Houston — Coal mined from the Powder River Basin, the most productive coal-producing area in the US, is expected to decline significantly next year and could pressure companies to close "at least a few" mines there in the early 2020s, Moody's Investors Service wrote in a note issued Wednesday.
Multiple bankruptcy restructurings and a planned joint venture between Arch Coal and Peabody Energy in the PRB have recently changed the region's competitive landscape. But that has not fundamentally altered its poor overall long-term trajectory, wrote Benjamin Nelson, a vice president and senior credit officer with Moody's.
"Demand for [PRB] coal had surged in the 1990s as an environmentally friendly alternative to higher-sulfur coal from the US east, but coal-fired power plants' adoption of scrubbers and the retirement of many older units built before the passage of the Clean Air Act has diminished the appeal. [PRB] producers' credit quality depends heavily on delivered costs, which means some significant factors influencing the competitiveness of [PRB] coal are largely beyond the producers' control."
The basin produced 342 million st in 2018. On an annualized basis, based on weekly US Energy Information Administration data through early October, production this year would total 306 million st.
Nelson also pointed out that the entire coal industry faces significant risk due to investors increasingly focusing on issues related to environmental, social and governance factors. The PRB is particularly susceptible because the coal mined there is used primarily for power generation.
With many generators phasing out coal use in the US and relatively few export outlets for the area, producers may have little choice but to throttle back production. Nelson noted that all of the companies rated by Moody's are focusing on metallurgical coal production from other regions.
-- Edited by Bill Montgomery, firstname.lastname@example.org