Western Railroad Discussion > Coal: More problems for the Gillette fields?

The WSJ has an article today discussing a recent US Geological Survey study. The study concludes that US coal has become more difficult to find and mine, and may not be as easily mined as it has been so far. The findings suggest that coal may increase in price and refining complexity in the coming years. This has significant implications for miners, railroads, and electric utilities.

The analysis is similar to that for "peak oil" projections. The easy to get stuff has been exhausted, and we're using up the more difficult to find product more quickly than we're replacing it. The conventional wisdom is the US sits on 400 years of easy to find, easy to mine, coal.

But the estimate, recent findings show, may be wildly overconfident. One recent study forecast significantly escalating costs in the Gillette fields of the Powder River Basin, which is consistent with field reports of deeper digging, and more overburden. The worst case conclusion is that less than 6% of western coal in the ground could be mined profitably at today's prices.

Transportation costs significantly increase the delivered price for coal. The $60 a ton price for mined mentioned in the article would prob not work in today's economic climate. It would definitely reduce coal shipments to electric utilities, that's for sure.

"For the Gillette study, USGS engineers, geologists and economists spent three years analyzing data from 10,200 drill holes, the most comprehensive study ever attempted of the region. The team concluded there are 201 billion short tons of coal in the Gillette field. Environmental rules and physical challenges put much of that out of reach, leaving what they figured were 77 billion short tons of recoverable coal.

Little is presently worth mining. Analyzing coal beds that contained 82% of the Gillette deposits, the team determined that with coal selling for $10.50 a ton, the prevailing price two years ago, less than 6% of the coal could be extracted profitably enough to leave mining companies an 8% rate of return.

If Powder River prices were to hit $60 a ton in current dollars, as much as 47% could be extracted. But at that price, coal would have a tough time competing with other fuels and technologies.

By adding an economic component, the study broke ground. Jim Luppens, an industry veteran who is now chief of the coal-assessment project for USGS, says policy makers often confuse the total coal resource -- which he describes as the "blood, guts and feathers" number -- with coal reserves, which he likens to the edible meat. "They mix up the R-words," he says.

The findings are percolating through the coal and power industries. "USGS made a leap forward with this study," says Vic Svec, spokesman for Peabody Energy Resources, the U.S.'s biggest coal company. He adds that when his company plugs in prices as the USGS study did, it reaches similar conclusions."

File this one in the "Duh!" Department!

The same is true in every coal field in the world. Every oil and gas field, gold district, iron ore district, even sand and gravel. The best and easiest go first. Always, everywhere. The solutions, up to a point, are technological improvements allowing economic extraction of thinner, deeper, harder-to-get deposits, increasing prices, conservation, recycling (doesn't work too well for coal and other consumable raw materials though<g>), and eventually switching to other materials/sources of energy. And the occasional discovery of a previously-unknown deposit -- although these are getting fewer and further between.

The problem, btw, isn't the data. If you read the original study ( http://pubs.usgs.gov/of/2008/1202/pdf/ofr2008-1202.pdf ) you'll find that when comparing apples to apples the actual resource/reserve estimates haven't changed much since the originals made starting almost 90 years ago. It's the slant the media and/or the politicians put on the numbers to promote their agendas, which obviously vary from wild-eyed promotion -- "We Got More Coal Than the Arabs Have Oil, Let's Dig It!!!" -- to fantasies of a mine-free utopia -- "Mine-Free by '93" was a slogan thrown around by a few of those in the late 1980s.

lowwater



Edited 2 time(s). Last edit at 06/08/09 11:28 by lowwater.

Thanks for the additional information.

Looks like I need to get out to the PRB in the next few years and get some pictures before the trees start growing between the tracks...

Does this mean that the railroads will actually have to hustle for new freight business? No more dependence on just a few big traffic groups?? And all while the PANAMA CANAL is expanding to accept larger ships (which will decrease container traffic)???

Now THAT will make for an even better story someday...

Coach Wrote:
-------------------------------------------------------
> Does this mean that the railroads will actually
> have to hustle for new freight business? No more
> dependence on just a few big traffic groups?? And
> all while the PANAMA CANAL is expanding to accept
> larger ships (which will decrease container
> traffic)???
>
> Now THAT will make for an even better story
> someday...

The Panama Canal isn't that big a threat. First they have to deepen the channels to most East Coast Ports, then there is the costs of longer delivery times, then where do you call first.

What the hell, we can always but it from the Australians and Chinese.

Read Frailey's column in the latest TRAINS. First intermodal, now coal. The bloom is off the railroad rose, folks.

SOO6617 Wrote:
-------------------------------------------------------
> Coach Wrote:
> --------------------------------------------------
> -----
> > Does this mean that the railroads will actually
> > have to hustle for new freight business? No
> more
> > dependence on just a few big traffic groups??
> And
> > all while the PANAMA CANAL is expanding to
> accept
> > larger ships (which will decrease container
> > traffic)???
> >
> > Now THAT will make for an even better story
> > someday...
>
> The Panama Canal isn't that big a threat. First
> they have to deepen the channels to most East
> Coast Ports, then there is the costs of longer
> delivery times, then where do you call first.

"Looks like I need to get out to the PRB in the next few years and get some pictures before the trees start growing between the tracks..."

Trees? In the Powder River Basin?? Probably not.

Dick

Oh for pete's sake, folks, do some math!

Even assuming current conditions -- prices, technology, etc. etc. -- there's enough to keep your Canons and Nikons and etc. busy for 20 years. If you make a more realistic estimate based on new mines, improving technology, and rising prices -- and use the "recoverable" number, there's enough for 154 years.

Please keep in mind that 50 years ago the "Coal reserves . . . that can be mined, processed, and marketed at a profit" (quote from the USGS report defining 10.1 billion tons as the present number) from the Gillette coal field, with the exception of the immediate vicinity of the Wyodak power plant and its captive mine, were uhm, er, ah, zero.

Market is the fly in the ointment, but since market depends on everything from success of fusion research to how fast rising sea levels finally catch the attention of the billionaires who are TOPTM (The Only People That Matter) as their coastal villas from the Riviera to The Hamptons start to wash away, discussion of markets is an exercise in futility.

lowwater



Edited 1 time(s). Last edit at 06/08/09 20:08 by lowwater.

I'm always a bit ummmmmmm... 'skeptical' when I hear about reserves that are good for '500' years and the like. The York Canyon mine was supposed to be a long term supplier and all of a sudden no more trains.........whoops. It seems safe to assume that maybe the coal industry exagerates as much as say well.......say the financial industry boys. Look what that got us.

You might wanna reconstruct the model they're using and look at the variables. One of the variables is the cost of competitive fuels (read "natural gas"). Nuclear power plants COULD also have an impact. But what size of an impact? And would the price of natural gas remain stable if the price of low-sulfur coal started to rise? Probably not--it would go up. Etc. etc. etc. Be careful when you read cut-and-dried analyses like these, yes, even in the good ole WSJ. Things just ain't that clear cut.

As far as the bloom being off the RR rose, my guess is as good as anyone else's, including Trains'. And I'm guessing that North American RRing's finest hours are still ahead. I would posit that RR's biggest threat in the short term is not "natural" economic forces, but re-regulation by reactionary forces in Congress. Long-term is ANYBODY's guess.

Lowwater said:

"If you make a more realistic estimate based on new mines, improving technology, and rising prices -- and use the "recoverable" number, there's enough for 154 years. "


So, politicans won't actually be making plans to cover this eventuality for. . .what, 153 1/2 years?