Coal production slows, prices drop

Aug 10, 2012

Coal production and coal prices are down and stakeholders are offering up lots of reasons as the cause, from weather to new policies and competing fuels. Wyoming Public Radio’s Irina Zhorov reports that it’s a combination of all these factors. 

Irina Zhorov: There is no doubt coal is struggling right now. Karim Rahemtulla is the Senior Correspondent for investment blog Wall St. Daily.

Rahemtulla: The predominant trend that’s in the market right now is a slowdown in consumption, directly related to coal, not necessarily other energy sources.

Zhorov: That seems to be the case for Wyoming businesses, as well. For the second quarter in a row mining companies like ARCH are showing that production continues to go down in the Powder River Basin. Union Pacific is sending almost 20% less coal in its trains out of the Basin than it was last year at this time, and mining showed the biggest decrease of all industries in Wyoming in personal income growth the first quarter of 2012.

In some cases, across the country and in Wyoming, workers are getting laid off. Vern Tystad who works in a contract workers placement office in Gillette, says companies are hiring personnel for shorter stints. 

Tystad: So rather than hire full time people or put on an extra crew to do it, what they’ll do is use us to just complete the project.

Zhorov: So what’s the problem? Some say the slowdown is due to an unusually mild winter that left power plants with unused stockpiles of coal and less demand. Others point to a recent flurry of emissions regulations and proposals by the Environmental Protection Agency and what President Obama’s detractors have widely called the White House’s War on Coal. Here’s Wyoming U.S. Senator John Barrasso:

Barrasso: The Obama administration and specifically the EPA has really been at war against coal. When Barack Obama was running for President, he said he would make sure that coal fired power plants would go bankrupt and the electricity rate would necessarily sky rocket under his plans.

Zhorov: What President Barack Obama actually said in that quote was that cutting out coal is currently impossible but at the same time he advocated letting the market decide which fuels make sense to use while adhering to necessary environmental standards.

President Obama: What I have said is that for us to take coal off the table as an ideological matter.

Zhorov: During his presidency, the EPA has enacted new emissions standards and has more pending.

Because of these new standards, power plants, especially those operating older, coal fired facilities, have had to work to stay in compliance.

Arambel: Across all of our fleet we’ve invested nearly a billion dollars in improved scrubbing, in reducing that amount of So2 that we emit, lowering the amount of nitrous oxide that we emit, lowering the amount of particulate that we emit.

Zhorov: That’s Bob Arambel, Managing Director of the over-2000 megawatt Jim Bridger plant outside of Rock Springs. Arambel says there are two more upgrades planned at the Jim Bridger plant – totaling 500 million dollars.

Dave Eskelsen is the company spokesperson for PacifiCorp, which operates Jim Bridger.

Eskelsen: And there may be additional costs because of the regulations as well in coming years. So it’s quite a significant concern for us to the extent that we must install relatively expensive equipment and that does have an impact on the prices for electricity our customers pay.

Zhorov: Eskelsen says new regulations may tip the scales when considering whether to shut down certain coal fired plants, install cleaning equipment, or build new plants.

Eskelsen: Coal is probably not in our future as far as new power plants go. We’re not sure how much it would cost or whether we could get a new coal plant permitted. 

Zhorov: So what are they going to use instead? Natural gas.

Here’s Investments correspondent Karim Rahemtulla again:

Rahemtulla: Even if natural gas were to go up 60% from current levels, it would still come in cheaper for the newer generation of energy plants. And you can even give it a margin of error of 10 or 20 percent because people come up with number all different way, you're still coming in at a lower sustainable clip going forward.   

Zhorov: Natural gas is cheaper than coal right now, and it’s cleaner to burn and easier to meet emissions standards. So policy and the market could be working together to retire the older coal plants and bring in newer gas plants. In Wyoming, there’s at least one coal fired plant run by Black Hills Corporation – the Naughton Plant – that’s considering switching over to natural gas. And a new gas fired plant has been permitted to Black Hills, which will replace even more coal fired power generation.

Greg Hager, of Black Hills, says most of the company’s fleet is state of the art, in compliance. But even so, there’s some reevaluation happening now.

Hager: If you take some of these older plants with different technology to upgrade them to meet the most current requirements would be economically, it would not be a good choice. That’s something that is being modeled and I think probably a whole lot of utilities are looking at, weighing that issue today.

Zhorov: In other words, that’s a trend industry wide. But while coal is slipping, everyone agrees coal will continue to make up a large part of the energy mix.

For Wyoming Public Radio, I’m Irina Zhorov.