Powder River Basin Markets Heating Up as Deals Heard

(Platts, September 13) – Powder River Basin coal term prices have strengthened as utilities are making purchasing decisions based on higher-than-expected burn rates and higher gas prices forecast for next year, sources said Monday.

Utilities are starting to make buying decisions based on gas prices, particularly for 2017, when gas prices are forecast to rise above $3/MMBtu, one PRB producer said.

Platts Analytics’ Bentek Energy forecast physical Henry Hub gas prices to increase to $3.15/MMBtu in winter 2016/2017, up from an average price of $2.95/MMBtu over the last three months of the year.

“The phones have been ringing,” he said. “Utilities are sensing that prices are starting to move.”Most of the demand increase has been for 2017 and 2018, the producer said.

One term deal was signed at $11.40/st for 1 million st to a Midwestern utility last week, a source said. Additional reported deals included roughly 600,000 st/year sold to an upper Midwestern utility for 2017-2018 at $11.35/st and $12.10/st, respectively, and a Cal 2017 deal for 500,000 st at $11.30/st.

“I think we’re getting to a point where the coal burn is reacting to higher natural gas prices,” he said. “That should help, particularly on the PRB side.”

PRB miners have increased production to accommodate increased demand. Weekly PRB production totaled an estimated 16.4 million st for the week ended September 8, up 2% from the prior week, but is still down 25% year-to-date, according to Platts Analytics.

“Mines cut back on production, and all of a sudden the burn is coming back,” the source said. “Mines that outfitted for lower production levels have a bit of a squeeze kicking it back up. They are still skittish about hiring.”

The source cited several RFPs in the marketplace, including one for roughly 2 million st/year from 2017-19 for a Western utility that is due Friday. The RFP is the Western utility’s first in a year-and-a-half, the company’s fuel buyer said.

“It’s difficult to determine where the market is,” said the utility source. “All we’re hearing is crickets and tumbleweeds.”

Another Southeastern utility also is working on a solicitation for 2017 and plans to release another one this fall for 2017-2020. The company will go out for solicitations in October, said its fuel buyer, who noted a $2-$2.50/st spread between PRB 8,400 Btu/lb and 8,800 Btu/lb thermal coal.

“The 8,400 is a little bit more competitive to us right now,” the second utility source said. “Whenever [the spread is ] $2 or better, the 8,400 is better.”

S&P Global Platts assessed PRB 8,800 Btu/lb thermal coal for prompt year (Cal 2017) at $11.35/st, up 25 cents from the most recent assessment, and assessed PRB 8,400 Btu/lb thermal coal for Cal 2017 at $9.10/st, up 10 cents from the most recent assessment.

Original article here.