The protracted down market for all coals, including Powder River Basin coal, may be setting up PRB coal for a strong price rebound, said a new report in part from consultant John Hanou of Hanou Energy.
Due to dismal demand and low coal prices, PRB producers have reduced production by about 90 million tons/year since 2008, the company said in a Sept. 16 statement. But the supply/demand situation is reversing itself, the market tightening and, by the end of the year, there will a projected 30 million to 40 million ton supply/demand shortfall.
“This will result in a price spike sometime in 2014,” said Hanou Energy President John Hanou.
PRB 8,800 Btu/lb spot prices, now in the $10.50-$11.00/ton range, should firm by the end of 2013. “Prices could easily spike to more than $15.00/ton in 2014,” Hanou said. That kind of coal is produced in the southern “pod” of Wyoming PRB mines, which are the Antelope mine of Cloud Peak Energy (NYSE: CLD), the North Antelope Rochelle mine of Peabody Energy (NYSE: BTU) and the Black Thunder mine of Arch Coal (NYSE: ACI).
That is the headliner of one of many findings detailed in a new supply/demand study from two of the world’s foremost experts on PRB demand, production and markets, “Powder River Basin Coal Supply, Demand & Price Trends 2013-2032.”
The study was authored by Hanou and Robert Burnham, president of Burnham Coal LLC, and covers the critical Powder River Basin and Bull Mountain coalfields in Wyoming and Montana. Bull Mountain is the site of one major deep mine.
“The 2014 price spike will likely continue for a year or two, and then prices will return to lower levels as producers re-expand operations to fulfill the demand shortfall,” Hanou said. “The inevitable oversupply situation will likely resurface in 2015/2016.”
Since 2008, PRB demand has dropped due to the Great Recession, low natural gas prices, subsidized wind power, new scrubbing at existing plants that allows burns at those plants of higher-sulfur coal and excessive utility coal stockpiles.
“While we see domestic U.S. and Canadian demand outstripping supply in 2014, over the duration of the forecast period, PRB demand is projected to drop by as much as 88 million tons from 456 million in 2014 to 368 million tons by 2032,” Hanou said. “This is due to our projection that as much as 74.6 gigawatts of PRB coal-fired capacity will be retired,” which would represent 199 million tons of lost demand, based on 2008 consumption levels.
“This loss will be offset by new demand as result of higher load at existing plants, new plant builds and new markets secured due to expected switching from Central Appalachian coal to Powder River Basin coal,” Hanou said.
He added that with producers facing a stagnant and/or declining U.S. domestic market, they are now eyeing the robust international thermal market, citing plans to expand existing export terminals in Canada and to build greenfield/brownfield terminals in the Pacific Northwest – and to perhaps also develop brownfield terminals in Mexico.
“PRB producers must navigate the difficult water while dealing with higher production costs, as outlined in detail in the study,” Hanou said. “The PRB story has been staggering – one surge in demand followed by another. Its easily accessible reserves and world-class infrastructure, including a remarkable rail system, have allowed it to meet demand.”
For more information about this study contact Hanou at (410) 279-3818 or Burnham at (303) 517-7826. Or, visit www.hanouenergy.com.