The study’s authors, John Hanou and Robert Burnham, said in Powder River Basin Coal Supply, Demand and Price Trends 2012-2031 that at least two venerable producers, Alpha Natural Resources and Arch Coal, are finding themselves in “tenuous positions”

The report indicates that with Alpha facing reserve depletion at Eagle Butte in Wyoming, it will be mined out by about 2029 if production continues as is. Higher ratio reserves are present, but are not economical.

At the company’s Belle Ayr mine, the report said, a major reserve challenge lay ahead because the producer’s plan to obtain the Belle Ayr North lease by application – a process to obtain federal coal and land lease rights through the US Bureau of Land Management – for an expansion was foiled by Peabody Energy, which submitted the winning bid for the tract at auction earlier this year.

“With limited options, Alpha picked up the Caballo West federal LBA,” the Hanou study found.

“The question is – how is Alpha going to access the coal?”

While the authors noted Peabody had access to the Belle Ayr North tract using its already existing pits, Alpha was not able to access the Caballo West tract without crossing Peabody surface property. Additionally, to do so a new box cut would need to be opened.

“We suspect negotiations between Alpha and Peabody are underway,” Hanou said.

“Or Peabody may play hardball, not negotiate and eventually take over the Caballo West tract.”

Timing will also play a role in the Peabody-Alpha scenario.

Alpha has applied for the Belle Ayr West LBA totalling 253 million tons, but it may not be released for lease availability before the Belle Ayr complex mines out its block.

“If so, Belle Ayr may be forced to reduce production to extend the life of its current reserves or close prematurely,” Hanou said.

Arch faces some significant changes in the short term. The producer has had to idle three draglines this year at the flagship Black Thunder mine because of market conditions. In 2012, a production drop is estimated from 116 million tons recorded in 2010 to 85-90Mt.

Arch is also in a position where it must lease and develop a 1.4 billion ton BLM reserve situated west of the Joint Line railroad at its Black Thunder mine.

“This will be an expensive endeavor and will require a box cut,” Hanou said.

“At an in-situ ratio of 4:1 (8:1 effective), we estimate the total material to be moved to open the boxcut is 800 million yards. In order to keep Black Thunder at a 90 million to 100 million tons of annual production, development must occur between 2018 and 2025.”

Arch’s plans for development of the 1.3Bt Otter Creek reserve in Montana, which it successfully bid to lease in 2012, will hinge, in part, on the construction of the Tongue River Railroad.

Construction of the facility is at least a half decade away and has still not yet gone through right-of-way issues and the required environmental scrutiny.

One piece of good news for the PRB producer in the Hanou report is analysis showing some market improvement will be realized over the coming two years and demand will rise by about 30 million tons.

Any gains from that silver lining will likely be offset, however, as the Environmental Protection Agency’s CSAPR rules will probably lead the domestic US and Canadian markets to a 50Mt decline over the next 12 years.

Because of that projected turn, the report says, producers are looking at international markets for both growth and market share.

“The shakers and movers are Peabody, Arch, Cloud Peak Energy and a newcomer - Australia's Ambre Energy,” Hanou said.

“Signal Peak, with its new Bull Mountain longwall mine, is also pursuing the international market.”

Many have talked about the low prices and the impact natural gas has had on coal, but one factor largely unreported has been high railroad rates.

The PRB has worked hard to create a presence in the domestic marketplace, but the high rates on the railroads are hampering those inroads.

“While the rail carriers lowered rates to compete with natural gas in the Midwest in early 2012, it isn't clear they will do it again to compete along the East Coast,” Hanou said.

“If not, non-participants in the international market may be left with the scraps [and] high cost mines are on the bubble and are likely to be closed. Low-cost virgin reserves like Otter Creek and Youngs Creek are likely to get developed, but only if the western export terminals get built.”

The report notes PRB producers as a whole will need to navigate the difficult water of what’s to come, and all while enduring higher production costs.

“The PRB story has been staggering – one surge in demand followed by another,” the authors said.

“It’s easily accessible reserves and world-class infrastructure, including a remarkable rail system, have allowed it to meet demand.”