Maysdorf II By the Numbers: BLM's Big Coal Giveaway Tomorrow

Tue, 2013-08-20 14:02Ben Jervey
Ben Jervey's picture

Maysdorf II By the Numbers: BLM's Big Coal Giveaway Tomorrow

Update Aug 23: In a stunning development, there wasn't a single bid at the BLM auction, with Cloud Peak Energy passing up the chance to bid out of fear that it would not be profitable.   

Tomorrow, the Bureau of Land Management will sell off roughly 148 million tons of coal. The BLM is opening the sealed bids for the so-called “Maysdorf II” tract in the heart of the Powder River Basin in Wyoming. The coal will likely be sold to Cloud Peak Energy, which operates the adjacent Cordero Rojo mine, one of the nation's largest strip mine operations. 

Cloud Peak Energy's Tesoro Rojo mine, soon to be expanded. Video by Greenpeace.  

According to Joe Smyth of Greenpeace, who penned a great post putting this sale (and another, even larger coal lease scheduled for next month) in the context of President Obama's recent climate announcements, the coal will be sold for roughly $1-per-ton. That represents a deep discount below market rates, which is what you'd expect from a lease auction with only one bidder.

The environmental groups aren't the only ones raising the red flags about this controversial auction process. The Interior Department's own Inspector General issued a report earlier this summer that criticized the agency for failing to consider the exports of Powder River Basin coal, and that Americans were losing hundreds of millions of dollars in these closed-bid (frequently single-bidder) auctions. 

The Institute for Energy Economics and Financial Analysis (IEEFA) carried the numbers out further, finding that Americans have been shortchanged nearly $30 billion for all of the existing leases in the Powder River Basin over the past three decades, because the BLM failed to set a fair value for the price of the coal to be mined. (It should be noted that the calculation of “fair market value” by the BLM is notoriously arcane and complicated. That IEEFA report does some incredible work explaining it. You can dig in for yourself if you'd like. Jump ahead to page 26.) 

Seeing as the bidding will be opened tomorrow, let's piggy-back on Smyth's post and crunch some more numbers about this particular lease. 

Maysdorf II, by the numbers

  • 1,338 acres: Size of the “Maysdorf II” coal tract to be leased
  • 148,565,000 tons: Mineable coal in the “Maysdorf II” tract
  • $163 million: Potential revenue generated by the lease (estimating price from last auction in the region)
  • $1.5 billion: Value of mined “Maysdorf II” coal on the open market
  • 241 million metric tons: Carbon dioxide to be released by mined coal* 
  • 50 million cars: Equivalent emissions of “Maysdorf II” coal in American passenger car annual  emissions
  • 12.6 days: How long it would take China to burn through all of the “Maysdorf II” coal. 

[*My calculations assume that Powder River Basin coal generates 8,500 BTUs per pound, and that 1 million BTUs produces 212.7 pounds of CO2. If anyone knows of a more precise way to calculate these emissions, please let me know in the comments.] 

So, let's recap: 1,338 acres of publicly-owned land in Campbell County, Wyoming will be forever destroyed by strip mining. The federal government (and American taxpayers) get shortchanged by hundreds of millions of dollars. The coal will eventually release the emissions of 50 million American cars driving for a year. And if this coal were to find its way to China, as more and more Powder River Basin coal is, it would be burned up in less than a fortnight. 

Sounds like a good deal for Cloud Peak Energy.

Also standing to benefit is BNSF Railway, which will transport the coal out of the region, much of it to export terminals in the Pacific Northwest, assuming one is ever built, which is an open question.

But it's a bad deal for the federal government, for the American people, and it's a terrible deal for the atmosphere and children's lungs everywhere that coal is burned or discarded as coal ash.  

Finally, before you go, check out this other Greenpeace video that juxtaposes President Obama's recent speech on climate with these leases:

Previous Comments

The price of Powder River Basin coal is $10.30 per ton as of August 2013 (from the EIA). The estimated mine production cost is about $10.00 for PRB coal. So the producer pays the feds $1.00, produces the coal for $10.00 and sells it on the market for $10.30? Someone's out a 70 cents a ton. I'm confused. I could see the market price for PRB coal really low as a subsidy for domestic electricity generation, but not for others (that would be foreigners).

http://www.eia.gov/coal/news_markets/

The $10.00 per ton production cost is good - could be more could be less.

Can you point me to reference material for that $10/ton production cost estimate? Haven't seen that number around. 

It's the spot price for PRB coal, see the link in the original: comment: http://www.eia.gov/coal/news_markets/

Right, I know that's the spot price on the market. But my understanding of Michael's comment was that there was a $10/ton cost to the producers (Cloud Peak Energy) on top of the ~$1/ton that they pay for the lease, and so Cloud Peak Energy was actually losing money at that lease rate. ($10+$1=$11. $11>$10.30.) I'm wondering where Michael got the reference for the $10/ton production costs. 

Or maybe I'm misreading his comment entirely?

Google: powder river basin coal operating cost per ton. 

Sorry to be a pain. It's just that recently I got into this never ending comment thread with an anonymous commenter on Grist who couldn't or wouldn't do their own Google searching. Many of his/her replies had absolutely nothing insightful or informative just, “source please.” I know better not to go there and should have bailed from the thread, for some reason I couldn't.

You're not being a pain. We want to get our info right. But when i do Google the phrase you suggested and click on the top 20 links, I get some mixed signals and only a couple of references–only one suggesting anything in the $10/ton range fo operating costs anywhere. (That was a report prepared for Xcel. Other references, like in this Seeking Alpha post suggest “mid single digits” for PRB production costs.) The companies don't seem keen to share this data, for obvious reasons. 

If there is any legitimate source of info on that, I would love to see it so that we can update the post accordingly. Otherwise, it seems like it is just pulled out of thin air. And we just want to deal with facts. 

Whatever it is, though, it's folly to just look at U.S. spot prices for comparison. The intent is to export (as Cloud Peak says repeatedly in investor presentations). The spot price for Chinese imports (even of subbituminous) is many times that. 

I do thank you for the comment, and would love to see whatever other materials you have about production costs. We're always trying to better explain these things. Thanks.

Since Peabody is a publically traded company and past financials are reported on its website, reported information should be pretty good. I'm not familiar with DeSmog blog standards - but hey - I'm commenting on my spare time.

http://www.peabodyenergy.com/content/326/Financial-Information

The operating costs are broken down by region (maybe there's further details on a per mine basis, but I'm too lazy to look into the matter any further). The western coal mining operations are reported as $12.77 per ton. Since PRB is such a big and productive mine, I'd say the $10.30 per ton isn't unreasonable. Mine operation costs range all over the place given region, geology and whatnot and the western region includes mines in Montana, Wyoming, etc. So the 12.77 number could be an average. A very good source is the BLM, since it's the agent for the United States on federal lands and gets production data, hopefully. We're essentially digging up our land, shipping it to China to burn, where it comes back to us (and the entire planet) as CO2 and soot.

[x]

It has been 35 years since the Bureau of Land Management (BLM) last performed an environmental review of its coal leasing program.

Two environmental groups are suing the BLM to force a review of the program.

Given advances in scientific knowledge of the risks posed by mining and burning coal to human health and Earth’s climate made since 1979, the groups argue that the review will “...

read more