Fewer Mines Seen as Needed to Boost Coal Industry

A common theme in recent investor calls discussing Class 1 railroad quarterly financial results and the weekly and monthly freight data provided by the Association of American Railroads has been the steady downward trajectory of coal traffic by rail.

Class 1 railroad executives and many industry observers have adopted a pessimistic attitude toward coal, saying that it will continue to lag due to low prices of natural gas used to generate electricity and the closing and planned closing of power plants using coal.

The coal industry itself is undergoing a transformation with some saying there are too many mines for the size of the market.

“There are too many mines and too few customers,” said Rob Godby, an economics professor who is deputy director of the University of Wyoming’s Center for Energy Regulation and Policy, in an interview with Trains magazine.

He said the best thing that could happen to improve the financial health of the coal industry would be a permanent closure of a mine in the Powder River Basin, where there has been little consolidation of operations.

That has resulted in less profitability for the owners of those mines. Some have sought bankruptcy in the past few years.

That included St. Louis-based Arch Resources, which emerged from bankruptcy protection in 2016 and is one of the major players in the Powder River Basin.

Arch said this week it is seeking a buyer for its mines and if can’t sell them it will wind down production in the Power River Basin.

The company said during a third quarter earnings call that it is transitioning away from thermal coal used to generate electricity and instead focusing on metallurgical coal used in steel making.

Coal was used to generate 48 percent of U.S. electricity as recently as 2008.

But the U.S. Energy Information Administration said that has fallen to 20 percent this year.

Last year Arch’s mines in the Powder River Basin produced 75 million tons of coal. It expects to produce 55 million tons this year.

A month ago Arch and one of its chief competitors, Peabody Energy, called off plans to combined operations in the Powder River Basin and elsewhere.

The Federal Trade Commission had opposed the due based on competitive concerns.

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