May 19, 2021 - Powder River Basin mines that supply lower-heating-value coals — including several operated by newcomers Eagle Specialty Materials and Navajo Transitional Energy Co. — might be at greater risk of closing sooner, according to a new report.

“Overall we found that in 2020 every PRB coal mine saw its power plant customers burn significantly less coal than they had averaged for the three years prior,” said Dan Cohn, who authored “Planning for Coal Mine Closure in the Powder River Basin” for the Sightline Institute, an independent research group based in Seattle. 

“That’s not surprising for a very bad year for coal, but the real meat is in picking apart how much more danger some mines are in than others,” Cohn said. “The 8,400 Btu [British thermal unit] mines are in the worst shape, including Buckskin, Belle Ayr and Eagle Butte.”

Wyoming PRB coal ranges from just below 8,400 Btu to just above 8,800 Btu, with some of the smallest, least financially stable mine operators in the former category. Btu is a measure of energy density; Powder River Basin coals fall on the lower Btu range among U.S. coals burned to generate electricity, but are cheap to mine and also contain a lower sulfur content — a regulated pollutant — than other coals burned for electricity.

Competition for survival among Powder River Basin coal operators is high as utilities set retirement dates for coal-fired power plants. Those retirement schedules typically give coal communities several years to plan for the job and economic losses.

But perhaps more consequential, and more immediate, Cohn said, is the fact that many coal-fired power plants, whether scheduled for retirement or not, are burning less coal as utilities dial down productive capacity in response to increasing operational costs. But the implications of that continuing decline are likely to hit PRB mines differently, based on a number of factors. That’s why it’s important to track trending coal purchases from particular PRB mines, he said

“The question in my mind has been, which company is going to implode next?” Cohn said. “No one deserves to be blindsided like the Blackjewel workers were.” 

Blackjewel filed for bankruptcy in the summer of 2019, locking the gates at its Eagle Butte and Belle Ayr mines without warning. Both mines resumed normal operations months later, and are now under ownership of Eagle Specialty Materials, but the episode left many creditors unpaid, including local governments, while workers were thrown into a state of chaos.

The Blackjewel saga underscores the need for greater transparency so that coal miners and coal communities can prepare, Cohn said.

“We’ve entered this sort of twilight phase in the Powder River Basin coal mining industry where it’s no secret that some company will close their mine next,” he said. 

Future Closures?

For several years, industry analysts have warned there’s too many PRB mines chasing a shrinking customer base. “That is not sustainable,” University of Wyoming energy economist Rob Godby said in January 2020. “Some mines are going to have to close.”

The question of which might close next appears at least partially answered. 

The Decker mine, just across the border in Montana, ceased production at the end of January after its parent company, Lighthouse Resources, filed for Chapter 11 bankruptcy. And in February, Arch Resources said it is accelerating efforts to downsize operations at its Coal Creek and Black Thunder mines as it prepares both for permanent closure. Coal Creek will likely ship its final trainload of coal this year, according to Arch, while a schedule for Black Thunder has not been set.

That news doesn’t necessarily mean other PRB mines and mine operators are in the clear, Godby told WyoFile recently. Arch remains open to potential buyers for Coal Creek and Black Thunder. The decline in PRB coal sales is projected to continue, and likely to gain momentum after 2021, and several operators currently have less-than-solid financial footing.

Tracking and analyzing coal sales between specific mines and specific power plants is one way to gauge which mines might be more at risk of closure, Godby said. But coal contracts between PRB mines and PRB coal buyers are continually shifting. The biggest unknown is the productive breaking point for any particular mine or mine operator, he said. 

Arch and Peabody Energy, the largest and best financed among PRB producers, have the ability to shift from thermal coal in the PRB to their metallurgic coal — coal used to make steel — operations in the eastern U.S. The companies have taken intentional steps to be more transparent about future operations. Both have said they will eventually exit the PRB.

Meantime, other PRB coal operators with less financial wherewithal have an incentive to hang on for as long as possible, hoping others drop out and ease competition in the basin, Godby said.

All told, Godby said, “There will be a lot of complicated factors … The bottom line is all the mines are doing much worse than they previously have.”

Case Study

Sightline analyzed PRB coal consumption among power plants using data reported by utilities to the U.S. Energy Information Administration. Cohn said the hope is to glean insights about how the decline in coal demand might hit PRB mines differently.

For example, the Scherer Power Plant in Georgia is the largest coal plant in the nation with a generating capacity of more than 3,500 megawatts. It predominantly burns PRB coal. 

In 2017, the Scherer plant purchased coal from six PRB mines. Its largest supplier was Eagle Specialty Materials’ Eagle Butte mine for a total 3.4 million tons, according to Sightline’s analysis of EIA data. In 2020, the Scherer plant reported four major PRB suppliers; this time the biggest was Peabody Energy’s Caballo mine at 1.7 million tons.

It took only 1.2 million tons from Eagle Butte in 2020.

Scherer will retire one of its four coal units in 2022. What that closure, along with the potential to operate at lower capacity, means for Eagle Butte and other PRB mines is unknown. Both Cohn and Godby noted that contracts between PRB mines and about 200 potential customers are constantly shifting. That shifting underscores another vulnerability among PRB producers, they said: Coal buyers are moving away from multiple-year contracts with suppliers to shorter-term contracts.

It’s also interesting to look at trending coal sales for individual PRB mines, Cohn said.

For example, 14 different power plants reported coal shipments from the Eagle Butte mine in 2017. The largest was Evergy Inc.’s Jeffrey Energy Center power plant in Kansas for a total of 6.6 million tons. But in 2020, just eight power plants took significant volumes from Eagle Butte, and the share going to Jeffrey Energy Center, still Eagle Butte’s largest buyer, fell to 4.8 million tons, according to Cohn’s analysis.

Total production at Eagle Butte fell from 17.2 million tons in 2017 to 12.3 million tons in 2020, according to WyoFile’s analysis of U.S. Mine Safety and Health Administration data.

If Eagle Butte were to suddenly lose a buyer as large as Jeffrey Energy Center, which plans to shutter one of its three coal units in 2030, without replacing those volumes with other buyers, it could spell disaster, Cohn said.

WyoFile reached out to Eagle Butte owner Eagle Specialty Materials for comment for this story, and did not receive a response before press time.

More Transparency Needed

“To me, the take home message is that every coal miner, and everyone in a coal community, deserves credible information about the outlook for the industry and for the major employers in the area,” Cohn said. “And they also deserve serious plans and resources to support people building a life after coal. The transition is coming faster than most people really think.”

There are clear limitations to analyzing which PRB mine might be more at risk of closing next, Cohn said. While the volume of coal sales is one indicator, it’s impossible to know at what point an operator will decide to close a mine.

Only two PRB operators, Peabody Energy and Arch Resources, are publicly traded and obligated to disclose portions of their operational plans. Godby said there’s a huge incentive among the rest to portray staying power while hoping others are the next to throw in the towel and provide a little more breathing room.

“It would be really nice if they would give communities a bit of notice about their plans,” Godby said. “The reality is, that’s probably not going to happen.”