Officials with coal producers, power utilities and railroads who attended a recent federal advisory committee meeting all lamented the state of the US coal industry, with one member calling the situation an "energy depression."
Since the US Surface Transportation Board's Rail Energy Transportation Advisory Committee last convened December 1, both Arch Coal and Peabody Energy filed for Chapter 11 bankruptcy, and coal train loadings and carload counts have dropped to lows never previously recorded.
During the latest meeting -- held Friday at BNSF headquarters in Ft. Worth, Texas -- board member George Duggan, vice president of coal at BNSF, said railroads were facing an "energy depression" because the low prices of coal, natural gas and oil have forced them and companies throughout the industries to downsize.
He added that the severe change in coal business has put the railroads at a "disconnect between where we were a couple years ago and where we find ourselves today."
As much as two-thirds of the US railroad coal fleet is parked and out of service compared to last year, Duggan said, a downsize of "hundreds if not thousands" of locomotives and "tens of thousands" of rail cars.
Coal carloads counts are down 33.4%, or about 499,000 carloads, year on year, according to Association of American Railroads data.
"The rail industry finds ourselves in the coal segment down as much as 35% and 40% year over year" Duggan said. "When you take 10%, 20%, 30%, 40%, approaching 50% of the volumes off our network, the railways will volume adjust; and that's what you're seeing."
Starting last year, CSX and Norfolk Southern began eliminating tracks, facilities and staff within their Central Appalachian coal network, and more cuts could come, railroads have warned.
"[The coal] industry is in a dire situation, not seen by us ever," Duggan said.
INVESTMENTS AWRY
The steep decline in coal has come at a time when railroads have invested more capital than ever in their business. Duggan said US railways spent a record $30 billion last year on infrastructure and equipment and are predicted to spend another $26 billion this year.
Much of the railroads' spending has gone into coal networks and facilities that are now under-used, board members noted, which has put an even greater financial burden on the companies already reeling from volume declines.
"I think the big issue for the railroads is that where the growth may now come from may not be in a place you made substantial investments," said board member Elizabeth Whited, vice president of chemicals at Union Pacific. "You've got potential for significantly underutilized investments ... at the same time when we may need to be investing new capital to support the growth in other areas."
UTILITY STOCKPILE LEVELS 'UNPRECEDENTED'
While railroads are trying to cope with less coal, utilities are still receiving too much, said board member Dennis Rackers, the director of fuel supply at Northern Indiana Public Service Co.
Rackers said that like many other facilities, storage at NIPSCO's coal-fired power plants is "stretched to the limits," even with coal production cuts across all major US coal basins and coal carload declines.
Coal storage has been exceeded at some US generation facilities, Rackers said. To deal with the oversupply, he said some utilities were paying for off-site coal storage, and others were paying producers to store coal at the mine because "they just don"t have the capacity to take the coal under contract obligations."
Rackers added that utilities' problems with elevated stockpiles have been exacerbated by the prolonged cut in coal burn in favor of natural gas and falls in coal unit utilization. While US stockpiles of 180 million st would have equaled about 45 days of burn in the past, increased gas use pushes that same tonnage up to about 95 days of burn today.
"We approaching 100 days of burn, and that is unprecedented in the industry," Rackers said.
