(Dow Jones Newswires circulated the following article by Matthew Dalton on August 3.)
NEW YORK — The price of coal mined in Wyoming’s Powder River Basin continues to surge following train derailments that have limited shipments to power plantsacross the U.S.
Basin coal prices for next-month delivery have risen 16 percent over the last seven days to about $11 a ton, as power plants across the Great Plains, the Midwest and the South struggle to keep their inventories above dangerously low levels.
”There are many people who are concerned about running out of coal,” said Duane Richards, chief executive of the Western Fuels Association, a cooperative that buys coal for rural electric utilities. ”We have some plants that have adequate inventories, but most are lower than where they’d like to be.”
Average stockpiles of Wyoming coal had fallen by the end of June to 40 days worth of fuel, about 32 percent lower than normal levels at the beginning of previous summers, according to a power plant survey conducted by Energy Ventures Analysis, an energy consulting firm.
”The utilities definitely need to do some rebuilding of their PRB stocks,” said Ralph Barbaro, a principal at Energy Ventures Analysis.
Two train derailments in early May on a stretch of track jointly operated by railroad giants Union Pacific Corp. (UNP) and Burlington Northern Santa Fe (BNI) have reduced coal shipments from the Basin by at least 5 million tons, assuming shipping levels immediately before the derailments, Barbaro said. The lost shipments may actually be as high as 10 million tons assuming the peak levels that prevailed in March.
The railroads have restored shipments to prederailment levels and have actually shipped more coal so far in 2005 than in the first six months of 2004, but that hasn’t been enough to make up for lost shipments and increased demand from nontraditional users of Powder River Basin coal.
The derailments came at an inopportune time for electric utilities. Extreme heat swept across much of the U.S. during July, prompting record demand for electricity, according to the Edison Electric Institute, the utility industry’s main trade group. The hot weather could leave power plants with especially low stockpiles exiting the summer, Barbaro said.
And with more power plants in the Midwest and even the East looking to burn Wyoming coal because of its low cost and low sulfur content, utilities may not be able to rebuild their stockpiles until after next year, Barbano said.
”With the additional demand that’s projected to come on line next year, it’s going to be tough on the producers to meet all that demand in 2006,” he said. ”It make take until 2007 to rebuild those stockpiles.”
Prices for all delivery periods of Wyoming coal have surged recently, but the prompt month delivery price has risen the most and for the first time in at least a year exceeded delivery prices for the next quarter and the next year. Market observes say this reflects the market’s belief that near-term prices will cool somewhat when coal companies are able to ship more coal.
”Prices will never go back to $5 a ton, but we’ll see a leveling off,” Richards said.
A number of utilities have taken steps to conserve their coal to head off shortages. Xcel Energy Inc. (XEL) has said it will rely more on natural gas-fired generation and power purchased from outside generators. Entergy Corp. (ETR) has also said it will rely more on off-system power purchases to serve customers, while Alliant Energy (LNT) is purchasing off-peak power to conserve its coal for fueling its own generation during peak hours.