Wyoming coal mines boosted production by 9% and added more than 200 employees in 2021, taking advantage of a rebounding economy and a competitive edge against rising natural gas prices while securing future coal sales at record-high prices.
Arch Resources, for example, has booked all of its 2022 Wyoming and Colorado volumes at prices averaging $16.30 per ton, according to its 2021 fourth-quarter report. Powder River Basin coal has ranged from less than $4 per ton in the 1990s to about $10 a year ago.
“It’s an amazing position,” Arch Resources CEO and President Paul Lang said during a press call Tuesday. “What’s more amazing is these are prices that we’ve never seen, frankly, in 20-plus years. It’s an amazing position to be in, and it really took a lot of risk out of the thermal assets for us as we looked at our options down the road.”
Arch and Peabody Energy are the two largest Wyoming coal producers and the only publicly traded coal operators in the basin. Combined, they make up 53% of Wyoming Powder River Basin coal production and 51% of coal production statewide. Both saw their stocks rally after fourth-quarter 2021 reports to investors this month, based on strong earnings that mostly erased 2020 losses and painted a bright outlook for 2022.
Navajo Transitional Energy Co., LLC and Eagle Specialty Materials, LLC also saw production gains and added employees in 2021, while results for Wyoming coal producers outside the Powder River Basin were mixed.
Yet even with a rosy outlook for the near term, the market conditions that lifted producers out of the pandemic doldrums are not expected to sustain under the larger market and policy trends that industry analysts say will dramatically shrink the state’s coal industry within the next decade.
“The projection, short term, it’s going to be pretty good for next year and going into 2023,” Wyoming Mining Association Executive Director Travis Deti said. “But the overall macro-trend is we’re [the U.S.] not building any more coal plants. We’re still dealing with the issue of premature [coal-fired power plant] retirements. So the larger issue remains.”
Too little, too late
Wyoming mines scooped 239.1 million tons of coal in 2021, according to WyoFile’s analysis of U.S. Mine Safety and Health Administration data. But the 9% year-over-year increase still falls far short of pre-pandemic production levels. The 239.1 million tons in 2021 represents just 86.5% of the 276.4 million tons produced in 2019.
The current surge in production is a relief to miners, operators and state coffers, but it’s a small reprieve from the even larger production decline that has reshaped the industry as well as Wyoming’s budget over the past 13 years. Wyoming shipped 465 million tons of coal at the industry’s peak in 2008. The 49% decline since then has wreaked havoc on county and state coffers; Wyoming relies on revenue from federal coal, oil and natural gas for more than half its annual budget, according to the Wyoming Taxpayers Association.
While the latest coal uptick contributed to Wyoming’s improved budget outlook, the rebound is mostly attributable to resurging oil and gas production and pricing. “Coal production is forecast to continue its overall downward trend, despite the current, temporary increase in production and pricing,” according to the Wyoming Consensus Revenue Estimating Group’s October report.
Wyoming’s 2021 coal production increase “can be misleading in the sense that it’s just a little blip-up on the long road down,” said Seth Feaster, an energy data analyst for the Institute for Energy Economics and Financial Analysis. About half of the remaining coal-fired power capacity in the U.S. will be retired by 2030, according to U.S. Energy Information Administration forecasts. Wyoming coal is almost entirely dependent on that U.S. utility market.
“So even if you’ve got some resurgence in demand for coal now, the overall market is absolutely going to shrink,” Feaster said, adding that there are no plans to add new coal-fired power in the U.S. “Once plants are closed, there’s no more potential market there. It’s gone.”
The good and the bad
Compounding the grim forecast for Wyoming coal is the current surge in pricing, according to Feaster. The 50-70% bump — albeit temporary, according to industry forecasters — makes Wyoming coal an even less attractive fuel source as utilities consider whether to replace aging coal-fired power plants with cheaper renewable sources.
“So the coal companies are facing this real dilemma,” Feaster said. “If coal prices are down, they’re not in good financial health. But if coal prices go up, the way they have, [coal] becomes less competitive in the marketplace.”
Arch CEO Lang said his company is following markets to their logical conclusion. Arch remains “unwavering” in its pivot from thermal coal — its Wyoming mines — to “a pure-play coking coal producer as we harvest the remaining and still significant value of our legacy thermal assets, continue to shrink their operational footprint and drive forward with pre-funding of their final closure costs.”
In other words, Arch is using the current demand and pricing windfall to help pay down its reclamation liabilities and closing costs as it plans to exit Powder River Basin and western coal. Arch’s pivot focuses capital investments in its eastern metallurgical and coking coal operations to serve the steelmaking market, Lang said.
Arch reported that it paid down $40 million — or 20% — of its mine reclamation and retirement obligations in the Powder River Basin in recent months, to close its Coal Creek mine in the Powder River Basin by year’s end. The company also plans to close its flagship Black Thunder mine — the second largest surface coal mine in North America, although Arch has not set a target closing date. The current surge in Powder River Basin coal profitability will pay for closing both the Coal Creek and Black Thunder mines, or make them more attractive for a sale, Lang said.
Yet for now, coal mines in the Powder River Basin are still looking to add miners to their rosters to take advantage of current market conditions. Though they’ve added some 200 miners in the past year, the pandemic remains a limiting factor at mines and for the railroads that ship Wyoming coal, according to industry officials.
“We could probably still use another 200 miners up there [in the Powder River Basin],” Deti of the Wyoming Mining Association said.
Arch’s Wyoming operations, which are non-union, are well-staffed to meet demand in the coming year, Lang said. But current labor market conditions require increasingly competitive compensation. “You know, I would hate to be in a position this year where I’m trying to go out and look for a couple hundred people,” he said
Current Powder River Basin dynamics exemplify the short window of opportunity for Wyoming coal communities to transition to an economy that’s no longer primarily reliant on coal, Feaster said.
“We’ve seen this in the past in places that didn’t want to believe that their local coal plant or local local mine is going to shut down, and they fought it,” Feaster said. “These regions have a window of opportunity to try and realign their economy a little bit so they’re not so dependent on one industry. Communities have an opportunity to really start realistically planning for where things are going, because that window is going to close and things are going to start going down again before too long.”