Union Pacific removes embargo on new PRB business

Washington (Platts)--28Mar2007

Union Pacific removed the embargo Tuesday on new coal business out of the
southern Powder River Basin in a move that shippers and industry experts said
reflects the railroad's confidence that it has enough capacity to add new
customers without overwhelming the Joint Line, which it operates with
competitor BNSF Railway.

UP Vice President of Energy Doug Glass told customers of the embargo
cancellation in a March 26 note in which he said that the embargo would be
removed from all stations on the Joint Line that serve the southern PRB.

UP imposed the embargo on new business in mid-July 2005, shortly after massive
derailments on the Joint Line disrupted the flow of coal trains out of the
basin. The railroad kept the embargo in place in order to prevent the Joint
Line from being overwhelmed by too many shipments, even as some utilities
grumbled about not being able to increase their shipments beyond contracted
levels.

Industry experts said UP is now more confident that it can handle increased
coal volumes out of the PRB with the Joint Line capacity additions.

"With the new track construction currently progressing on the Joint Line,
there will be sufficient capacity" for UP to expand its PRB coal volumes, said
Andy Cebula, vice president of planning and engineering at CANAC, a Canadian
engineering firm that has advised the railroads on capacity needs on the Joint
Line. "This in conjunction with mine site initiatives such as additional train
landing spots and improved processing capabilities will result in sufficient
capacity on the Joint Line and will be in line with capacity needs for
projected tonnages over the next several years."

Cebula said the expansion work that will be completed most likely by the end
of this year should give the Joint Line the capacity to handle more than 400
million metric tons/year.

Cebula said that the next level of capacity construction that CANAC
recommended is to increase the Joint Line capacity to 450 million mt, but the
timeframe for that has not been set yet.

"Over the course of the next several years as tonnage is projected to grow to
[450 million mt], we recommended that the railroads build to accommodate this
next level of capacity," he said. "Of course, the projections must indicate
this growth, otherwise, such plans can be put on hold if need be."

CANAC has also made tonnage projections for expanding the Joint Line capacity
to 500 million mt, possibly by 2012, but Cebula said whether that will
actually occur depends on market conditions.

"If tonnage grows faster than expected, then construction can be accelerated,"
he said. "If not, then construction can wait until growth projections are
realized."

-- Marcin Skomial, marcin_skomial@platts.com