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prb roundup PRB Operators Reduce Production to Match Market Demand Producers are looking at all options to lower operating costs BY STEVE FISCOR, EDITOR-IN-CHIEF The production growth rate in the Powder River Basin (PRB) over the years has been impressive. In 2010, it hit a high point, when 16 mines produced 468.5 million tons. Then in 2011, the worries about enormous stockpiles, competition from inexpensive natural gas, and weak demand for electricity became a reality. In 2012, the region saw total production decline to 418.7 million tons. Even with that pullback, if the PRB was a country it would be ranked fourth between India and Indonesia. Production in the PRB is dominated by four publicly held companies: Peabody Energy, Arch Coal, Cloud Peak Energy and Alpha Natural Resources. All four are predicting that the market for PRB coal will improve, citing diminished stocks, slight improvements in electrical demand, and much higher prices for natural gas. With cash operating costs hovering around $9/ton to $10/ton, all are also struggling to maintain profitability in a weak pricing environment. Currently, prices for prompt delivery (spot prices) for 8,800 Btu/lb PRB are standing at $10/ton-$11/ton for the remainder of 2013. Market analysts are predicting they may climb as high as $12/ton in 2014. 24 www.coalage.com Production from the PRB was down about 2.3% during the first half of 2013, compared with the first half of 2012, according to production data from the Mine Safety and Health Administration (MSHA). First half PRB production totaled 195.7 million tons, down from 200.3 million tons a year ago. Nine of the 16 mines posted production losses for the first half, with four of them greater than 20%. While these coal operators believe the market is about to change for the better, they are scrutinizing costs and delaying some capital projects until the rebound begins in earnest. Recovering Coal Markets Coal markets are steadily improving. Coal-fired power generation is up more than 10% for the first six months of 2013, mostly at the expense of natural gas. Coal stocks have diminished to some of the lowest levels in several years with PRB stockpiles leading the decline. All of the leading PRB operators have openly discussed how they have reduced production to accommodate the "new normal" as far as demand. Peabody Energy, the leading U.S. coal producer, believes domestic coal con- sumption for power generation will grow by as much as 70 million tons in 2013. Customer inventories, according to Peabody Energy, for PRB coal are approximately 25% below prior-year levels on a days-burn basis. Production at Peabody Energy's North Antelope Rochelle mine (NARM), the largest in the PRB, remains fairly consistent. In 2012, NARM produced 107.7 million tons, a slight decrease from 109 million tons in 2011. This year, it appears the mine is on pace to produce at the same level with 53.1 million tons for the first half. The company also operates two other mines in the PRB: the Caballo and Raw Hide mines. The Raw Hide mine produces about 15 million tons per year (tpy). Production for the first half of 2013 is 6.6 million tons, which is lagging 2012 by 5.7%. Meanwhile, production at Caballo has dropped more steeply (30%) to 16.8 million tons in 2012 from 24.2 million tons in 2011. The trend continues in 2013. For the first half of 2013, Caballo's production lags 2012 by 6 million tons or 60%. In 2012, Peabody Energy produced 139.2 million tons in the PRB, which was down 9 million tons from 148.2 in 2011. That amounts to 35.8% of the PRB tons coming August 2013