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No clear solution in sight for Powder River Basin coal producers, says Moody’s

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World Coal,

Coal producers in the Powder River Basin (PRB) of Eastern Wyoming and Montana – the largest US coal-producing region – face difficult business conditions today with no clear solution in sight, Moody’s Investors Service says in a new report.

“The PRB is the weakest coal basin today,” says Benjamin Nelson, VP-Senior Credit Officer at Moody’s. “Deteriorating business conditions in the PRB have led to production cuts by some major producers, financial stress for producers with weaker credit quality and a very difficult market for lower heat coals.”

The US coal industry is in a long-term secular decline driven by a combination of low cost natural gas, tighter regulations, and a trend toward more renewable energy. These factors that have made the PRB’s low sulfur, low heat coal less competitive as utilities continue to retire coal-fired power plants, adds Nelson.

Export opportunities are also less significant compared to other basins due to logistical difficulties, including public opposition to exporting coal from the US west coast. Coal producers in Appalachia and Illinois Basin have been more successful at exporting coal.

Moody’s does not expect consolidation among producers in the PRB in the near-term, which suggests the region's economics will not improve on a sustainable basis. And while major producers in the basin, including Peabody Energy and Arch Coal, are throttling back output, the industry remains fragmented and some smaller producers are still increasing production.

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