The Coal Trader

Coal Mining Powder River Basin Coal Train PRB

PRB Coal Slips in 2023, Expected to Resume Long-Term Decline

Powder River Basin coal mines entered 2024 back on a downhill slope, as the long-term trajectory of Campbell County’s legacy industry resumed its decline following a two-year upswing in production. With an unexpected boost to coal demand fading away, the long-term trends of coal-fired power plant retirements and short-term availability of cheaper energy sources has put Wyoming coal back into a slide.

Wyoming’s 12 PRB mines — all in Campbell County — combined to produce about 230.4 million tons of coal in 2023, according to data from the Mine Safety and Health Administration. That marks a decrease of more than 7 million tons compared to the 237.7 million tons mined in 2022, and continues a downward trajectory that long pre-dates the COVID-19 pandemic, when mine production took a sharp tumble before hitting its unexpected revival.

Production in the Powder River Basin has nearly halved since reaching 446.5 million tons in 2008, after which mining went on to fall each year from 2014 (381.8 million tons) through 2020 (206.9 million tons). After plummeting nearly 60 million tons of production from 2019 to 2020, a renewed demand for thermal coal, spurred by several market factors — including low coal stockpiles and a global spike in natural gas prices — caused production to trend upward.

Powder River Basin mines increased production to about 230 million tons of coal in 2021, followed by 237.7 million tons in 2022, according to MSHA data. Those gains came amid challenges with railway companies that coal producers and industry executives said potentially left millions of tons of production — and subsequent revenue for the state — in the ground and away from customers during those years.

Nationally, coal production is expected to take a steeper dive this year as the market corrects back to pre-pandemic expectations, as natural gas prices have decreased drastically while power company plans to phase away from coal-fired power plants remain unchanged.

“Coal got a bump over the pandemic as natural gas prices rose, now we’re on the down side of that outcome,” said Rob Godby, University of Wyoming energy economist.

After nationwide output of about 594 million tons of coal in 2022 and 581.6 million tons in 2023, coal production in the U.S. is expected to fall to about 469.6 million tons in 2024 — about a 19% drop, according to the U.S. Energy Information Administration. Although electricity consumption in the U.S. is expected to increase this year, electricity generated by coal — such as mined in the Powder River Basin — is expected to decrease about 8%.

That sharp fall in coal production may be less severe in Wyoming, although the state expects a steady decline going forward. Statewide production — of which Powder River Basin mines claim the vast share — has been projected to decrease from an estimated 235 million tons last year to 225 million tons in 2024, according to the January report from the Consensus Revenue Estimating Group, or CREG. From there, the expected decline continues by 10-20 million tons each year, with a forecast of 165 million tons of coal produced statewide in 2028. The average expected price of each ton sold also is expected to fall, from an estimated $14.50 per ton in 2023 to $13.75 by 2028, the report states.

“(In 2024) we’re estimating about a 10 million ton decline,” said Godby, who helps compile the report. “In percentage terms, 10 million tons is not a huge amount … but you can see that decline accelerates over time.”

What’s Causing the Decline?

The long-term trends of thermal coal, as mined in the Powder River Basin and burned to generate power, are dictated by aging coal-fired plants across the nation and the simultaneous rise in more affordable energy sources.

“Natural gas prices have fallen so much over the past year and since the pandemic that it just makes more sense for companies to use natural gas now than coal,” Godby said. “Looking out over the next year, we don’t see any reason for that not to continue.”

The international market for natural gas was shaken up when Russia — a major world supplier — invaded Ukraine in early 2022, causing gas prices to spike. Faced with rising gas prices, utility providers turned to coal to bolster their stockpiles and burn for power. Even with rising spot and long-term prices for coal, Powder River Basin mines stayed competitive. As natural gas prices evened out, the value of power-generating coal fell. Wyoming coal is generally competitive with natural gas when gas prices rise above $3.

Last year, the Henry Hub natural gas price dropped about 62% to an average of $2.57 per million British thermal units, according to the U.S. Energy Information Administration. In 2022, that price averaged above $6.

“It doesn’t matter which unit you measure it in … firms now prefer to use natural gas-fired plants to coal-fired plants,” Godby said.

“Short term, that is adding to the downward trend.”

Resuming the Fall

Last year, seven of the 12 Powder River Basin mines shipped less coal than the year before, with the biggest drops coming from Black Thunder, Buckskin and Cordero Rojo. Black Thunder mine surpassed North Antelope Rochelle Mine for the first time in more than a decade in 2022 when it outproduced NARM by almost 2 million tons. But last year, NARM reclaimed the highest production numbers in the basin — despite a slowdown from a June tornado strike — and mined about 1.5 million tons more than Black Thunder.

Peabody Energy Corp. — which owns NARM, Caballo and Rawhide — had a solid year that outperformed other local competitors as NARM and Caballo combined to increase production about 4.8 million tons more than in 2022, ending the year with about 87.2 million tons of coal shipped from the basin.

Arch, the other publicly traded company in the Powder River Basin, had its two Campbell County mines, Black Thunder and Coal Creek, combine to sell about 62.8 million tons of coal in 2023, with each mine ending the year with a down final quarter relative to the first three. That total fell from about 66.1 million tons produced in 2022.

In 2024, Arch expects to decline to about 50-56 million tons sold from its Powder River Basin mines, while Peabody expects to hold steady at about 80-87 million tons by year end, according to recent earnings reports from the companies.

“We look at this situation from a pretty pragmatic point of view,” Arch CEO Paul Lang said about the Powder River Basin on an earnings call this week.

He noted that U.S. coal-fired plants have been retiring, with more expected to close this year, despite a strong year globally for coal. For the company’s West Elk Mine in Colorado, there’s potential to explore the international market. But Lang said he expects Powder River Basin production to continue to fall about 5-10% each year.

“I think there is a diminishing role in the U.S. for coal,” he said.