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 The coal shortage is forcing utilities to burn more expensive
natural gas and eroding profits for coal miners. Peabody Energy
Corp's first-quarter loss more than doubled, while Arch Coal Inc's
net loss widened 77 percent. Cloud Peak Energy Inc was pushed to a
loss in the three months ended March 31 after 2 quarters of profit.
The only way to get the coal out of the basin is by rail and just
two operators - Union Pacific Corp and Berkshire Hathaway Inc's
Burlington Northern Santa Fe (BNSF) - transport coal from the
region.
"Demand for PRB coal has been much stronger than the railroads were
prepared to handle and stronger than utilities had expected going
into this year", said Ted O'Brien, president at coal analytics
company Doyle Trading Consultants in New York, referring to coal
from the Powder River Basin, the source of about 40 percent of U.S.
coal supply.
Railroads are also handling rising shipments of oil and of grain,
limiting their capacity to ship coal.
"We have been constrained to 125 cars per train when we are able to
handle 136 train sets," said Curt Pearson, spokesman for North
Dakota-based utility Basin Electric Power Cooperative.
 While railroads are buying more locomotives to ease bottlenecks,
analysts and investors said problems are likely to persist until the
end of the year.
"Coal producers are definitely constraining the amount of volumes
they are able to bring to market," said David Jackson, a portfolio
manager at Philadelphia-based Penn Capital Management.
Cloud Peak, all of whose three mines are in the PRB, cut its
forecast for full-year production by 2 million tons from the top end
of its earlier forecast of 86 million to 92 million tons in April.
Arch Coal Inc said in April that it could have shipped 4 million to
5 million more tons of coal between the fourth quarter and first
quarter if it weren't for the rail shipping problems.
COAL & UTILITY WOES
"Our coal stockpile is adequate but it is certainly less than
desired and this is partially the result of the lowered velocity of
the coal trains," said Basin Electric Power Cooperative spokesperson
Curt Pearson.
Basin Electric is the managing partner and part owner of the Laramie
River Station, located east of Wheatland, Wyoming. The plant has
three coal-fired units.
"We would hope to see a renewal of more frequent and larger train
sets in summer or early fall, before the winter, we do need to build
our stockpile," Pearson said, adding that the company was working
with BNSF on a daily basis to resolve the issue.
Coal advocacy group Western Coal Traffic League, which includes
utilities such as Berkshire Hathaway's MidAmerican Energy Co
[MECI.UL] petitioned the Surface Transportation Board in March about
what it called the "BNSF Railway Service Crisis."
(http://1.usa.gov/V58GYf)
It said it was "deeply concerned" about BNSF's ability to deliver
coal through the summer months and that many members of the group
feared they would run out of coal soon and force them to shut many
plants.
The U.S. Energy Information Administration forecast 108 million
short tons (MMst) of power sector coal inventories for August 2014.
That would be the lowest monthly level since February 2006 and
nearly 46 MMst lower than last August's stockpiles, according to its
short-term energy outlook dated June 10. (http://1.usa.gov/1eEZgbw)
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Extreme cold affected the performance of air brakes, resulting in
shorter trains and fewer cars, while the snow short-circuited
electric motors, froze switches and kept crews from reaching
locomotives, according to a report by Wood Mackenzie. Keeping coal
cars outside as they waited to be unloaded caused the coal to
freeze, causing delays in getting the coal off the cars, the report
said. Slow delivery of coal is also forcing utilities to cut back
on coal and preserve some inventories for peak summer months,
forcing them to use more costly natural gas.
Delivered coal prices are at about $2 per million British thermal
units (mmBtu), nearly half those of natural gas, which is trading at
about $4 per mmBtu.
Utilities are more likely to turn to natural gas instead of buying
coal from other basins as most plants are built to burn one type of
coal, said Matthew Preston, principal analyst at Wood Mackenzie.
Thermal coal demand is also expected to fall sharply, thanks to a
new U.S. mandate that requires the power sector to cut carbon
emissions by 30 percent by 2030. But the ruling is unlikely to
affect current demand given the long compliance period.
NOT THERE YET
To help speed up coal deliveries, BNSF has earmarked $5 billion as
capital expenditure, a large portion of which will go toward buying
locomotives.
BNSF, which analysts say is the worst-hit railroad in the region,
also plans to add additional tracks and is targeting a return to
2013 service levels by the fourth quarter.
"Railroads recognize the problems in terms of insufficient labor and
equipment to handle the volume, and they've pledged to fix it, but
they're not there yet," Alpha Natural said in an e-mailed statement.
 Union Pacific's coal volume is up 5.5 percent year-to-date, which
the company said was higher than it had anticipated.
The company is planning to invest around $4.1 billion this year,
which is about $500 million higher than in 2013.
"Our train velocity is not yet back to normal or goal, but we are
working diligently to restore operations to normal," Union Pacific
spokeswoman Stephanie Bissell Serkhoshian said in an email.
(Editing by Sayantani Ghosh in Bangalore and John Pickering in New
York)
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