Powder River Basin producers are keeping an optimistic eye on rising natural gas prices, though high utility stockpiles aren't likely to push buyers back into the market, sources said Friday.
The front-month NYMEX Henry Hub natural gas futures contract settled Friday at $2.398/MMBtu, less than a penny off a near six-month high of $2.405/MMBtu on Thursday.
Prior to Thursday's close, the last time the front-month Henry Hub futures contract closed higher was January 8.
"We're getting to that sweet spot on natural gas prices, where you start to get to that breakeven point between the PRB and natural gas," said a producer.
At roughly $2.50/MMBtu, many PRB-burning plants are theoretically cheaper to dispatch than natural gas. But prices haven't been that high since last October, and stockpiles have grown in the interim.
"I can't see over the coal pile from my window," said a fuel buyer at a PRB plant in the Midwest. The buyer said the plant's storage is at roughly 75% of capacity currently, and by November storage could be closer to 90%.
"We have way more than we need, but we are contracted to take it," said the buyer.
Some utilities are deferring tons, which is one reason PRB deliveries have declined. The average number of daily train loadings in the PRB dipped to 36.6 in early April but rebounded last week to 41.4 trains per day, according to Surface Transportation Board data.
Still, the recent figure is off 32.7% from the year-ago average.
"We are drowning in coal," said another buyer who is deferring tons. With so much coal on the ground, the buyer doubts there will be a need to buy coal this year, and maybe next year as well.
The second buyer said it's a good sign natural gas prices are increasing, "but we don't like too much optimism because it can give us a false sense of security."
How gas prices fare this summer will be a major factor in PRB burn, and many in the coal market are trying to determine if the recent climb in natural gas prices is being driven by fundamentals, or if it's just a temporary blip due to traders covering short positions.
"We've been getting requests for deferments but we're getting some indications those are slowing down," said the producer. "Some utilities are getting anxious [about] what gas prices will do, which has slowed down the pullback from coal."
"We are we are proceeding with a lot of caution," added the producer, "But we haven't been optimists for a long time so even a little glimmer of optimism is welcome."
S&P Global Platts assessed the price of PRB 8,800 Btu/lb coal for Q3 delivery on Friday at $8.85/st, up 10 cents from last week.
