{{featured_button_text}}
Coal

The dragline at Black Thunder coal mine near Wright is seen through heavy fog in March 2017. Demand for Powder River Basin coal may be dropping faster that previously anticipated. 

Warning bells are ringing across Wyoming’s Powder River Basin that the largest producing coal region of the country is in big trouble.

One of the largest players, Cloud Peak Energy, is likely facing bankruptcy. A newcomer to coal country, Blackjewel LLC has struggled to pay its taxes despite increasing production, and the total volume of Wyoming’s black rock that miners are estimated to produce – a number that translates to jobs, state and county revenue — keeps going down.

After the coal bust of 2015, when 1,000 Wyoming miners lost work and three coal companies went through bankruptcy, a period of stability settled over the coal sector in Wyoming.

The idea that coal would slowly decline, partly buoyed up by the results of carbon research, and just maybe an export avenue to buyers in the Pacific Rim, took hold. Wyoming made its peace with the idea that coal’s best years were likely behind her, but that a more modest future for Wyoming coal, with manageable losses over time, was also likely.

That may not be the case.

“The degradation of the basin is accelerating and we never thought that would happen,” said Sen. Michael Von Flatern, R-Gillette. “We didn’t see that happening.”

Picking up pace?

Within 10 years, demand for Powder River Basin coal could fall to 176 million tons, said John Hanou, president of Hanou Energy Consulting and a long-time expert on the Powder River Basin. That figure includes Montana’s production and presumes that coal plants in the U.S. are taken offline as soon as they hit 60 years of age. If Wyoming is lucky and gas prices are high, that count could hold closer to 224 million. Or it could be even worse.

Economics could push out existing demand even faster, while wind development going up in the Midwest could eat into Wyoming’s coal market in that region. Natural gas prices, high or low, could alter the rate of change in Wyoming’s coal sector.

But where some have hoped that Wyoming coal declines slow enough for the state to absorb, others note a growing risk of more painful and sudden changes.

Von Flatern said Campbell County had come to terms with a new normal that was around 300 million tons per year – a 100 million to 150 million ton reduction from the old normal. But that number is probably going down yet again, he said.

Guidance from large firms like Arch Coal and Peabody Energy does support that prediction.

“We are declining faster,” he said. “We don’t know what the new normal is anymore. We thought we knew it. Now we’re not sure.”

Plant closures

The last few years have set records for coal plant closures. There were a number of reasons that the buyers of coal in the U.S. shuttered in rapid succession. A regulation to reduce mercury and other toxins from coal burning made continued operation of many older plants uneconomic. Natural gas prices – low for years – contributed over time to new investment of base-load power generation in gas plants rather than coal. No new coal plants have come online, while new wind farms, natural gas plants and solar farms have.

The coal plant closure risk remains and one plant closure can have a tremendous impact across the Powder River Basin.

Cordero Rojo sent 4 million tons of coal to the JT Deely coal-fired power plant in 2017. The power plant closed in 2018, the year that Cordero Rojo’s output dropped by one quarter. In this coming year, Cloud Peak says Cordero Rojo is no longer economic.

There’s another problem with coal plant closures, one that is more widespread.

Nine of the U.S.’s 33 largest coal plants are fed by six or more mines in the Powder River Basin, according to Rob Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming.

If one plant goes down, it hits multiple producers. That may seem like a good thing. It spreads the impact across the basin, so that no one mine takes the fatal blow.

But that’s not the case, said Godby.

“Things are so tight in the PRB that losing a lot less than (the gradual declines expected) might put the economics of a mine beyond what’s reasonable to continue operating,” he said.

A struggling basin

Cloud Peak has been open about Cordero Rojo’s uneconomic position this year in the PRB. Other mines may be uneconomic as well, or at least headed that way, some say.

The increase in production over the last year at Blackjewel’ s Eagle Butte and Belle Ayr mines, for example, is likely not a sign of success in a tough market. They are at break even or selling at a loss, while taking market share from other producers, said Hanou, the PRB analyst.

Hanou calls it shutdown economics – when companies operate without real profit because they are putting off the inevitable balloon cost of reclamation that hits when production ends.

Blackjewel recently agreed to a payment plan with Campbell County to pay more than $17 million in taxes, plus interest, because the coal firm said it could not afford to pay taxes on its production.

Shutdown economics is a way to postpone the inevitable, said Hanou.

“I can see that taking place at every one of the mines eventually,” he said. ”It’s the cost of money.”

A debt to pay

The most clear and pressing problem if Wyoming’s coal sector weakens considerably is tax revenue. Coal is the economic foundation of the state, along with the oil and gas industry, and it allows Wyomingites to receive more benefits and public services than it pays for.

But the impact is also one that affects people directly. If coal were to decline rapidly or suddenly, Gillette would be a ghost town, said Von Flatern, the local lawmaker.

Changes are already happening. One of Cloud Peak’s responses to its financial troubles was to cut retiree health benefits. The workers at the Kemmerer mine in Lincoln County lost their union contract when Westmoreland went bankrupt and wanted to sell to a buyer who wasn’t interested in keeping the workers’ contract in place, nor the legacy cost of health care to the retired miners of Kemmerer.

There are 13,000 coal dependent jobs in the Powder River Basin of Wyoming, said Godby.

That’s three coal dependent jobs for every 10 households in the five counties that comprise the PRB.

What Wyoming does next, knowing that these communities are at risk, is a moral and a policy question, Godby said.

Does Wyoming owe anything to its coal miners?

“The thing we have to remember is the people who worked in the coal mines created so much revenue that benefited everybody else, that … we could probably assume that we should help them,” he said.

Looking ahead

It was one of the first direct attempts to deal with the coal plant closures that Wyoming lawmakers had proposed – a bill in the 2019 legislative session that would force coal plant owners like PacifiCorp to try and sell their plants instead of closing them.

The bill wasn’t intended to save the coal industry or replace the revenue stream that would be lost —- two key challenges for Wyoming if the coal sector declines as expected. The bill was meant to save a coal plant because it is important for a couple small towns in western Wyoming. The PacifiCorp’s Naughton plant closed one of its three coal generators earlier this year, shutting off one-quarter of a nearby coal mine’s production. That mine, Westmoreland’s Kemmerer mine, faces troubles of its own due to a bankruptcy.

The Naughton plant is expected to shutter within the next decade, costing hundreds of jobs for the region. Similar closure expectations, particularly for older units, linger around the Jim Bridger power plant outside of Rock Springs and the Dave Johnston power plant outside of Glenrock. Closures may come earlier than anticipated due to coal’s increasing cost, due to the findings of PacifiCorp’s ongoing study of its coal fleet.

Of the many conversations about how to deal with coal’s decline, most have been solutions tied to carbon dioxide emissions. Wyoming continues to invest in research on how to deal with capturing carbon dioxide produced from burning coal, like using it to manufacture carbon fiber, pumping it over to use in oil fields stimulations or just injecting it underground.

The bill – proposed by Sen. Dan Dockstader, R-Afton – was the first to edge into the private sector and make an unconservative decision to interfere on behalf of a community.

“Being a Republican, you are not supposed to interfere with private industry. But we are definitely trying to interfere,” Von Flatern said of the bill, which he was critical of.

Rep. Mike Greear, R-Worland, said the growing problem of the coal sector is heavy on his mind, and other policy makers are thinking of it as well. The impact of coal plant closures on communities is one of the topics that is supposed to be explored during lawmakers’ interim session – the series of committee meetings that take place every few months in preparation for the legislative session in Cheyenne.

The problem is that no one has any great solutions yet, Greear said.

What happened in the last downturn had so much to do with companies like Arch Coal and Peabody Energy making bad business decisions, Greear said, referring to the debt the companies took on prior to the downturn that made them unwieldy once the sector turned sour on natural gas competition, renewables and coal plant closures.

The decline of Cloud Peak, however, has been a wake-up call, said Greear, who runs a sugar beet company in Worland. Cloud Peak appears to be failing for economic reasons, pure and simple, he said.

Wyoming has thrown its weight into coal science investment and carbon sequestration research, he added, but what is beyond that is unclear.

Both Greear and Von Flatern stated Wyoming has to take a hard look at taxes despite opposition from conservative voters or other lawmakers.

“Many years ago, Appalachia said coal is king and we will stick our head in the sand,” said Von Flatern, criticizing how Appalachian states who ignored Wyoming’s growing dominance in the coal sector – one of the contributors to Appalachia’s thermal demand dive – now have busted economies.

“We know that coal is not king anymore,” he said of Wyoming. “We are not sticking our head in the sand.”

Godby, of UW, said it’s not a problem that Wyoming’s lawmakers don’t have solutions yet, but the state doesn’t have a lot of time left. Wyoming is not currently prepared to lose the majority of its revenue nor cushion the blow to communities like Kemmerer, he said.

“We do have policy options that could reduce the worst consequences and we should be thinking about how to make sure (we) have defined them considering Wyoming’s unique preferences and needs,” he said in an email Thursday. “While these things may never happen, we can’t hide from the reality that every day it looks more and more like they will.”

Subscribe to Breaking News

* I understand and agree that registration on or use of this site constitutes agreement to its user agreement and privacy policy.

Follow energy reporter Heather Richards on Twitter @hroxaner

23
7
5
8
2

Energy Reporter

Heather Richards writes about energy and the environment. A native of the Blue Ridge Mountains in Virginia, she moved to Wyoming in 2015 to cover natural resources and government in Buffalo. Heather joined the Star Tribune later that year.

Load comments