NEW YORK
- 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 a host of 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 over a hundred 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 now 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 Burlington Northern
Santa Fe, 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 now 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. If that's the case, then over-the-counter coal prices will decline
even though demand is strong, because the trains won't have the capacity
to deliver the product.
"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."
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