DM&E mothballing extension out of Powder River Basin

Published 11:46 am Tuesday, December 4, 2012

SIOUX FALLS, S.D. — Weakening demand for coal has prompted Canadian Pacific Railway Co. to mothball plans to extend its Dakota, Minnesota & Eastern Railroad network into the Powder River Basin to ship Wyoming coal to power plants in other states, the company announced Monday.

The “indefinite deferral” is an apparent death knell for long-standing plans for a third railway to compete in the coal-rich basin, which CP officials had once called an exciting prospect for an “efficient and competitive additional link to Midwestern and eastern utilities.”

“CP took a careful look into the long-term prospects of the (Powder River Basin) for our railroad and, when considering the outlook of domestic thermal coal, we made what we feel is the prudent business decision” by axing the plans, CP spokesman Ed Greenberg told The Associated Press.

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CP bought the South Dakota-based DM&E and its subsidiaries in 2007 for $1.5 billion. Included in the sale were DM&E’s equipment, 2,500 miles of track and the option to expand into the basin. The company’s rails cut through Albert Lea east to west.

DM&E had plans to add 260 miles of track around the southern end of the Black Hills to the Wyoming coal fields. The goal was to haul low-sulfur coal east to power plants, a multibillion-dollar project. The line would have competed with Union Pacific and BNSF Railway, which in 2006 had carried about 450 million tons of coal from the basin.

But coal prospects have changed over the years, Greenberg said. Railroads have been dealing with weaker coal demand because of low natural gas prices and last year’s mild winter. There also is speculation that any new regulations to limit greenhouse gases would make coal even less attractive to utilities.

Wyoming is the nation’s leading coal-producing state, though the state is projecting essentially flat revenues in coming years. Wyoming’s in-house state fiscal analysts in October projected that coal production in the state is on pace to decline 8.7 percent, or about 40 million tons, in 2012.

The DM&E project had been controversial from its inception. The Sierra Club and other groups have pushed to try to block federal coal leases in the Powder River Basin on the grounds that burning coal mined there would contribute to global warming.