More on the Powder River...

Trains Magazine General Discussion
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Railroads, utilities square off over coal
(Reuters circulated the following article by Nick Carey on May 8.)

CHICAGO – Coal is the new black.

Fashionable and in ever-increasing demand thanks to soaring natural gas prices, power generators literally can’t get enough of it.

And they complain the U.S. railroads are to blame.

“We have utilities with dwindling supplies and there have been shortages in rail deliveries for more than a year now,” said Patrick Lavigne, spokesman for the National Rural Electric Cooperative Association (NRECA), which represents around 900 electricity cooperatives providing power to 30 million Americans.

“We have been patient, but the summer is approaching and if air conditioners don’t run, we’re the ones the public will blame.”

Utilities say poor coal deliveries by the railroads affect their ability to do business and provide service to customers.

The railroads admit to delivery problems. But they complain in turn that after decades of relying heavily on natural gas, electric utilities are raising coal inventories as fast as they can which is making the supply crunch far worse.

“For 20 years the utilities relied heavily on natural gas on the premise that it was cheap and in plentiful supply,” said Wick Moorman, chief executive officer of railroad Norfolk Southern Corp. . “During that time they kept coal stockpiles low and now that natural gas is no longer cheap they want as much coal as we are capable of providing.”

KING COAL

Texas power producer TXU Corp. said in April it would spend $10 billion on new coal-fired power plants, then said on Tuesday that it was looking to expand coal power outside Texas. Both times the company’s stock jumped in response.

Utilities have been particularly keen to get coal from the thick, rich seams of the Powder River Basin in Wyoming. Closer to the surface than other U.S. coal veins and cheaper to mine, its lo

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While our discussions about the coal “problem” have focused on rail charges and appearant capacity constrainnts, not much has been said about coal prices. I’m not certain about this, but I thought I recently saw that PRB coal is now selling up $5.00 a ton or more than prices that prevailed for several years.

When coal prices in the spot market collapsed in the 1980s, many power companies were left paying substantially higher prices for coal being delivered on long term “life of mine” contracts. Never a source of longer term thinking, consumer protection groups argued that such contracts were costing users huge dollars. Regulatory agencies bought the arguments and utilities either went to spot purchases or short term contracts of maybe a year or two. It was an excellent deal when coal production capacity was a hundred million tons greater than demand and natural gas was cheap.

We continue to live with the idea that there is a never ending abundance of cheaply exploited natural resources far in excess of demand and the boogie man is the cause of escalating prices. Few in leadership positions have the guts to suggest that it is time to take off the rose colored glasses. Those that do tend to get fired or voted out of office.

Jay

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Yes, that’s very true. Spot PRB coal prices held very steady at around $6-$8 a ton up until about a year ago… and then crept up, and then shot up to over $20 at the end of 2005. Through mid-March 2006, prices have dropped, though.

The best source for this kind of information is the US Energy Information Administration, an arm of the DOE. See http://www.eia.doe.gov/cneaf/coal/page/coalnews/coalmar.html for details, but note that page hasn’t been updated in nearly two months.

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It was once estimated that Wyoming had a supply of coal to last us 200 years. Of course now with more demand that is less. But nevertheless we still have plenty of coal to go around. The large coal seam that is mined in the PRB varies in thickness across the whole state they are mining the section that is 80’ now. And they are mining a 30’ section down here at Rock Springs. However, over at Buffalo the very same seam is almost 200’ thick. So it is not a problem of coal is becoming rare, its just getting it out and getting it shipped. So there are easily accessable resources and they are being produced from the mine its just that its not leaving the mine mouth fast enough. But this all comes back to the capacity issue.

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True, most people seem to think that there’s an unlimited supply of energy at rock bottom prices. We build bigger homes, buy bigger, less fuel efficient cars, and want more luxuries that consume more energy. As soon as there’s even a hint of a cutback of supply, or sharp raise in the price, we’re all up-in-arms about it. And the subject article points out another flaw of our society, “blame eveyone but me for the problem.” The electric utility companies burned natural gas for so long. The railroads were not hauling coal for them, so they developed other business, transporting someone else’s goods and building and expanding their infrastructure for this established business. Now the electric companies want coal to burn and suddenly want the railroads to haul it, and LOTS of it. The railroads infrastructure and routes are developed for the OTHER business, so of course, it will take some years to upgrade. They can’t just run down to Tracks-R-Us, buy a few thousand miles of track, and have it delivered and installed tomorrow. The utilities are trying to blame their poor planning on the railroads.

And if they are protesting the railroads adding a fuel surcharge, we should all get in on this case. I’m willing to bet we are all paying more for fuel for our cars and trucks, so why shouldn’t we get something back.

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All I’ll say is this:

Poor planning on your utilities part does not necessitate an emergency on my railroad…

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gentlemen
it must be getting important .see the trainsnewswire for today.bnsf and up are talking expansion.
stay safe
Joe

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I saw that story on the Casper news earlier today, i was gonna fund the story and post it [:P]

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It is good nows that they are expanding Powder River Basin.

If BN and UP had started to add more tracks in 1995 to stay ahead of the future problem, how would that have been financed. Very few people could have found real proof that it was needed back then. Are railroads supposed to overbuild in case there is sudden surge in demand? It seems unlikely there would be enough money around for that type of process.

Andrew F.

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Heck, railroads did it when they first were built… look how many of 'em are abandoned now! Look how many went through bankruptcy! Or two or three! If some “nutcase” decided to go on a railroad-building spree, I’m sure he’d find some kind of good pitch for it.

Then again, it ain’t the “good ol’ days” anymore…

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Mike Yuhas-Thanks for posting the link.

miniwyo-You are correct that there is a huge reserve of coal in Wyoming. Relative to most other locations, it is quite easy to get out of the ground.

My point is that not all of the supply problem and rising cost is due to railroad capacity problems. I have mulled this over, and I can’t make a connection between the jump in the spot price of coal at the PRB and any railroad capacity. problem. As you may know, the spot price or mine price is the price for coal loaded in the transport vessel at the mine load out facility. There may be exceptions for other coal users, but it is the electric utilities, not the mines, that buy the transportation service.

In spite of the fact that PRB coal can be recovered rather easily, if demand for the coal reaches or starts to exceed production capacity, it takes a little more than an order from the boss to increase the output. Just like railroads, coal mining is a capital intensive business, and a mine operator is not going buy extra haul trucks, shovels and draglines or build a 15 million TPY load out for a mining plan based on 10 million tons per year.

In short, even if the railroads were the choke point, the PRB spot price would not have doubled if the mines had capacity in excess of demand.

Jay Eaton

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Regarding the news items on PRB expansion plans by BNSF and UP, keep a few things in mind:

The recent delivery problems that had the PRB coal deliveries running at 80% of orders really had nothing to do with the current track capacity. Rather, it was the loss of capacity due to the derailments and maintenance shortfalls. Remember, those derailments on the Orin line not only took “a line” out of service, they took all three tracks out of service for quite some time.

So, how does BNSF/UP adding a third, fourth, or fifth track address the problem of catastrophic loss of of all rail service out of the basin? Five tracks side by side will be taken out of service just as easily as three side by side tracks when the next derailment occurs, and we’ll end up with the same problem - namely, lack of expedient coal deliveries due to “unforeseen” circumstances.

What the PRB needs is more dispersement of it’s rail lines, not more lines consolidated into one tight corridor. The DM&E project does address this location problem somewhat, as it will be an east-west line disecting the PRB as compared to the north south disection of the Orin line. What BNSF and UP need to do is build another line a few miles east or west of the current Orin line. One dispersed line will be more useful than two or three more lines compressed onto the same Orin ROW.

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LOL…

Looks like FM really does work for the DM&E…

LC

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What you need to do is convince the Mayo Clinic and Rochester of this.