An update on the Powder River and Bull Mountain coalfields
By John Hanou, Hanou Energy Consulting & Bob Burnham, Burnham Coal
There was a time when the PRB had no problem growing. However, in 2008, PRB mines produced 496 million tons of coal. By 2012, production had fallen to 425 million tons.
Our analysis suggests some improvement over the next two years, with demand increasing by approximately 30 million tons; however, due to regulatory constraints, we envision the domestic U.S. and Canadian markets declining by approximately 50 million tons over the next 12 years.
With producers facing a stagnant and/or declining U.S. domestic market, they are now eyeing the robust international thermal market, driven mainly by China and India. As a result, there are plans to expand existing export terminals in Canada and build greenfield terminals in Washington and Oregon, as well as developing brownfield terminals in Mexico. In 2011, about seven million metric tons (mmt) of PRB coal was exported through Canadian terminals. These terminals (Westshore and Ridley) are expanding capacity by 33 mmt over the next year or two. Unfortunately, most of this new port capacity is targeted for Canadian coal. Up to 159 mmt per year of export capacity is planned by 2020 at Greenfield terminals in Oregon and Washington (Gateway, Millennium, Grays Harbor, Morrow Pacific, Port Westward and Coos Bay). All face immense environmental, permitting and transportation scrutiny.
With falling domestic demand and increasing costs, as reflected by falling productivity, we anticipate changes at existing operations in the next 10 to 20 years.
Alpha has announced production cuts due to a combination of poor markets and high costs. Reserve depletion may be an additional factor. Alpha faces reserve depletion at its Eagle Butte Mine. At past production levels, the mine will run out of reserves around 2029. Higher ratio reserves are present but are not currently economical.
The Belle Ayr Mine has a challenge regarding its reserve position. Alpha expected to lease the Belle Ayr North LBA but lost the tract to Peabody Energy. With limited options, Alpha picked up the Caballo West federal LBA, but there is a question as to how Alpha will access the coal. While Peabody has direct access to the Belle Ayr North tract using existing pits, Alpha cannot access the Caballo West tract without crossing Peabody surface property, meaning they will have to open a new box cut. Alpha has applied for the 253-million ton Belle Ayr West LBA, but it may not come up for lease before Belle Ayr depletes its existing reserves without production cuts.
Arch has idled three draglines at its flagship Black Thunder Mine due to this year’s market conditions. Production dropped from 116 million tons in 2010 to 93 million tons in 2012. Going forward, Arch must lease and develop a 1.4-billion ton federal reserve west of the Joint Line Railroad at its Black Thunder Mine. With recent lease bonus bids exceeding $1.10 per ton, acquiring the leases will be expensive. Developing the reserves will also be a costly endeavor, requiring a box cut at an in-situ ratio of 4.0:1 (8:1 effective); we estimate the total material to be moved to open the box cut is 800 million yards. In order to keep Black Thunder at 90 million to 100 million tons of annual production, development must occur between 2018 and 2025.