Coal Age

JAN-FEB 2017

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22 www.coalage.com January-February 2017 forecast 2017 continued ment to produce more coal cost effectively. With coal prices as low as they are, it's one of the few remaining levers they have. When asked about what specific issues will affect the coal industry most in 2016, politics and policy and power plant regula- tion scored the same high scores (4.3/5) as the leading concerns. Coal prices remained ahead of the economy. Reading between the lines, the miners are saying that prices and the economy do not matter if their custom- ers are not allowed to burn coal. Limited production capacity and a retiring work- force was the least of their concerns. The Worst Year in Nearly 40 Years The 2016 drop in coal production, which was the largest annual decline, occurred in all coal-producing regions. Wyoming took the biggest hit on a tonnage basis with coal production dropping from 376 million tons to 299 million tons or 21%. Kentucky saw the largest decrease on a percentage basis, drop- ping from 61 million to 44 million tons or 29%. The mines in western Kentucky, which produced 21% less coal (27 million tons to- tal), fared better than their counterparts in eastern Kentucky, which produced 17 mil- lion tons, a 39% decline. Appalachia as a whole suffered. Coal production in West Vir- ginia dropped from 96 million tons to 81 mil- lion, the bulk of that 15-million-ton decline came from southern West Virginia (12 mil- lion tons). Production in the Interior region, which includes the Illinois Basin, declined by 11% in 2016. Output in Illinois dropped from 56 million tons to 45 million tons, or 20%. Coal production is a function of con- sumption and the amount of coal con- sumed to produce electricity fell by 10% in 2016. As of October 2016, U.S. power plants had burned 564 million tons, com- pared to 639 million tons at the same point in 2015. On average, utilities are burning 56 million tons of coal per month, which means the total for 2016 could 676 million tons, a figure not seen since the mid-1970s. Coal stocks at utilities, as of September 2016, stood at 158 million tons. At the end of 2015, they stood at 196 million tons. Spot prices for coal have started to sta- bilize (see Figure 3). By the end of 2016, spot prices for Northern Appalachian coal had dropped from $48.95/ton at the end of 2015 to $45.75 in December 2016. Spot prices for Central Appalachian improved from $43.50/ ton to $48.05/ton. Spot prices for Illinois Ba- sin coal improved from $32.60/ton to $34.50/ ton. Prompt prices for Powder River Basin and Western Bituminous remained about the same at $11/ton and $40.90/ton, respectively. The average daily spot price for natu- ral gas, according to the EIA, fell from $2.63 per million British thermal units (MMBtu) in 2015 to $2.40/MMBtu in 2016, resulting in increased natural gas-fired electrici- ty generation. In 2016, natural gas-fired electricity generation surpassed coal-fired generation for the first time, accounting for an estimated 34% of total electrici- ty generation compared with coal's 30% share. The average delivered cost of coal for power plants over the January through September period decreased from $2.27 MMBtu in 2015 to $2.17 MMBtu in 2016. Figure 7 — What will be the single most expensive item the mine purchases in 2017? ............... What will it cost, in round fi gures? Refuse Impoundment ......................................................... $100,000,000 New Longwall Shields .......................................................... $84,000,000 Ventilation Shafts ................................................................ $50,000,000 Longwall Shield Rebuild Project ........................................... $50,000,000 Electric Shovel ..................................................................... $40,000,000 Mining Equipment ............................................................... $25,000,000 New Shaft Construction ....................................................... $22,000,000 Mining Equipment ............................................................... $20,000,000 Highwall Miner .................................................................... $15,000,000 Equipment Rebuild .............................................................. $12,000,000 Haul Road Construction ....................................................... $10,000,000 Mine Startup ........................................................................ $10,000,000 Ventilation Shaft & Fan.......................................................... $9,000,000 Longwall Equipment (2) ......................................................... $5,000,000 Powerline ............................................................................... $5,000,000 New Portal Construction ........................................................ $3,500,000 Feeder Breaker (mobile) ......................................................... $3,300,000 Continuous Miners (2) ........................................................... $2,500,000 Fuel & Lubricants .................................................................. $2,000,000 Exploration Equipment ........................................................... $2,000,000 Mining Equipment ................................................................. $2,000,000 Haul Trucks ............................................................................ $2,000,000 Highwall Miner ...................................................................... $1,500,000 Equipment Upgrade ............................................................... $1,000,000 Land ...................................................................................... $1,000,000 Continuos Miner Rebuilds ...................................................... $1,000,000 Continuous Miner...................................................................... $750,000 Haul Trucks ............................................................................... $600,000 Conveyor-VFD Upgrade 2017 ..................................................... $460,000 Crushers ................................................................................... $400,000 Battery-powered Haulers .......................................................... $400,000 Continuous Miner...................................................................... $345,000 Dozer ........................................................................................ $250,000 Haul Truck ................................................................................ $200,000 Permitting and Bonding ............................................................ $200,000 Mining Equipment ...................................................................... $65,000 Utility Vehicle ............................................................................. $30,000

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