The recent retirements of three large coal-burning plants in Texas are no more than an echo far north in the Powder River Basin of Wyoming. The coal sector has improved here since the downturn, and many are less worried about the outlook of one of Wyoming’s most steadfast industries than they were two years ago.
But when Luminant, a subsidiary of Vistra Energy, said earlier this month that its Monticello, Big Brown and Sandow plants were going to close, it translated to two fewer customers that buy Wyoming coal. The plants simply could not compete with the flush of cheap renewables and low priced natural gas, its owners said.
Over the last few years, Wyoming has struggled through an unprecedented decline in the coal sector. Financially weak companies filed for bankruptcy, nearly 1,000 miners lost work and warm winters reduced demand. Federal environmental rules to cut mercury pollution or carbon dioxide emissions also shook the sector.
The value of Campbell County, home to most of the state’s coal mines, declined by $1 billion between 2016 and 2017.
That sudden storm that hit the coal market has dissipated, and coal in the PRB is adjusting to a new normal. Production is up about 15 percent from last year. Companies are operating more efficiently. And though industry groups say most of the lost jobs will not return, dramatic declines are no longer looming in the immediate future.
Companies that sell coal to Luminant, like Peabody Energy, say the recent closures are no surprise. They expect the changes that are happening in the market. Analysts say Wyoming coal has advantages over other coal producing regions. It’s more flexible to meet demand where it persists, and it’s cheap. But the alarm bells aren’t lost on analysts or companies. The coal sector is a gradually contracting market in the U.S., and closures of some plants that burn Wyoming coal are a part of the deal.
For some tracking the trend of declining coal use, the announcements last week were more evidence that coal is on the way out.
“This news reflects a gathering movement among U.S. utilities away from coal, a trend that will continue regardless of the Trump administration effort’s to prop up a fading coal industry,” the Institute for Energy Economics and Financial Analysis said in a statement. The research group, which advocates a transition away from fossil fuels, recently published a report that argues coal power in Texas is in rapid decline. Recent closures are the tip of the iceberg, and changes in Texas will be felt by operators in coal producing states like Wyoming, according to IEEFA.
Texas power producers are the biggest buyers of Wyoming coal in a given year. The state has a diverse energy portfolio to choose from, and burning coal in large plants under a host of environmental stipulations has become the most expensive way to turn on the Texas lights hour by hour. Experts are seeing similar trends in other states that buy coal, a disturbing trend for Wyoming, the country’s leading producer of the fossil fuel.
Take Peabody Energy, which owns the largest surface mine in the country — the North Antelope Rochelle Mine complex, east of Wright. Both the Monticello and Big Brown power plants regularly buy coal from one of Peabody’s smaller Wyoming mines, Rawhide, and the plants were two of the mine’s largest buyers in 2017.
“Peabody has been dealt a harsh blow this week,” the group said.
But a spokesman for the coal firm countered the gloomy outlook of the Texas closures on their Rawhide mine and its miners.
“Last year, our PRB mines produced just over 113 million tons and we would recommend against drawing conclusions about any PRB mine based on one customer,” said Vic Svec in an emailed statement. “Peabody has scores of customers from our three Powder River Basin mines, which are three of the four most productive mines in the United States.”
Peabody’s PRB mines are a single unit from the company’s perspective, he said. The company can move resources and employees around as needed.
Svec reiterated an argument the company has made before: the closure of older, less economic plants will increase productivity at the ones still standing. They will use more coal, buy more coal, offsetting declines elsewhere. The recent announcements are not unexpected, Svec said.
“Peabody has long stated we anticipate total U.S. coal plant retirements of approximately 50 gigawatts over the next five years,” he said. “We factor that in our mine planning and sales activities to minimize any effects on Peabody.”
Peabody’s confidence is one way to look at how closures will affect the coal market. Experts say this theory is still being tested and is part of the uncertainty surrounding future projections for coal. But the claim to flexibility with buyers is supported by some analysts keeping tabs on the coal market. It will be one of Wyoming’s advantages as the market narrows, they say.
“[The closures are] a little less of an issue in the PRB because all the customers are far away, so they fall in that group of producers that ship,” said Chiza Vitta, coal analyst for S&P Global. “They ship their coal to companies all over the country, so if somebody shuts down, they just ship to a different customer.”
Other basins have mines that are tied to nearby plants and tend to suffer more from the closures that are impacting the coal sector, Vitta said.
The retiring Sandow plant in Texas, for example, will close alongside the nearby Three Oaks Mine, with a combined job loss of some 450 employees, according to Vistra.
Coal provides about 30 percent of the electricity in the U.S., down from 40 percent a few years ago. But the sector is not expected to face another cliff like the one experienced in 2016.
The coal market this year has actually grown. It’s a short term boost that some are linking to the downturn, when the market perhaps overreacted, Vitta said.
Long term, producers in Wyoming still have low cost operations and flexibility on their side, somewhat offset by the lower quality of Wyoming coal, he added.
But the pressures are still a serious issue for the long term outlook of one of the state’s most important industries. Luminant’s announcements were not encouraging to champions of coal. They are evidence of the new normal.