In the past year, a half-dozen different coal export proposals have popped up around the Pacific Northwest. It isn’t exactly an industry Oregon and Washington have been trying to lure. In fact, the projects face considerable opposition throughout the region.
But the economic incentives to export are pretty strong, too.
For more on the tradeoffs of coal exports in the Northwest, I interviewed Darren Epps, the editor of Platts’ market analysis newsletter on U.S. Coal. He’s based in Washington, D.C.
Here are some highlights from our phone conversation:
EarthFix: Why is there such a drive to export through the Northwest right now?
Epps: There’s really nowhere to ship Powder River Basin coal right now. The terminals in Vancouver (B.C.) and farther north near Alaska near Prince Rupert in British Columbia are at capacity. They’re expanding as fast as they can, and it’s really not economical to ship it by rail all the way up to Prince Rupert in British Columbia. So, the economics of transportation –- and it’s not cheap to haul this coal –- make it really difficult to earn any money at all by shipping it that far.
Some have gotten really creative. I’ve seen Powder River Basin coal railed to the Great Lakes and then go through the Great Lakes and through the St. Lawrence Seaway and off to Europe. I’ve seen it go down the Mississippi River to the Gulf. What would be much cheaper, much more economical, is to ship it off the U.S. West Coast. And of course, as you well know, domestic consumption has lowered. I think domestic coal is closer to 40 percent now of U.S. generation. And it used to be closer to 50. So exports are the real market for coal right now.
EarthFix: What companies are behind the coal export proposals on the West Coast? It seems like there’s just a bunch of subsidiary companies that have been set up to do the developments but they all seem to tie back to maybe a few bigger coal companies.
Epps: That’s exactly right. There’s been a lot of consolidation in the industry over the last five to 10 years. So you have Arch Coal, which is a major U.S. producer. Peabody Energy is a major U.S. producer that’s involved. You have Ambre Energy, which is an Australian company that’s involved in a couple of these, and then you have Cloud Peak Energy, which is a coal company that has all of its mines in the Powder River Basin. So, they’re not specifically involved in any of these, but I know they have extremely high interest in terminals getting open on the West Coast in this because all of their coal is in the Powder River Basin.
EarthFix: Where do you see all these proposals on the West Coast going? Can all the terminals start up and coexist?
Epps: You know, I don’t think so, and I’m probably in the minority on this, but I think at least one of them will get approved and will ship coal. A lot of people don’t think any of them will. Now, when that happens, I have no idea. I mean, it’s going to be a long process. As you know there’s a lot of environmental interest. There’s a lot of reviews. I don’t think they could all coexist. I think that would create, first of all, a huge bottleneck as far as rails going into Oregon and Washington and then coming out of the Powder River Basin. So, I don’t think they can all coexist. Nor do I think they can all ship as much as the maximum they propose, but I think there will be maybe some incremental amounts. Maybe one or two. But I know a lot of people who think it’ll just never happen.
EarthFix: Why would it never happen?
Epps: Because the process will get delayed, and who knows if these things get permitted or not. And who knows how the market will change. I think the export market is going to be a huge, huge deal for many, many years. But it’s a pretty volatile commodity. Although with China and India building up their economies, it’s hard to believe that it wouldn’t continue to be a strong market. But there’s just a long, long process. I do think one or two will get permitted, but before 2016, you know, I don’t know if it can happen that fast.
EarthFix: Are there front-runners, like, projects that people are looking at if one or two do get approved?
Epps: I think the best chance over the next few years is going to be the Port Morrow and Port St. Helens with Ambre Energy. They’ve pretty much got the Port Morrow part of that transportation down as far as shipping it from that port over to the Port of St. Helens for export and loading it onto larger ships there. They still have a long way to go on the Port of St. Helens side of it. But they at least have made some progress on getting approval on half of their transportation idea. So I think they’re probably the furthest along. They’re hoping 2013. That may be a little ambitious.
EarthFix: What is the condition of the rails? Are they prepared to haul all the coal that the companies want to ship out?
Epps: That is the looming question over all this, is how can they how can they handle this amount of volume? There’s questions around that. There are just two railroads. There’s plenty of rail lines. There are some steep grades. There would be weather issues in the winter. That would be a lot of volume if one of these massive ones got going. That would be a ton of volume headed toward the West Coast.
EarthFix: Will exporting coal have a lot of economic ripple effects throughout the supply chain –- both positive and negative?
Epps: That’s certainly a point of contention on both sides. Of course, you have the coal producers, and they’re right, they would pay property taxes. There’s lease options, money per rail car that would go to the port. I know that Ambre Energy is making a push to give money to schools and employ however many people, whether it be full-time or part-time. That’s the argument on the coal side. On the other side, I’ve heard, at least in Washington, that it would damage the scenic scene around Bellingham, for instance, it could hurt tourism or fishing. How many people will it employ full-time or part-time? It would take a lot of employees to build up these terminals, but once they’re built, obviously, they wouldn’t be needed anymore. There’s a real debate going on there about jobs. It’s going on across the entire United States. Jobs will be a major focus of these terminals as they get built up. How many will they really create? And then, of course, the property taxes stand to be about $1 million a year. How badly do these cities need the money? Those are all things that are going to have to be weighed over the next few years.
EarthFix: One of the arguments by the environmental groups centers around coal dust that would be blowing off the trains and blowing off the terminal sites and degrading the quality of life. Do you know much about the proposals by the coal companies to control that dust and whether surfactants and covers on conveyor belts work to control the dust?
Epps: They do work. Whether they get all the dust off, that’s hard to believe. I don’t think even the manufacturers of these suppressants and surfactants would say that. So, I think there would still be some coal dust. I think the game-changer would be if they could develop some kind of covered rail car. That has not happened on the coal side. There would still be risk of minor little explosions or whatever. But I’ve been told by a couple people on the West Coast that the two West Coast railroads, BNSF and Union Pacific, are trying to develop a coal car that would be safe to transport coal. It could be years before that happens. But there is an acknowledgement that, yes, there is coal dust. And, yes, the suppressants work to a point. It’s something BNSF has gone to the Surface Transportation Board and tried to force coal shippers to put it on and pay for it. So there’s definitely a recognition that this is a big issue in the communities.
EarthFix: One of the things I heard that I wanted to get your reaction to is that, well, they’re just shipping a commodity like any other commodity; coal is being unfairly scrutinized and put through the wringer. Do you see that as a fair argument?
Epps: It’s really kind of a new argument. A lot of the coal goes out of the Gulf Coast, and I’ve been down there. It’s a huge industrial area, so there’s no real pushback on that. Nor has there been a ton of pushback in Norfolk (Va.) or Baltimore. Even in Canada in Vancouver, there’s not a ton of pushback. I went to a coal conference up there and, Canadians, they’re really focused on emissions -– gas emissions. There are a lot of hybrid taxis and electric buses. That’s a real focus in Canada. They don’t seem to mind that West Shore Terminals in Vancouver is expanding to 33 million tons of coal a year. So, this is kind of a new, new ground. Even globally, we haven’t seen this kind of pushback that we’ve seen on the U.S. West Coast.
_Read more on the conversation with Epps on the Ecotrope blog. _