GILLETTE, Wyo. – After the first round of major Powder River Basin coal layoffs and bankruptcies in 2015 and 2016, the buzzworthy response was Wyoming and Campbell County would have to adjust to a “new normal” for the commodity.
The times of posting nearly 450 million-ton annual PRB production are long gone, and after a 2019 that was disastrous on many levels for U.S. and Wyoming coal, what’s more clear now than ever is that “new normal” isn’t a lower baseline for thermal coal, it’s an accelerating decline.
“It’s like falling down a cliff in slow motion” is how University of Wyoming energy economist Rob Godby describes the downfall of Powder River Basin coal. “You reach the next ledge and roll over moaning a little bit before you start falling again.
“It’s that painful. Just when you think you can adjust to this painful new reality, the bottom falls out from underneath you again.”
Production totals for Wyoming’s PRB mines released this past week show 2019 came in at 266.8 million tons for the year, the first time in more than two decades the basin has been below 280 million tons. It’s a 9.1% drop from 2018 and 30% less than the 381.8 million tons mined five years prior in 2014.
If the past is a reliable predictor of the future, then it’s not looking good for the PRB, said Bob Nelson, lead coal analyst for Moody’s Investors Service.
Once the king of cheap power, Powder River Basin coal accounted for about 50% of United States electricity generation in 2008. By 2018, that had dropped to less than 28%, Moody’s reports.
By 2030, PRB coal is expected to account for only 10% to 12%, Nelson said.
“We have been pretty negative on the Powder River Basin for awhile,” he said of Moody’s analysis of the PRB and thermal coal.
Adding to the uncertainty is the ongoing bankruptcy cases of Cloud Peak Energy Corp. and Blackjewel LLC, which together sold the nation’s third-, fourth- and sixth-best producing U.S. mines last year. Whether those new owners have the wherewithal to go the distance and be long-term players in the basin is a big question, Nelson said.
Eagle Specialty Materials bought the Eagle Butte and Belle Ayr mines from Blackjewel and Navajo Transitional Energy Co. bought the Antelope mine from Cloud Peak, along with the Spring Creek mine in Montana.
“I don’t know where these new entrants are going to sell coal to in the coming years. We have a lot of questions about their abilities to run a coal business for a sustained period,” Nelson said. “It doesn’t look like a tenable situation to me.”
One of the largest problems for the PRB is that it hasn’t yet adjusted to its lower production with contraction, Godby said. With the same number of producers competing to supply a continually shrinking demand, something eventually has to give in the form of mine closures.
Both Godby and Nelson said they thought that may happen this past summer when Blackjewel’s Wyoming mines were shut down from July 1 into October (although a tough blow for the local workforce and the nearly 600 people employed at the mines).
“Unfortunately, there are more shoes to drop,” Godby said. “We potentially have not seen all the adjustments to the existing production changes, much less the future effects. There’s still a lot of uncertainty hanging over the Powder River Basin.”
That uncertainty prolongs a “perfect storm” that continues to pummel coal and fossil fuel power generation, Godby said. Along with low natural gas prices pushing coal out as an option to produce electricity, the impetus to bring more alternative forms of generation online means the basin’s future will look nothing like its past.
“When gas is coming out of the ground, in effect, for free when you’re drilling for oil, you just can’t compete with that,” Godby said. “We’re getting hit from two sides on that.”
As more coal-fired plants are retired and taken out of the nation’s power grid, wind and solar are going to continue to cut off greater slices of the power pie, he said.
“That’s the direction we’re going,” Godby said. “It’s expected rewnewables long-term could be the largest source of generation by mid-century, which would make that our ‘mainstream’ generation.”
The nation’s overall energy outlook has gone through “a seismic shift in the last decade,” said Travis Deti, executive director of the Wyoming Mining Association. “Natural gas prices are stubbornly low and you see renewables add to the grid at a remarkable pace. Also, utilities are moving ahead with fuel transition, and it’s just the way it is now.”
He said Wyoming’s push over the past five years to accelerate and promote more research into carbon dioxide capture and diversifying the nation’s carbon economy into other areas than power generation is critical for the state. But until that pays off, the Cowboy State will have to expect less from its cash cow industry.
“We have some great things (in the works),” Deti said. “Ramaco is going and it’s goal is coal to products. We have the Carbon Valley (initiative), the Integrated Test Center. As utilities look to transition away from coal, we have to realize the significant impact of that to our state.”
At times, Deti said he feels like he’s fighting against the current as an entity that represents mining interests.
“It is what it is, and from the state of Wyoming’s standpoint, you are going to have to get used to a lower revenue point coming in from coal,” he said.
While it may seem startling, the soft market for PRB coal isn’t surprising, Godby said.
“What we’re looking at now is what everybody feared would happen a few years ago is happening,” he said. “We’re seeing the declines that are as deep as anywhere right now.”
Projections for 2020 are that the Powder River Basin will drop another 30 million tons to the 230 million range, he said.
Along with market forces, energy consumption in general isn’t growing, and as technologies improve and all our devices, appliances, televisions and light bulbs become more efficient, “we’re developing technology as fast as the economy is growing,” Godby said. “What we’re expecting for the next 20-30 years is that electricity demand is going to be almost flat.”
One way the PRB may halt its slow fall down the cliff is if a proposed joint venture between Peabody Energy Corp. and Arch Coal Inc. is approved by the Federal Trade Commission, both Godby and Nelson said.
The coal giants independently account for more than 60% of the PRB’s coal production and operate the world’s Nos. 1 and 2 most prolific mines. Peabody’s North Antelope Rochelle mine near Wright has regularly been over 100 million tons annually (that dropped to about 85 million tons last year) and Arch’s adjacent Black Thunder mine has at times been a close second at more than 70 million tons each of the last three years.
They also own several smaller mines, along with a couple of smaller operations in Colorado.
Under their proposed joint venture, Peabody and Arch would combine their Western mines into a single operation. The merger would unlock about $820 million in savings for the companies, along with another $120 million a year for the first 10 years.
The efficiencies and savings associated are expected to allow the joint venture to run lean and mean enough to compete with cheap natural gas.
That may be the future for the PRB, which eventually also may see smaller mines close because they won’t be able to compete, Nelson said.
“If the Arch and Peabody joint venture is approved, it will become the dominant player in the basin, and not in a competitive way,” he said.
And while that may mean job losses in the short term, what’s left will be more stable, he said.
“One way or another, some of those smaller mines are going to have to close,” Nelson said. “The big question for the political folks in the region is, do you want a bunch of under-capitalized companies killing each other, or do you want one durable entity to continue to operate and produce into the 2020s?”
Even if the joint venture is denied — Peabody reported this past week an FTC decision may come in the first quarter of this year — those companies are still the big dogs in the kennel.
“I don’t see a viable strategy for a small PRB mine,” Nelson said. “I see a somewhat viable strategy for a big mine to be able to compete.”
He also said there’s a tangible human cost to the evolution of the nation’s power production, especially in cities like Gillette that rely on coal for good-paying jobs.
“This is a real challenge for someplace like Wyoming,” Nelson said. “Without those jobs, what replaces them? There’s just nothing there. It’s a tough position to be in.”
The question of if coal would ever have a finite shelf life for the Cowboy State’s economy has changed to when, Godby said.
In the mean time, that slow cliff fall will continue.
“What’s the future hold? The coming year will be another really tough year, then we land on that ledge again,” he said.
The real trick for Campbell County and Wyoming is to make those landings as soft as possible.