indonesian prices are above $53/mt, the report said, noting that that has been the case for most of the time since January 2010.

From IEEFA's perspective, however, "the Spring Creek mine is dependent on highly cyclical exports for which recent outlooks are grim."

-- Olivia Kalb,

-- Edited by Bill Montgomery,