First half 2022 PRB coal production on par with last year, despite rail issues

GILLETTE — Halfway through 2022, Powder River Basin mines have produced about half of the total amount of coal as last year, keeping up the pace of production despite struggling to get enough trains to maximize on the continued demand for thermal coal.
The 12 Campbell County PRB mines combined to produce 115.7 million tons of coal this year through June. Last year, those same mines produced about 230 million tons, according to coal production data from the Mine Safety and Health Administration.
Spring Creek, a PRB mine in Montana, has produced 5.9 million tons this year through June compared to 13 million tons overall last year.
Last year’s productivity was a 10% increase from the year before that, when in 2020, a confluence of COVID-19 related factors led to just 206.9 million tons produced in Wyoming PRB mines.
Through six months, 2022 production is on par with last year, but rail issues have persisted into the second quarter, causing a slight dip from first to second quarter production.
Wyoming PRB mine production fell by 3 million tons from March through June, dropping from 59.35 million tons in the first quarter to 56.35 million tons in the second, according to MSHA data.
The “unexpected uptick” in coal production in 2021 was spurred by economic factors that emerged toward the end of the year and similar market forces have carried into 2022.
“We’re going to have a fairly good production year,” said Travis Deti, executive director of the Wyoming Mining Association. “We will probably meet what we did last year if not probably exceed that. I think there’s some conditions involved that are driving it.”
Natural gas prices have remained high, causing more utilities and customers to shore up coal reserves. Cold winters and hot summers have kept energy consumption high as well, further driving energy demand across the board.
“Natural gas prices are very, very high right now,” Deti said. “That bodes well for Wyoming coal.”
As a rule of thumb, when gas prices hit $2.75 and higher, the price of higher Btu coal becomes competitive with gas, Deti said. Once that price goes above $3, demand increases for even the basin’s lower Btu coal.
“As long as these gas prices remain high, there’s going to be a demand for Powder River Basin coal,” he added.
But underwhelming rail performance has limited production and may continue to temper expectations through the rest of the year.
Since the rise in demand for thermal coal began in the second half of last year, mine operators have tried working with railway companies to meet their increased shipping needs, Deti said.
“The Wyoming Powder River Basin mines have worked to meet that demand, the railroads have not quite stepped up yet,” he added.
The rail issues are multi-faceted, with labor shortages factoring in and resulting in less trains showing up to haul away PRB coal.
“Their manpower is just not there and the train cars are just not there and that’s impacting our production as well,” Deti said.
Between its three PRB mines — Caballo, North Antelope Rochelle and Rawhide — Peabody Energy met just 82% of its customer nominations, or commitments, in the second quarter. The company delivered 89% of its nominations in the first quarter and through the first three weeks of July, had met just 77%, said Mark Spurbeck, Peabody chief financial officer, in Peabody’s second quarter earnings call last week.
That decline was blamed on railroad companies not keeping up with demand and led the company to lower its expected full-year sale volumes by 5-8 million tons. From the first to second quarter, Peabody mines had already seen a two-million ton drop in volume, Spurbeck said.
Similarly, Arch Resources cited rail performance as a key frustration and hold-up for its PRB productivity. Although the railroad companies have suggested improvements are coming, “progress remains painfully slow and the situation is extraordinarily frustrating for all of our customers,” said Paul Lang, ARCH CEO, during its earnings call.
Without the trains on time and as needed, the mines are limited in how much coal they can produce.
“We produce as we fill the orders, we don’t just produce and hold it on site,” Deti said.
“It’s kind of a chain effect,” Deti added. “If the trains aren’t there to move the coal, then it halts the production and slows the production along the chain.”
The demand for thermal coal dating back to last year has worked in favor of the mining companies when negotiating prices, keeping PRB mines profitable while the companies hedge toward their impending closures.
Most coal production is contracted in advance, which has led to strong prices for business booked into next year, according to officials with Peabody Energy and Arch Resources.
For 2023, Arch has already reached about 80% of the production commitments it had for this year, and while still in negotiations, expects the price of that coal to be “above long-term historical averages,” said John Drexler, chief operating officer, in the earnings call.

The spot market prices for coal shot to historic highs late in 2021 and has since leveled out at above-average prices.
In November 2021, the spot price for PRB coal reached a record high above $30 per short ton, surpassing the previous 10-year high of $13.25.
PRB coal has trended between $16.35 and $16.55 per short ton over the past month, according to the U.S. Energy Information Administration, which remains well above historical averages.
With rail performance declining from the first to second quarter, it’s unclear if those logistical challenges will improve during the second half of the year, potentially continuing to limit production.
“At this point in time, there has not been much of an improvement in service,” Deti said.
Arch put some of its heavy second-quarter profits into meeting its $130 million funding goal to cover the inevitable reclamation of Black Thunder. But with the unexpected renaissance for thermal coal continuing this year and potentially into next, the company’s PRB plans remain focused on “cash harvesting” while not mincing words about its simultaneous exit plans.
With the reclamation costs already in hand, Arch officials described a “huge amount of freedom” with how they handle the waning years of Black Thunder and Coal Creek.
“Frankly, we’re not going to spend a lot of money out there,” Lang said “We’re going to keep it going so long as we get good returns.”
 
 
This story was published on August 2, 2022.