By the OGJ Online Staff
HOUSTON, Mar. 5�Most US steam coal markets will be tight this year, reflecting high natural gas prices and rising demand for electricity.
Demand was especially strong at Wyoming's Powder River basin Wright area mines and in the Illinois basin last year, said consultants Hill & Associates, Annapolis, Md.
Strong 2000 fourth quarter demand pushed production past 100 million tons in Illinois, well below the 150-million ton record set in the early 1990s. But the current market is very tight for all types of Illinois basin coal, regardless of sulfur content and location, the report said. Hill said many new mines and expansions are planned, especially in the river market.
Midterm, the consultants predicted up to 12 million tons of annual capacity in southeastern Illinois could be added to the river market, some competing favorably with Pittsburgh seam coal. The report predicted union mining probably will decline, replaced by additional nonunion production.
Long-term, Hill said it identified more than 25 proposed Illinois projects with more than 1 billion tons of total proven reserves "that can be deep mined with the likelihood of favorable mining conditions."
In Wyoming's Powder River basin, Hill said, short-term, the high-btu Wright area mines, which are producing at capacity levels, probably will be expanded to 240 million tons before the end of this year.
"Expansion beyond the current capacity level will require new capital to be invested in train slots as the rail capacity is now the bottleneck limiting production capacity at these mines," Hill said. The capital will be invested, the study concluded, largely because the region's mines have higher margins and better quality than other Wyoming Powder River basin coals.
Conversely, the study found producers have retrenched their South Gillette operations, where stripping ratios are higher. The consultants determined North Gillette mines have significant potential for capacity expansion when the market justifies it, and the current market is extremely strong. However, low prices deterred increased production from this area, the study said.
Rail line critical
In the mid-term, the capacity of the PRB Joint Line�Burlington Northern Santa Fe and Union Pacific lines serving all mines south of Gillette�will dictate 2001-2007 production, according to the study. "If the required investments are delayed, it is possible that the demand for Joint Line production will exceed production capacity by late in 2001. Prices could spike until the needed rail investments are made," Hill said.
In Colorado, a combination of events triggered a reduction in 2000 production levels, Hill said, after a record 29 million tons in 1999. Little production capacity is available, and prices are increasing, Hill found. The consultants said sufficient coal should be available to meet the increased demand being triggered by high eastern coal prices.
In the midterm, "several mines have expanded or are in the process of expanding," Hill noted. "Capacity should meet demand for the generally high quality Colorado coals."
While Utah has lost some market share, Hill predicted production at several idled mines and expansions at existing mines could increase production capacity by 2007. But while production costs would be similar to the current cost structure," demand might not support such cost levels," Hill said. The consultants suggested a state plan to expedite permitting and construction of three new power plants, could significantly increase mid and long-term demand for Utah coal.
In central Appalachia, a federal appeals court's current review of a controversial mountaintop removal mining decision probably is "the single most important issue facing the 'landscape' of central Appalachian coal production," the study concluded. "If the ruling stands, it could affect more than surface mines since all prep plants require an area for refuse disposal," Hill said. Supplies are expected to remain tight all year.
"Although prices have climbed sharply, many producers cannot take advantage of the situation with additional tonnage," the report said. "Many of the companies that we have spoken to are sold out, or nearly so, for the rest of 2001." Reserve depletion is expected to be a major issue in both the mid and long-term.
In northern Appalachia, Hill said, everything centers on recovery from mining problems. "Tonnage is very tight at the present time," Hill said. For the mid-term, the consultants found total production could increase through a few new mine openings and expansions in the Pittsburgh seam.