Photographer: Luke Sharrett/Bloomberg

America’s Miners Are Digging for Hotter Coals as Old Plants Shut

Updated on
  • Two coal plants Vistra’s shutting relied on 8,400-Btu mines
  • Miners pursuing coal with higher heat content to offset losses

Early next year, three massive coal-fired power plants in Texas will close for good. And their absence will be felt 1,000 miles away in the coal pits of Wyoming and Montana.

There, in the energy-rich Powder River Basin, miners have for decades carved out coal that’s cheap but packs less heat than the tons extracted from other sites in the region -- because it’s the kind that plants like the three Vistra Energy Corp. is retiring in Texas prefer. In fact, two of those generators are customers of these lower-quality mines. And as they and other aging units die off, so does demand for this coal, forcing miners to shift their focus to hotter supplies that leaner plants will buy.

The type of coal in the Powder River Basin that “has a better future” is the kind that packs at least 8,800 British thermal units of heat a pound, more than the 8,400-Btu coal that’s also mined there, Jeremy Sussman, an analyst with Clarksons Platou Securities Inc., said by email. Other types of coal holding less energy are going to increasingly face pressure because of shutdowns like Vistra’s, he said.

The shift to higher-quality coal shows how America’s miners are doubling down on their best assets to turn a profit as hundreds of power plants that burn the fossil fuel have shut across the country. Cheap natural gas flowing from prolific shale formations has eaten so much of coal’s share of the U.S. power market over the past decade that coal only supplies a third of the nation’s electricity today, down from half.

To be sure, plant retirements aren’t going to drive all 8,400-Btu coal mines out of existence, said Matt Preston, a coal analyst at Wood Mackenzie Ltd. “It’ll be a lot more of a struggle than it was before” for them.

Miner Cloud Peak Energy Inc. seems to demonstrate the trend. The company has ramped up production at mines producing coal with 8,800 to 9,300 Btu, Mark Levin, analyst at Seaport Global Securities LLC, said in a note Tuesday. Its lower-margin Cordero Rojo mine in Wyoming, which churns out 8,400-Btu coal, has meanwhile yielded its lowest quarterly production in more than a year.

Rawhide Mine

Big Brown and Monticello, two of the three Vistra plants shutting in Texas, bought coal from Peabody Energy Corp.’s Rawhide mine in Wyoming, an operation that supplies the 8,400-Btu type, data compiled by the Energy Information Administration show.

For its part, Peabody spokesman Vic Svec said the company has anticipated coal plant retirements of about 50 gigawatts over the next five years and expects that the plants that remain running will operate at such high levels that they’ll largely offset the demand wiped out by shutdowns.

Rawhide’s coal output is also a drop in the bucket for Peabody as a whole. The mine produced 7.8 million tons through Sept. 30, according to the Mine Safety and Health Administration. Two others that Peabody runs in the region sold 104 million tons last year. And because the mines operate as a complex, Svec said, the impact of losing one power-plant customer will be minimal.

Sandow, the third coal plant that Vistra’s shutting in Texas, gets supplies from one of Vistra’s own operations around Bastrop County, Texas. The company said in a statement last week that that mine -- which produces lignite packing even less energy than 8,400-Btu coal -- will close.

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