By Tom Lutey

September 3, 2017 - Montana coal production is more than 2 million tons ahead of where it was this time last year, although analysts say the future is far from bright for the fossil fuel.

Most of the production is coal mined from Spring Creek, a Cloud Peak Energy mine in southeast Montana. The Montana Coal Council compiles the production numbers. 

“Certainly what we’ve seen is an increase in our sales to our Asia customers primarily in South Korea and Japan,” said Rick Curtsinger, Cloud Peak Energy spokesman. “Last year by the end of the second quarter, we had shipped 200,000 tons of coal to our Asia customers. This year as of June 30, we shipped 1.8 million tons to customers in South Korea and Japan.”

Coal production is running away from a historically bad 2016 — the nation’s lowest coal production year since 1978. But the first seven months of 2017 still trails 2015 production by about 6 million tons. Montana mines produced 20.7 million tons through June two years ago.

Montana mines produced 3.36 million tons of coal in July. Almost half of the production increase came from Spring Creek Mine, said Bud Clinch, Montana Coal Council director. Nearby Decker Mine, owned by Lighthouse Resources, was the second-largest contributor. Decker production was up 155,000 tons.

“I think both Decker and Cloud Peak are because of export markets. They both have capacity at Westshore Terminal and demand is stronger,” Clinch said.

Westshore Terminal is a British Columbia coal port off the shore of Vancouver. It’s where most of Montana’s export coal is shipped.

In late 2015, with prices driven down by a glut of coal in the Asia Pacific market, Montana mines suspended exports entirely. Cloud Peak agreed to pay Westshore to reserve space, rather than ship coal at prices that wouldn’t cover the cost of delivery.

Those sluggish prices suppressed coal exports into 2016, when production was in a downward spiral until late in the year when supply tightened again and the market improved. In 2017, the growth has been steady.

“We’ve been up every month for the last five months,” Clinch said.

The only way for coal production to go from 2016 was up, said Tom Sanzillo, analyst for Institute for Energy Economics and Financial Analysis. Last year was a bruising one for coal, with cheap natural gas outcompeting coal to become the dominant power source in the United States for the first time ever.

The number of coal-fired power plants because of age, non-compliance with pollution standards or both also increased.

Natural gas hasn’t gone away and the United States isn’t building new coal-fired power plants, Sanzillo said.

In the Asian Pacific, the same forces that clobbered Powder River Basin coal exports in 2016 still exist, which means coal market improvements aren’t likely to last. Cloud Peak is doing better, but the trend is still downward, Sanzillo said.

“I think they had a reasonably good half year,” he said. “A company that lost 30 percent of its market in the last couple years and gains back two points is technically doing better.”

But coal prices haven’t really returned to the heyday of 2010 and 2012, when United States mines saw good prices and potential in the Asian Pacific.

Companies have cut costs and found a way to do business with lower coal market prices, Sanzillo said. The Institute for Energy Economics and Financial Analysis favors an energy future with less coal-fired power and more development of cleaner, renewable energy sources.

Curtsinger points to a recent report by SNL Analytics that indicates that plans for more coal-fired power plants in South Korea and Japan could boost demand for coal. Coal politics abroad are no less active than in the United States, SNL points out. There is political pressure to cut back on the plans to build new power plants in South Korea over the next decade.

There’s also no guarantee that South Korea and Japan will use U.S. coal to meet their needs. Just like in 2016, prices could fall and these coal buyers could be shopping elsewhere.