Railroads struggle to meet coal demand
The nation’s two largest railroads have hauled record amounts of coal from the mines in northeast Wyoming and southeast Montana this year, but Union Pacific Corp. and Burlington Northern Santa Fe Corp. still struggle to keep up with utility demand and existing contracts.
If utilities run low on coal during the high demand of winter, they might be forced to buy fuel on the open market at higher prices that could be passed on to customers, said Jim Owen, with the utility trade group Edison Electric Institute.
“It’s been a fairly contentious issue in the last 18 months,” said Owen, whose group represents nearly three-quarters of all U.S. utilities.
The problems began in May 2005 when two derailments on the main line leading out of the Powder River Basin revealed that accumulated coal dust in the rail bed made the line unstable. Repairs disrupted traffic and slowed deliveries for months.
Then last winter, some utilities worried about depleting their onsite stockpiles, and one, Entergy Corp., in April sued UP over the delivery problems. Entergy says it lost “tens of millions of dollars,” and its lawsuit is pending in Pulaski County Circuit Court in Arkansas.
“Utilities have made no secret of the fact that deliveries have been a problem,” Owen said.
Some utilities last winter even imported coal from overseas to help make up for the Wyoming delivery problems. The U.S. Energy Information Administration said 30.5 million tons of coal was imported in 2005, and that was up 11.7 percent over the previous year.
The delivery problems, spot market purchases and imports cost the utilities ”” “and ultimately their customers” ”” more money, Owen said.
The problems have eased somewhat this year, but Owen said utilities were still not getting all the coal they want and contracted for. A mild winter this year could ease concerns, he said.
The continuing railroad delivery problems aren’t the whole story because utilities all across the country are burning more coal.
Last year, coal consumption nationwide increased 1.9 percent, to 1.13 billion tons, according to a report from the U.S. Energy Information Administration.
Wyoming produced 406.4 million tons of that to remain the leading coal-producing state in the nation, and Montana’s mines added 40.4 million tons.
Those numbers are likely to be up again this year. BNSF and UP said this week they loaded a record average of 67.1 coal trains per day last month on the 102 miles of rail coming out of the southern Powder River Basin they own jointly. The previous record of 66.5 trains per day was set in June.
UP also said its tonnage per train was increasing.
More than 350 million tons of coal will be carried across the joint Powder River line this year, Omaha, Neb., based UP said. That’s up from about 325 million tons last year, and the railroads predict a similar jump in 2007.
Besides the jointly owned line on the south end of the basin, Burlington Northern has another line that enters from the north. Officials at the Fort Worth, Texas, railroad have said BNSF is hauling about 10 percent more coal systemwide this year.
Track capacity on BNSF and UP’s networks is the main obstacle to delivering more coal, but mines and utilities also have a role to play because the pickup and delivery track setup affects how quickly trains can be loaded or unloaded.
“This is very much a team sport to get this much coal moved,” BNSF spokesman Pat Hiatte said.
Railroad officials say they are trying to meet the rising coal demand.
In most places, railroads are reluctant to invest too much money in track too soon because the companies want to preserve profits and avoid overbuilding, but the record demand for coal has made UP and BNSF confident of profits in the basin service. The railroads announced plans earlier this year to invest $100 million in the line they share.
“This is probably about the only place in America where we’re putting in track about as fast as we can build it,” said Jim Steamer, who runs UP’s railyard in Bill, Wyo.
At the Jacob’s Ranch mine south of Gillette, parent company Rio Tinto recently completed a $4.5 million investment in railroad tracks to create more room for empty and loaded trains to wait. Now the mine can hold as many as eight trains, which each have more than 100 cars.
Industry analyst Donald Broughton of A.G. Edwards & Sons said railroads shouldn’t take all the blame for the coal capacity problems because the facilities at the mines and utilities are part of the issue.
Everyone would benefit from higher capacity, he said. It’s just a matter of determining who will pay for all the improvements.
“The finger-pointing and crying about who needs to do more is just good old-fashioned negotiating, in my mind,” Broughton said.
On the Net:
Union Pacific Corp.: http://www.up.com Burlington Northern Santa Fe Railway: http://www.bnsf.com
U.S. Energy Information Administration: http://www.eia.doe.gov
