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One of the largest coal companies operating in the Powder River Basin of Wyoming says it will wind down production in the next few years if it can’t find a buyer for its mines that are served by BNSF Railway and Union Pacific.
Arch Resources is moving away from the thermal coal that is used to generate electricity and instead will concentrate on metallurgical coal used in steelmaking.
“In keeping with our rapid pivot towards steel and coking coal markets, we are driving forward with a plan to optimize the value of our legacy thermal assets,” Arch CEO Paul Lang said last week. “As previously announced, we have launched an accelerated effort to evaluate strategic alternatives for our thermal operations, including possible divestiture. Simultaneously, we are finalizing plans to shrink the operational footprint at these operations, with a particular emphasis on our Powder River Basin assets, where we are sharply focused on systematically reducing our asset retirement and related mine closure obligations.”
Arch's Powder River Basin mines, which produced nearly 75 million tons of coal in 2019, are expected to produce less than 55 million tons this year. Arch says it may cut production in half over the next two or three years at its Black Thunder and Coal Creek mines in the Wyoming coal fields.
Black Thunder is the second-largest coal mine in the country, according to the U.S. Energy Information Administration.
“We view this systematic winding down of our thermal operations — in a way that allows us to continue to harvest cash and to fund long-term closure costs with ongoing operating cash flows — as the right business solution in the event we are unable to find an appropriate buyer,” Lang said.
The announcement, made as part of the company’s third-quarter earnings, comes a month after Arch and rival Peabody Energy shelved plans for a joint venture that would have combined their operations in the Powder River Basin and elsewhere.
The joint venture would have saved the companies $120 million a year over the next decade, but the Federal Trade Commission sought to block the deal due to competitive concerns. A federal court upheld the decision last month.
Arch’s mines are located on the Joint Line served by BNSF and UP. Based on trains per day, Powder River coal volume is down 24% this year, according to data the railroads file with the U.S. Surface Transportation Board. Overall coal volume is down 23% on both railroads for the year to date, according to Association of American Railroads weekly carload reports.
The railroads’ Powder River coal volumes have declined 36% since 2017 and are down 54% since the 2008 peak, according to a Trains review of daily average loaded train counts.
Competition among coal producers has become cutthroat as volumes have declined, says Rob Godby, an economics professor who is deputy director of the University of Wyoming’s Center for Energy Regulation and Policy. “There are too many mines and too few customers,” he says.
Due to cheap natural gas, tighter environmental regulations, and the rise of renewable sources of energy, coal’s share of electricity generation in the U.S. has fallen from 48% in 2008 to below 20% this year, according to the U.S. Energy Information Administration.
The lack of consolidation in the Powder River Basin has undermined the profitability of coal producers, several of which have declared bankruptcy in the past few years. Arch emerged from bankruptcy protection in 2016.
The best thing that could happen to improve the financial health of the coal industry, Godby says, is a permanent closure of a mine in the Powder River Basin. “That will be a watershed moment in Wyoming,” he says.
This article first appeared on trn.trains.com
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