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Backlog of coal in Powder River Basin

World Coal,

A backlog of coal is stuck in the Powder River Basin (PRB) in Wyoming and Montana, after the coldest US winter in over ten years. Miners and power companies are both suffering the knock on effects as railroads struggle to clear the build up of coal.

As utilities burn more expensive natural gas, Peabody Energy and Arch Coal both reported significant losses over Q1 2014, while Cloud Peak Energy was pushed to a loss in Q1 after two consecutive quarters of profit.

The backlog has been caused by railroads struggling to shift the coal. Just two operators – Union pacific Corp and BNSF – transport coal from the PRB region.

"Demand for PRB coal has been much stronger than the railroads were prepared to handle and stronger than utilities had expected going into this year", said Ted O'Brien, president at coal analytics company Doyle Trading Consultants in New York, referring to coal from the PRB, the source of about 40% of US coal supply.

Railroads are also handling rising shipments of oil and of grain, limiting their capacity to ship coal.

"We have been constrained to 125 cars per train when we are able to handle 136 train sets," said Curt Pearson, spokesman for North Dakota-based utility Basin Electric Power Cooperative.

"Coal producers are definitely constraining the amount of volumes they are able to bring to market," said David Jackson, a portfolio manager at Philadelphia-based Penn Capital Management.

Cloud Peak, all of whose three mines are in the PRB, cut its forecast for full-year production by 2 million t from the top end of its earlier forecast of 86 million to 92 million t in April.

Arch Coal said in April that it could have shipped 4 – 5 million t more coal between Q4 and Q1, if it weren't for the rail shipping problems.

Coal advocacy group Western Coal Traffic League, which includes utilities such as Berkshire Hathaway's MidAmerican Energy Co [MECI.UL] petitioned the Surface Transportation Board in March about what it called the "BNSF Railway Service Crisis." 

It said it was "deeply concerned" about BNSF's ability to deliver coal through the summer months and that many members of the group feared they would run out of coal soon and force them to shut many plants.

Railways in deep freeze

The cold weather seen over the course of winter affected the performance of air brakes. This in turn resulted in shorter trains and fewer cars, while the snow also short-circuited electric motors, froze switches and kept crews from reaching locomotives.

Coal cars were also kept outside as they waited to be unloaded caused the coal inside them to freeze, causing delays in getting the coal off the cars.  

To help speed up coal deliveries, BNSF has earmarked US$ 5 billion as capital expenditure, a large portion of which will go towards buying locomotives.

BNSF, which analysts say is the worst-hit railroad in the region, also plans to add additional tracks and is targeting a return to 2013 service levels by Q4.

"Railroads recognise the problems in terms of insufficient labour and equipment to handle the volume, and they've pledged to fix it, but they're not there yet," Alpha Natural said in an e-mailed statement.

Union Pacific's coal volume is up 5.5% year-to-date, which the company said was higher than it had anticipated.

The company is planning to invest around US$ 4.1 billion this year, which is about US$ 500 million higher than in 2013.

"Our train velocity is not yet back to normal or goal, but we are working diligently to restore operations to normal," Union Pacific spokeswoman Stephanie Bissell Serkhoshian said in an email.

Edited from various sources by Sam Dodson

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