Soft demand for coal ripples through area mines, plants

2012-06-24T00:05:00Z Soft demand for coal ripples through area mines, plantsBy TOM LUTEY tlutey@billingsgazette.com The Billings Gazette

Business has been better for Montana coal. Demand for Montana coal is softening for various reasons resulting in mine layoffs.

Mike Johnson, business agent for the International Union of Operating Engineers Local 400 said that at least 100 of the 400 Montana miners he represents have been laid off because of slumping coal demand. Johnson cited several reasons for the slump, including idle power plants in Colstrip and Billings.

“Colstrip One and Two are down. Corette is down,” Johnson said. “Right now, you've got big hydropower going. That’s always a big factor in the spring.”

Coal-fired generators like the ones operated by PPL Montana in Colstrip and Billings take a back seat to hydroelectric power every spring when the region’s reservoirs are full. But demand for Montana’s coal-fired energy has been soft for some time. A mild winter kept energy demands low last winter and June temperatures haven’t been hot enough to trigger air conditioners thus far.

“There is a very soft electricity market in the Northwest right now,” agreed David Hoffman, PPL Montana spokesman. “A lot of that is the time of year for hydro. There is also increasingly a lot of wind energy being brought online in the West. Wind skews the market.”

Wind generators receive a federal production tax credit, Hoffman said, which wind companies use to offer wind energy at a lower price.

“You actually have power trading at negative numbers. Wind will pay people to take wind energy,” Hoffman said.

In Washington and Oregon, wind farms have added 4,400 megawatts of intermittent generation into the regional power grid that Colstrip also feeds. That’s enough wind power to electrify 3.5 million homes, according to the Bonneville Power Administration, which operates the region’s transmission system.

There’s an incentive for regional power companies to opt for wind energy over coal. Both Washington and Oregon have renewable mandates requiring the power companies to add renewable energy to their portfolios. Four energy companies in Washington and Oregon with ownership stakes in Colstrip power are also subject to renewable mandates in those states.

There are also demand issues in the Midwest that affect Montana coal mines. Minnesota’s Sherburne County Generating Station, 45 miles west of the Twin Cities, is a major coal customer for Westmoreland Coal in Montana and Wyoming. Known as Sherco, the Xcel Energy power plant normally consumes 30,000 tons of coal daily. But, last November the plant's Unit 3 turbine and generator caught fire, shutting down more than a third of Sherco’s power production capability.

Sherco Unit 3 isn’t expected back online until the first quarter of 2013. The shutdown affected mining by Westmoreland Resources, Inc. at the Absaloka Mine near Hardin. The mine was specifically developed to supply coal to Sherco and a group of Midwestern utilities. In an April meeting with shareholders, Westmoreland CEO Keith Alessi said the Sherco 3 shutdown was a 2-million-ton loss on an annual basis. That’s about a quarter of Absaloka’s present capacity of about 7.5 million tons.

There are other Midwestern obstacles for Montana coal, said Bud Clinch of the Montana Coal Council. North of Cleveland, Ohio, coal plants serviced by Signal Peak Mine have been mothballed. And energy demand still hasn’t recovered from the recession.

“We’re suffering from the economy nationwide and demand is down in the major sectors, including the major industrial sectors,” Clinch said.

Coal power as a percentage of the United States’ energy is projected to slide to 40 percent by the end of this year, down from 50 percent four years ago. Natural gas, through the aggressive development of hydraulic fracturing technology, has become abundant and much cheaper than coal. And natural gas is a cleaner fuel, making it easier for major users to comply with clean-energy standards.

Not everyone expects natural gas to run coal out of business, however. Patrick Barkey, director of the Bureau of Business and Economic Research at the University of Montana, said that coal and natural gas have switched roles before. The fuels reversed roles when the price of natural gas rose. If natural gas use increases, both in power plants and in automobiles, the price will go up, Barkey said.

Copyright 2014 The Billings Gazette. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Follow The Billings Gazette

Popular Stories

Deals & Offers

Featured Businesses