Powder River Basin Price Spike Ahead?

ANNAPOLIS, Md., Sept 16, 2013 /PRNewswire/ -- Due to dismal demand and low coal prices, PRB producers have reduced production by about 90 million tons/year since 2008. But the supply/demand situation is reversing itself, according to Hanou Energy, which sees the market tightening and, by the end of the year, upward pressure on coal prices – the result of a projected 30 million to 40 million ton supply/demand shortfall.

"This will result in a price spike sometime in 2014," Hanou Energy President John Hanou said.  

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 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 strategic study authored by John T. Hanou, president of Hanou Energy Consulting, LLC and Robert M. Burnham, president of Burnham Coal, LLC, covers the critical Powder River and Bull Mountain coalfields in Wyoming and Montana.

"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, to low natural gas prices, to subsidized wind power, to new scrubbing at existing plants and to 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.  

"With producers facing a stagnant and/or declining U.S. domestic market, they are now eyeing the robust international thermal market," Hanou noted, citing plans to expand existing export terminals in Canada and to build greenfield/brownfield terminals in Washington and Oregon – perhaps also to develop brownfield terminals in Mexico. 

So market dynamics will be complicated.

"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.

"The new challenge is different and might be more daunting, but the study will allow you to make an educated choice of winners and losers. It is the most comprehensive look at the PRB market produced anywhere in the world."   

For more information about this study please contact John Hanou at (410) 279-3818 or Bob Burnham at (303) 517-7826. Or, visit www.hanouenergy.com.

SOURCE Hanou Energy