NEW YORK (Dow Jones/AP) - The price of coal mined in Wyoming's Powder River Basin surged to record highs last week, as electric utilities bid aggressively in the market to make up for shipments lost by problems that have dogged coal producers and railroads since May.
Most recently, torrential rains in Kansas at the beginning of October washed away hundreds of feet of track on Union Pacific Corp.'s lines near Topeka and damaged several rail bridges. The disruption caused a backup more than 100 trains long - many of them carrying Wyoming coal - and caused several utilities that depend on coal shipped on those lines to run dangerously low on supplies.
"It was pretty serious," said Stephen Doyle, a coal market consultant who advises investment firms about the industry. "It took out a whole week's worth of deliveries from all those lines that feed into Kansas City and St. Louis."
The price of Wyoming coal for delivery in 2006 rose 11 percent in the week ended Oct. 7, based on continuing strong demand from utilities that need the fuel to rebuild their stockpiles, market sources said. Next year's coal is trading around $15.45 a ton, up from $10 in mid-July.
Last week's track problems aren't the first of the year. Power plant owners across the Midwest, Great Plains, Southeast and Southwest have been receiving on average about 85 percent of expected coal deliveries since May, after heavy precipitation caused two trains to derail in Wyoming and started a massive maintenance program by the railroads to repair the track.
The line is jointly owned by Union Pacific and BNSF Railway, the other railroad that hauls coal from the Powder River Basin.
The increase in coal prices also appears to have bolstered the price of sulfur dioxide allowances, which traded at a new high this week of $920 a ton. Some utilities have turned to higher-sulfur eastern coals to replace missed shipments from the West, a move that requires them to buy more sulfur allowances to cover the extra pollution that will result.
In a letter sent to customers Oct. 5, Union Pacific executive Jack Koraleski said it would be at least a week before service was back to normal after the Kansas disruptions.
In an announcement posted the next day, Union Pacific said the tracks had been fixed and that the company was trying to reduce the lengthy backup caused by the disruptions.
But the situation has proved to be dire for power plants that depend on coal shipped over those rails. The Kansas City Board of Public Utilities, for example, which operates two coal-burning power plants, nearly ran out of coal because trains couldn't move past the washed-out track sections.
Utilities have been in coal conservation mode since the train derailments in May, relying instead on power from natural gas-fired power plants and wholesale electricity purchases. But as temperatures drop and pipeline natural gas gets diverted for home heating, more pressure than ever could be placed on coal supplies.
But it isn't clear the trains will be ready in 2006 to carry all the coal that utilities will need to replenish their stockpiles, observers said.
"These prices are almost a bet that the train situation can be rectified by the time we get into 2006," consultant Doyle said. "If that's the case, there will be more demand for PRB coal than can be supplied by the mines."