(The following article by Dustin Bleizeffer was posted on the Casper Star-Tribune website on October 11.)
GILLETTE, Wyo. — Wyoming coal prices are at an all-time high amid a series of train derailments out of the Powder River Basin and unrelenting demand among electric utilities as they try to avoid even steeper natural gas prices.
While frustrated by railroad troubles to meet increasing demand, Powder River Basin coal producers aren’t complaining about contracts being struck for 2006 delivery at $15.45 per ton — up from around $10 per ton in July and $7 per ton a year ago.
“When they bring us trains, we’ll fill ’em,” said Dallas Scholes, spokesman for basin coal producer Kennecott Energy.
On Saturday, two Union Pacific locomotives derailed with 15 coal cars on the triple-track line between Wright and Douglas, compounding Powder River Basin coal export delays that plagued the Midwest utility industry all summer.
Repairs were made to all three lines by early Sunday morning, according to Union Pacific. But utilities are nervous about such disruptions after watching some stockpiles shrink below 30 days when coal traffic out of the southern basin was cut 20 percent this summer due to two derailments on the same triple-track route in May.
A joint effort between Union Pacific and Burlington Northern Santa Fe could increase overall traffic out of the basin by 2006. But other market forces are expected to hold Powder River Basin coal prices at the current high-water mark.
“Right now it’s a demand-driven market, and as long as that demand is there, and I would expect it for the next several years, you’re going to see a reasonable stability in coal prices — a lack of volatility in prices,” said Richard Price, a coal industry analyst for Westminster Securities Corp.
Price said he expects coal will hold tight to its 52 percent of the electrical generation market. Although demand for clean-burning natural gas, which fuels about 17 percent of the nation’s electrical generation, is expected to increase, it won’t convert many coal consumers. Not at $10 per thousand cubic feet of gas — double what prices were about a year ago.
Fortunately for Wyoming producers — and public coffers — the Cowboy State has plenty of both commodities. Coal producers, though, said this summer’s railroad woes fought against their efforts to boost production beyond the basin’s record 381.7 million tons set last year.
In July, Arch Coal said shipments from its Black Thunder mine near Wright were reduced by 3.8 million tons and that production was curtailed by an additional 2 million tons because of railroad delays.
But at the same time Arch reported a 17 percent increase in the price of coal from Black Thunder. With increases in overall production and prices across its U.S. operations, Arch had boosted its second quarter 2005 revenue by 50 percent to a record $633.8 million, according to the company.
Peabody also reported record earnings as well. Its second quarter revenue alone increased 21 percent to more than $1.1 billion.
Wyoming’s revenue watchers are marveling at how the surge in energy prices is playing out in the Cowboy State, where minerals pay more than 50 percent of all state revenues.
Randy Bolles, executive director of the Wyoming Taxpayers Association, said Wyoming’s fiscal year 2005 revenue is beyond $2.8 billion. Property tax on minerals is about $680 million, and severance tax on minerals is a record $655 million.
“It’s good for Wyoming’s economy. We live and die by our minerals,” Bolles said.
NewsTracker
* LAST WE KNEW: Back-to-back train derailments in mid-May drastically slowed the flow of coal out of the southern Powder River Basin over the summer.
* THE LATEST: Another train derailment in the area on Saturday caused another disruption. Railroad and outside market forces have pushed Powder River Basin coal prices beyond $15 per ton.
* WHAT’S NEXT: Burlington Northern Santa Fe and Union Pacific plan to increase coal traffic basinwide in 2006, while coal producers hope the additional volumes help them capitalize on high coal prices.