Why the Powder River Basin produces more coal with fewer mines

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The Powder River Basin dominates the region’s coal production

The western region in the U.S. includes the area west of the Mississippi River. The region produced 520 million tons of coal for the 12 months ending September 11, 2014. The entire U.S. produced 974 million tons of coal during the same period. The western region accounted for 53% of the total coal production in the U.S. It’s important to note that 13 out of 24 western states produce coal.

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The western region’s coal production is dominated by the Powder River Basin (or PRB). It’s located in Wyoming and Montana. These two states produced 425 million tons of coal during past 12 months. The coal from the two states accounted for 82% of the western production and 43% of the total U.S. production.

Domestic coal consumption

 

Characteristics of PRB coal

The PRB’s coal is sub-bituminous in rank. It has an average heat rate of ~8,500 British thermal units per pound (or Btu/ lb)—compared to ~12,500 Btu/lb for eastern coal. Since PRB coal was exposed to freshwater during formation, it has lower sulfur content than coal produced in the east. Sulfur is mainly found in sea water. Eastern coal was formed near the coast. It was exposed to sea water during formation. As a result, eastern coal contains more sulfur.

PRB coal also contains lower nitrogen than coal found elsewhere in the U.S. PRB coal causes less pollution during combustion. However, this doesn’t include polluting particles that are released when coal is transported. A shorter distance results in less pollution.

Lowest production cost

PRB’s coal deposits are relatively new. The PRB’s history dates back 60 million years—compared to eastern coal that’s ~300 million old. Since PRB coal is younger, it’s available closer to Earth’s surface. The logic isn’t very hard to understand. As millions of year pass by, more pressure is applied to coal seams. This pushes them deeper into the Earth’s surface.

Since PRB coal is available closer to the surface, it’s also easier and cheaper to mine. The easier mining combined with favorable government policies made the PRB the cheapest coal producing region in the U.S.

Alpha Natural Resources (ANR) reported costs per ton of ~$12 in its PRB operations—compared to $62 for the eastern operations. Apart from ANR, Cloud Peak Energy (CLD), Peabody Energy (BTU), and Arch Coal (ACI) also produce coal in the PRB. The VanEck Vectors Coal ETF (KOL) has holdings in the majority of the top coal producers in the U.S. We’ll discuss the PRB’s major coal producers and their mines in the next part of the series.

Visit Market Realist’s Coal page to learn more about the coal industry.

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