Increased PRB coal production and employment point to ‘strong 2022’ amid overall downturn

GILLETTE — Coal production in the Powder River Basin saw growth in 2021 after a significant pandemic-related setback marred the extraction industry the year before.

Amid an overall downturn in the demand for thermal coal, 2022 appears poised to be another productive year for basin coal mines.

The 12 Campbell County mines produced about 230 million tons of coal last year, about a 10% increase from the 2020 yield of nearly 207 million tons, according to coal production data from the Mine Safety and Health Administration.

The decreased 2020 production came amid the early stages of the COVID-19 pandemic and resulted in about a 22% drop from the almost 267 million tons of PRB coal mined in 2019.

The “unexpected uptick” in demand for coal last year came from a confluence of factors, particularly in the third and fourth quarters of the year, that involved projections of a colder winter and increased natural gas prices throughout the country, said Travis Deti, executive director of the Wyoming Mining Association.

In November, amid the increased demand, the spot price for PRB coal reached a record high above $30 per short ton, surpassing the previous 10-year high of $13.25.

Through December and into January, that average dipped just below the $30 threshold but has otherwise held steady, ending the week of Jan. 22 at $29.05, according to the U.S. Energy Information Administration.

Despite the spot price as a good indicator of demand for thermal coal, that number also can be somewhat deceptive, said Deti, because of how little PRB coal is actually being sold on the spot market. The market is positioned to stay strong into 2022 because almost all basin producers have sold out for 2022 and into 2023, Deti said.

Mines have gone to the job market to meet the increased demand.

The number of workers employed by the 12 Wyoming PRB mines at the end of 2021 increased to 4,077, after falling to 3,855 the year before. Nine of the 12 Campbell County mines increased their workforces when compared to the end of 2020, according to MSHA data.

Still, the workforce is significantly below the 4,578 employees in the basin at the end of 2019.

Although 2021 provided an uphill trend in production and employment, that does not mean the extraction industry is not without its challenges as it continues to face a downward trend in the long run.

“We’re not what we were 10 years ago by any means, but relative to the environment that we’re in, I think we’re looking at a strong 2022,” Deti said.

Coal mining in Campbell County is still markedly below the norms of its heyday, when its mines collectively pulled from 300 million to more than 400 million tons of thermal coal from the ground annually.

Since 1998, including the production in 2021, those 12 mines produced around 351 million tons of coal each year.

But the rise in natural gas prices has given coal a late-life resurgence of sorts.

“The trend is basically the shift from coal to natural gas because of low natural gas prices over the decade, because of the tremendous political pressures, with climate change issues, that shift away from coal,” Deti said.

When natural gas prices rise above $2.70, the price of higher Btu coal becomes competitive with gas. Once that price goes above $3, demand increases for even the county’s lower Btu coal, Deti said.

“Going forward, that demand is looking to remain strong as long as gas prices continue on that upward trend of staying high,” he added.

Even though the increased spot price for PRB coal does not paint a complete picture of the coal market, it does play a role in setting the price points for longer term contracts. For example, what would have been a two-year contract at $12 per ton could now increase closer to $16 per ton.

“It’s influencing the contracts a little bit … I just don’t know how many companies right now are selling on the spot market for that price,” he said.

The demand for coal is also shown through its increased usage this past year.

The U.S. coal consumption went up 14% in 2021, indicating more use of coal-fired electricity generation, in part due to high natural gas prices, according to a January U.S. Energy Information Administration report. Coal powered 23% of electricity in the U.S. last year, but is expected to dip to an average of 22% over the next two years.

While the future is unknown and subject to many variables, Deti said he would not be surprised if the spot price returned toward its traditional price point as the railroads and mines improve their staffing.

The labor challenges extend beyond the mines themselves, affecting the support industries that go hand-in-hand with mining. The railroads have struggled to find enough workers as well, which Deti said are also facing challenges with transitioning into this time of increased demand.

“Again, we’re coming out of a pandemic, with the shut downs that went on across the country the last couple of years, trying to get people to go back to work and staff up has been an issue,” Deti said.

A planned strike of unionized BNSF railway workers over a new time-off policy was blocked by a federal judge this week, keeping its workers in place. The railroad company argued the strike would greatly harm its own business and the coal producers it serves.

A review of the federal coal leasing program, run through the Bureau of Land Management, was announced in August.

Given the “flat-out anti-coal” stance of the Biden administration, Deti said that the mining industry is “waiting with bated breath to see what comes out with some of these rules and regulations.”

Most Wyoming coal mines are leased through the federal government, with more than 85% of all federal coal production coming from the Montana and Wyoming mines in the Powder River Basin.

As the Biden administration reviews the federal coal leasing program, Deti said the industry is bracing for an increase in royalty rates, increasing the cost for operators to produce coal.

The last significant new coal lease in the Powder River Basin was during the Obama administration, marking a continued trend away from new leases as the industry braces for more downturn.

“The thing you have to consider always is the macro trend that utilities are not using as much coal,” Deti said. “There’s this trend of retiring coal-fired units, sometimes early, but they’re not building any more units. The trend is not positive for coal.”

The county will likely never again see the days where it’s harvesting upwards of 400 million tons of coal. But more years on par with the production in 2021 are in play.