(The following story by Jim Gransbery appeared on The Billings Gazette website on January 16.)
BILLINGS, Mont. — Under the broad grasslands of Eastern Montana and Northeastern Wyoming lie vast, thick seams of a black rock that burns well and hot.
And, it burns cheap compared to the price of natural gas or coal from the pits of Appalachia for stoking the boilers of electrical generation.
The price factor alone has pushed coal to the forefront of the energy picture in the United States and the world, and it bodes well for coal producers, especially those who can deliver high-heat, low-sulfur coal such as that from the Powder River Basin, a geological formation that contains reserves for hundreds of years.
“That coal will be popular big time, in 2005,” says Jim Thompson, who edits the weekly report U.S. Coal Review out of Knoxville, Tenn. “There will be more test burns than ever.”
Not that Wyoming needs more demand.
For the 12th year running, Wyoming set a record in 2004 for production, at just under 400 million tons. Montana will have about a 5.5 percent increase in coal mined in 2004, but its total amounts to less than 10 percent of Wyoming’s.
Nevertheless, interest in test-burning Montana coal is being expressed by utilities after a solicitation by former Gov. Judy Martz, who spent considerable energy during her term promoting state-owned coal contained in southeastern Montana’s Otter Creek tracts.
Montana has the largest coal reserves of the 50 states at just under 120 billion tons. Wyoming has reserves of 68.8 billion tons, third among the states, but is the top producer in the country.
The reason? Wyoming’s thick coal seams and its infrastructure of large, efficient mines and transportation make it happen, said Marion Loomis, executive director of the Wyoming Mining Association.
“All this has taken time,” he said. Over the past three decades, those components have created the top 10 coal mines in the country.
Last month, the Black Thunder Mine near Wright, Wyo., announced the shipping of its billionth ton of coal since the mine opened in December 1977. Black Thunder, owned by Arch Coal Inc., has 650 employees and produces almost 10 percent of the U.S. supply.
Loomis said expansion of Wyoming’s coal industry is constrained by railroad bottlenecks and limited coal cars and infrastructure – track, roads and loading facilities.
“Those are all being addressed, but it takes time and capital,” he said.
It is that same lack of infrastructure that causes Montana to lag behind its neighbor.
“It takes time,” Mockler said.
He said Montana’s high coal severance tax, set at 30 percent of the price of the coal in the mid-1970s, sent the message to coal companies that “we don’t want you here.”
“The industry went to Wyoming where the railroads and the infrastructure were built,” he said.
Montana has six operating strip coal mines in southeastern and Eastern Montana. The largest is Westmoreland Coal Co.’s Rosebud mine, which produced about 12 million tons through November.
Montana’s coal tax was reduced in increments of 5 percentage points in 1989 through 1991, settling at its present 15 percent. Wyoming’s coal severance tax is 7 percent.
In calendar year 2003, Montana collected $30.86 million in coal severance taxes. For 2004, it expects to collect an estimated $33.52 million mainly because of higher prices for coal. Wyoming, in fiscal year 2003, collected $122.3 million and in 2004, $133.4 million.
Mockler said Montana coal can compete in the power market. “The West Coast is our best opportunity,” he said.
The coal in southeastern Montana has one drawback – it is relatively high in sodium.
“Not all boilers can burn that,” Mockler said, “but boilers can be designed to accommodate the sodium.”
In the longer term, southeastern Montana could become the home of new power plants, Mockler said, but they won’t be near the size of the complex at Colstrip, where four units have an operating capacity of 2,094 megawatts.
No one wants to invest in power plants right now, he said, because of the cost and the uncertainty of power line capacity, upgrades and new construction.
A coal-fired generating plant being built near Hardin will produce 116 megawatts of power. It is expected to be operational by December.
At least five other coal-fired plants are on the drawing board for Great Falls, Roundup, Miles City, Otter Creek and Circle.
The most important attribute for Powder River coal right now is its price, Thompson said. Central Appalachian coal sells at more than $60 a ton compared to Powder River coal in the $6 range per ton.
“Those prices are good, but they have not skyrocketed,” he said, referring to the Powder River price.
Thompson harkened to 2001, when coal prices in the East nudged $50 a ton and Powder River coal was at $10.
“The (Eastern utility) buyers and their bosses have to regret not test-burning new coals from the Powder River then,” he said. “They thought it was a one-time event. But there is an endemic shortage of Eastern low-sulfur coal.
“They could respond to the present higher prices if they had tested,” Thompson said.
Thompson noted that Powder River coal prices have not responded to the Eastern runup because of three elements.
In Wyoming’s Powder River, there is no shortage of coal, but transportation capacity going east has been reached, and there is not enough “buyer-tested” coal to qualify, he said, meaning that Eastern buyers essentially don’t know which Wyoming coals would suit their generators because they failed to test-burn in 2001.
Thompson, though, expects that problem to be addressed in 2005. “As supplies continue to diminish in the east, they will be more willing to test” in the West.
As for Montana, Thompson said the railroads have been reluctant to price transportation to the east, and the perception of high sodium is part of the reluctance to test-burn.
Thomas Kraemer, who heads the Burlington Northern Santa Fe coal division, agreed that transportation is at capacity.
“We’ll set a record of 255 million tons, up 20 million tons from last year,” he said.
Kraemer said utilities drew down inventories in 2002 and 2003, but with industrial production starting to ramp up in 2003 and natural gas prices steadily rising, the coal hauling business began to hum.
“We are running around the clock, wide open,” Kraemer said. “We’ll set a record of 255 million tons, up 20 million tons from last year.”
He, too, noted the huge spread in coal prices between Central Appalachia and the Powder River. The railroad has hauled coal to Pennsylvania and Delaware for test burns, he said.
He said BNSF’s haul out of Montana this year will be 28.8 million tons, up 2 million from last year. He expects a slight decline in 2005.
The total rail haul for coal this year in Montana and Wyoming will be a record 408 million tons, Kraemer said. That total includes coal carried by BNSF and the Union Pacific.
He said he expects the railroad will be adding to its coal train fleet incrementally as increased volume demands.
In a price comparison, Kraemer said the price for coal to a power plant in Washington state was $1.22 per million Btu delivered, while the comparable price for natural gas was $6.50 per million Btu. Btu, or British thermal units, is a measure of the heat content of fuels.