(Casper Star Tribune, November 1) – Miners dug almost twice the amount of coal from Wyoming soil between July and September as they had during the preceding three months, but companies will need to further increase the pace of production by year’s end to meet state revenue projections.
Wyoming coal production soared 42 percent in the third quarter compared to the previous one, good news in an industry that’s weathered more downs than ups since 30-year price lows, debt and competition from natural gas led to diminished revenue and a series of layoffs earlier this year.
The state’s 16 active mines provided almost 85 million tons of coal this last quarter. That was up from 60 million tons in the second quarter and 65 million tons in the first.
Some say the CREG report’s projections of 300 million tons for 2016 is a fair bet, considering both the time of year and the current market conditions, but it’s not guaranteed.
There are reasons to hope that winter demand will drive up natural gas prices and give coal a boost in the market, said Rob Godby, director of the Energy Economics and Policies Center at the University of Wyoming.
Natural gas prices traditionally rise in the fourth quarter as demand for heat increases over the winter months, he said. Higher natural gas prices would make coal more competitive.
Godby and others also see signs of a market finding balance after turmoil. But, they too project caution.
“It looks like things for the coal companies are returning to a more normal pattern, but the next couple quarters will be critical for the state to see coal production levels,” said Lawrence Wolfe a lawyer with decades of experience in the state’s coal industry. “No one predicted the huge fall off in the first two quarters, which extracted roughly $700 million of economic activity from the state.”
Cloud Peak Energy, a pure Powder River Basin coal company, expects shipments to remain steady through the end of the year. It recently updated its projected shipments for 2016 to between 57 and 60 million tons. That amounts to 15 and 18 million tons in the fourth quarter alone.
Cloud Peak’s Antelope and Cordero Rojo mines near Gillette produced a combined 14 million tons in the third quarter. The company also has a mine operating in Montana.
Contura Energy, which operates the Belle Ayr and Eagle Butte mines near Gillette, declined to comment on the story. Peabody Energy, which owns the North Antelope Rochelle mine near Wright, deferred discussion of the company’s fourth quarter plans until the release of its financial statements next week. However, all three companies increased production in the third quarter, according to federal data.
Rocky road to recover
Coal has faced a number of challenges, some of which have abated over the course of 2016. In previous years, bad investments by some of the largest coal companies in the state led to substantial debt. Natural gas prices dropped to record lows – out competing coal companies for the electricity market.
Additionally, investment in coal-fired power plants has decreased, as many anticipate future federal emissions regulations that favor gas-fired plants. Since 2015, three of the state’s four highest producing coal companies fell into bankruptcy, beginning with Alpha Natural Resources which declared in August of 2015. Alpha was followed by Arch Coal and Peabody Energy in early 2016.
Alpha and Arch have since emerged from Ch. 11, while Peabody has a deadline for restructuring early in 2017.
The bankruptcies led to hundreds of Wyoming miners being laid off, primarily in coal-rich Campbell County.
The 90 million ton goal for the fourth quarter isn’t extraordinary, but it is reflective of how much the market has changed in Wyoming from previous years, he said.
“It just goes to show you how far the market has come down relative to a couple years ago — that 90 million ton production in a quarter would be considered an uptick.”
A stream of dollars
Coal has provided a reliable stream of income for government for decades.
The commodity’s value peaked in 2011, when severance taxes on the black rock accounted for 31 percent of the state’s mineral revenue, contributing $294 million.
If assets and property in the coal industry were added to the taxes, coal accounted for about $4.3 billion of the state’s total value that year, according to the CREG report.
Wyoming has experienced a decline in coal revenue since then. The report projects a continuation of that downward trend.
By 2022, the report shows coal’s severance tax dipping to around $188 million. The last time coal cash was that low was 2006, when the coal industry contributed about $183 million to state coffers.
If the CREG projections hold true, Wyoming coal will climb out of the previous year’s slump. But it will not reach the highs of the past.