By Steve Fiscor, Editor-in-Chief
Judging by all of the reports coming from the region, the Illinois Basin (Illinois, Indiana and Western Kentucky) is experiencing a resurgence in interest as utilities scout for low cost and dependable coal supplies to accommodate the investment in new pollution controls or “scrubbing,” taking place to meet more stringent environmental controls. In a scrubbed scenario, Illinois Basin (ILB) coal is a suitable replacement for lower sulfur Appalachian coal. With increasing demand abroad, ILB coal may soon be taking advantage of international thermal markets.
John Hanou, principal, Hanou Energy Consulting, recently prepared a multi-client consulting study on ILB coals. His investigation is certainly the most current and probably the most comprehensive review available on the region’s coal geology, reserves, quality, historic, current and future coal production, coal control/ownership, transportation infrastructure, strip ratios, mine productivity and production costs for all active, idled and proposed mines. During his research, Hanou analyzed more than 300 mines, reserves and properties. He makes a bold 10-year production forecast. These predictions were based on estimated FoB mine, railcar and barge for all active projects.
The ILB contains substantial low cost surface and deep mineable coal reserves that are currently and will continue to be extracted in the future. While the ILB contains a substantial amount of low-sulfur reserves, most of the new production coming on line will be greater than 4 lb-SO2/mmBtu. Peabody Energy and Armstrong control the remaining large blocks of low-ratio surface mineable coal. Peabody, Foresight Energy, Drummond, CONSOL Energy, Alliance Resource Partners LP and Arch Coal control large blocks of deep mineable coal.
ILB producers are positioning themselves to nearly double production over the next 10 years. In 2010, production totaled 107 million tons. During 2011, production will likely expand to 116 million tons. By 2014, producers are planning to expand to 159 million tons and to more than 200 million tons in 2017. Hanou cautions that these expansions are market dependent. With its superior reserve base, Illinois will expand at a greater pace than Indiana or Western Kentucky, and most of it will come from underground mines.
Peabody Energy was the top ILB coal producer in 2010, followed by Alliance and Murray Energy. By 2017, Foresight Energy is projected to become the second largest ILB producer as it adds longwalls at Sugar Camp and Deer Run. In spite of Alliance opening Gibson South and taking one-third control of White Oak, Alliance will likely drop from the second largest ILB producer to the third largest producer. If Alliance would obtain 100% of White Oak, it will likely remain second with Foresight becoming a close third.
The ILB saw coal production grow steady from less than 100 million tons in the mid-1950s to the 140 million ton mark in the 1970s. For the most part production remained about 120 million tons until the Clean Air Act Amendments of 1990 went into effect. As utilities began to switch to lower sulfur coals, ILB production dropped steadily to about 90 million tons per year (tpy). Now that trend has reversed and production since 2003 has grown steadily to more than 100 million tons.
Major coal producers exited the ILB during the 1990s. In 1994, CONSOL Energy produced more than 7 million tpy. In 2002, its final operating Illinois mine, Rend Lake, closed. Similarly, the former AMAX Coal (now Alpha Natural Resources) Delta and Wabash mines’ annual production dropped from more than 5 million tpy to a little more than 1 million tpy in 1997 before closing in 2007. Arch Coal closed the Captain mine complex in 1999 after production declined steadily to more than 2 million tons from 6 million tpy in 1994. Arch Coal regained a presence in Illinois after it purchased a portion of Knight Hawk in 2006 and gained more momentum in 2011 with the acquisition of International Coal Group (ICG), which operated the Viper mine. Through a series of transactions, Peabody Energy transitioned away from mostly union production. Peabody acquired the Black Beauty operations in Indiana and Illinois, while closing mines in Illinois. It then spun off mines as Patriot Coal to complete the transition.
A direct reflection of the activity would be the amount of production represented by organized labor. At one time, the United Mine Workers of America (UMWA) controlled more than 90% of ILB production. On a tonnage basis, the union began to lose traction in the late 1980s and reached parity in the mid-1990s. It now accounts for less than 5%. Hanou does not believe the UMWA will recover in the ILB.
As UMWA mines closed, mine productivity improved as more efficient non