No, the Coal Will Not Just Go to Canada (episode 9,274)

The coal industry itself says it desperately needs new terminals.
This post is part of the research project: Northwest Coal Exports

Note: I’m going to continue updating this post as I come across new pieces of evidence. My most recent update was on 6/17/13.

At a Seattle Town Hall forum last week, SSA Marine VP Bob Watters’ claimed again—and despite much evidence to the contrary—that it doesn’t matter whether his firm builds a huge coal terminal near Bellingham. According to this theory, if Oregon and Washington communities don’t ship the coal then British Columbia ports will simply export it instead.

But it’s not true.

Coal industry leaders themselves—along with top analysts and journalists—agree that Canadian ports have nowhere near enough capacity to handle the staggering volumes planned for export from the Northwest states. Industry experts have repeatedly said that new terminals would mean dramatic increases in coal shipping. For example:

“If either of [the terminals in Washington] go through, that is a very sizable amount of coal for the Powder River Basin. That would be a game changer for the market, because the PRB would have an outlet outside the U.S.”

– Hans Daniels, Doyle Trading Consultants, Casper Star Tribune, September 2, 2014.

 

Peabody needs new export routes from the Powder River Basin, specifically via the Pacific Northwest. Hauling coal by rail to the Upper Midwest, barging it down the Mississippi to the Gulf of Mexico, loading it into freighters, and shipping it through the Panama Canal to Guangzhou or Kolkata is a great way to kill your margins. Peabody needs new Asian markets, and to supply Asian markets, Peabody needs new export terminals on the West Coast.

– Richard Martin, Fortune Magazine, February 27, 2014.

 

With Canadian terminals close to capacity, even with existing expansions, new US coal exports will struggle to get offshore, presenters at the Coaltrans West Coast conference in Las Vegas said last week. …new shipments of US coal are unlikely to materialize unless the industry is able to develop any of the proposed coal export terminals in the Pacific Northwest, speakers said during Thursday and Friday presentations at the conference.

– Andrew Moore, Platts Coal Trader, June 17, 2013.

 

…this will depend crucially upon the expansion of port capacity, much of which is currently utilised for metallurgical coal exports, particularly at the Canadian West Coast terminals of Westshore and Neptune. This bottleneck prevents Powder River Basin (PRB) coal from reaching the Pacific Basin in large volumes.

– Deutsche Bank, Commodities Special Report, “Thermal Coal: Coal At A Crossroads,” May 9, 2013.

 

What is really needed for U.S. coal to be competitive in the Asian markets is export terminals on the West Coast that would cut shipping days from 18-22, down to 10-12. This is no secret to anyone with a cursory knowledge of the coal markets (or anyone living in the Pacific Northwest, for that matter).

Seeking Alpha, April 22, 2013.

 

The market is down and we don’t have any export capacity.

Marion Loomis, Wyoming Mining Association director, quoted by Darren Epps, “Construction halted at new Haystack mine in Wyoming due to weak coal markets,” SNL Financial, April 8, 2013.

 

We’ve got the assets in place, what we need now is the terminal.

Colin Marshall, CEO of Cloud Peak Energy, quoted by Darren Epps, “Cloud Peak CEO: No obvious domestic growth story in PRB,” SNL Financial, March 6, 2013.

 

Canadian ports are actually at full capacity. A lot of the contracts, at least for the recent expansion proposals, have been for Canadian coal to be exported… I talked to the head of the Westshore Terminal, actually, and he told me that they are already contracted and that it’s not going to be American coal.

Ashley Ahearn, coal export journalist, KUOW Public Radio at “EarthFix Seattle Coal Export Panel,” February 13, 2013.

 

At present, there is limited terminal capacity for the export of PRB coal to foreign markets. Our access to existing and any future terminal capacity may be adversely affected by regulatory and permit requirements, environmental and other legal challenges, public perceptions and resulting political pressures, operational issues at terminals and competition among North American coal producers for access to limited terminal capacity, among other factors.

Cloud Peak Energy, Form 10-K, filed with US Securities and Exchange Commission on February 14, 2013.

 

 We don’t have the capacity to offload the coal.

Martin Loomis, Wyoming Mining Association director, quoted by Adam Voge, “Coal workers keep eye on foreign markets,” February 18, 2013, Casper Star-Tribune.

Much of America’s increased exports have gone to Europe and Latin America via existing coal terminals on the east and Gulf coasts. Some go to Asia via ports in Canada and California. But to really play in the booming Asian markets, the US has to dramatically expand its negligible west coast coal export capacity.

Ben Potter, “US coal firms export markets,” Australian Financial Review, February 6, 2013.

 

The capacity of all of these new terminals could add 120-140 million tons of capacity, in addition to the Canadian expansions.

Everett King, Ambre Energy president and CEO, quoted by Andrew Moore,  “Ambre CEO confident US Pacific Northwest coal terminals will be built,” Platts Coal Trader, February 4, 2013.

 

Haberlin, like Eaves, said new export terminals in the Pacific Northwest would be a “game changer” that would likely boost US coal exports past 200 million tons annually.

John Eaves, CEO of Arch Coal, and J. Christopher Haberlin, vice president of research of Davenport & Co., quoted by Andrew Moore, Platts, “Coal exports a major focus for US producers as supply needs change: execs,” January 31, 2013.

 

Ten years from now, maybe there will be some export capacity on the West Coast, but for right now, what we have is completely full.

Brian Schweitzer, former Montana governor, quoted by Dan Testa, “Former Mont. Gov. Brian Schweitzer calls most Wash. coal export plans ‘dead’,” SNL Financial, January 17, 2013.

 

With most PRB coals currently exported through Canada’s Ridley Island terminal — a huge distance from the PRB fields in Wyoming — and capacity at Canadian ports constrained, Jang said port expansion and the construction of new ports on the US West Coast is necessary.

IHS McCloskey Coal Report, “Korea eyes up PRB,” December 14, 2012.

 

All three British Columbia coal export terminals [are]: expanding, running at capacity, [and] turning away business.

– Westshore Terminal Ltd, presentation to Tsawwassen Probus Club, November 21, 2012.

 

While demand from our Asian customers remains strong, this year’s exports will again be limited by available terminal capacity out of the Pacific Northwest.

Cloud Peak Energy, “Cloud Peak Energy Inc. Announces Results for the First Quarter of 2012.”

 

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.

Darren Epps, coal export editor for Platts, quoted by Cassandra Profita, “EarthFix Conversations: The Economic Pull Of Coal Exports In The Northwest,” Oregon Public Broadcasting, April 3, 2012.

 

Over the last few years, even though the coal industry has heard the chatter about new terminals opening up somewhere, the options haven’t really changed much. Now several years into a sustained Asian export market, the only real routing options are at the end of a long rail haul to one of three British Columbia-based operations: Neptune Terminal in North Vancouver, Westshore Terminal in Tsawwassen, south of Vancouver, and Ridley Terminals, Inc. (RTI) , located near the Alaskan coast in Prince Rupert.

And of the three, at the moment, only the one furthest away from U.S. producers, RTI, has any real capacity left to squeeze out from what’s scheduled in 2012…

…Bottom line is that while Ridley and Westshore are rapidly expanding, a good portion of what throughput space is being created actually won’t be available on the open market. Much of the new capacity is already owned… …as U.S. producers struggle to find new overseas homes for their coal, both terminals are going to have to fight to keep up. And despite whatever hopes are raised by the prospects of new capacity, most U.S. producers are going to have keep hoping new West Coast ports can finally figure out a way to open up.

Lee Buchsbaum, associate editor, “While Canadian Terminals Expand Export Capacities, Many U.S. Producers are Still Going to be Short of Space,” Coal Age, March 20, 2012.

 

Peabody and almost ever other American company who doesn’t have space here would like to do a lot of business through this terminal… The problem is we can’t even handle our existing customers’ needs, let alone others who wish to contract with us,” said Horgan.

Denis Horgan, vice president and general manager, Westshore Terminal, quoted by Lee Buchsbaum, “While Canadian Terminals Expand Export Capacities, Many U.S. Producers are Still Going to be Short of Space,” Coal Age, March 20, 2012.

 

The key to accessing the Asian export market is port capacity. The US west coast currently supplies only 8Mtpa of Asia’s total thermal coal demand of 550Mtpa. Current port capacity restricts any further growth.

Ambre Energy, 2011 Annual Report

 

You can find a pdf version of this blog post here (current as of February 19, 2013). For a more detailed explanation of why Canada’s ports cannot handle large volumes of US coal, please see Sightline’s in-depth July 2012 report, “Coal Exports From Canada.” 

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Comments

  1. Shirley Samples says:

    Well, the coal is coming to Canada. So it is true what Bob Watters said. Please read an article that just appeared in the Surrey Now newspaper. http://www.thenownewspaper.com/Fraser+Docks+wants+piece+huge+coal/8028135/story.html
    Coal trains 135 cars and over 2.3 km long!

    • Eric de Place says:

      The Fraser Surrey Docks proposal that you reference would, at most, serve not even 17% of what’s planned for just the Gateway Pacific Terminal near Bellingham — and less than 6% of the total volume planned for export from OR & WA.

      Some US coal is already going to Canada, but it is nowhere near the volume that would be exported if the US gets new terminal capacity in the NW. That’s clear to literally every serious student of the coal industry except SSA Marine.

  2. Washy says:

    Ok, for your argument here, Cloud Peak is contracted for the next 4 years for 4.5 million tons out of Westshore, Arch is contracted for 2.5 out of Westshore and 2 million out of Ridley. Now add 8.8 million tons by the end of the year, (I say that cause Hathaway is behind the expansion at Surrey), now there is nearly 19 million tons going through the border, Teck is only contracting 3.5 million tons of the Neptune’s expansion, would you like to guess were the other 6.5 million tons is coming from??? Like I said in the other post Eric, we can argue the tonnage any way you want, the fact is Wyoming and Montana coal is going to increase through BC… I like all the quotes, the problem with all the quotes is there are a lot of trains parading a day though Montana, Idaho, and Washington and there is no stopping them…

    • Eric de Place says:

      I’m not sure if we’re actually disagreeing, Washy. It’s true that relatively small volumes of PRB coal are being exported via BC. It’s also true that BC ports want to expand to handle more Canadian and US coal.

      But none of that implies that BC ports can handle the staggering volumes planned for OR and WA. It’s not even close — the math is abundantly clear — and it’s not an exaggeration to say that EVERYONE in the coal industry knows this. CEOs know it, investors know it, journalists know it. The only people trying to sow confusion are the wannabe terminal builders.

      Look, if BC really could handle PRB coal then the coal companies would just be doing that. After all, BC has far fewer regulatory and permitting hurdles than are required to build new facilities in the US. But, as the CEO of Cloud Peak says — a guy who’s already exporting some PRB ocal via BC — “we need a terminal.” Maybe you should go argue with him.

  3. Norm Cimon says:

    Everyone needs to get a feel for the volume that’s being discussed. A report prepared for the Western Organization of Resource Councils, out there at the other end of the coal food-chain in Montana and Wyoming, hammers home how large this amount truly is. That report, titled Heavy Traffic Ahead (Google search takes you right to the web site), uses industry and government documents to conclude that, by 2022, 170 million tons a year are projected to be shipped.

    That’s 30 trains each way every single day. The thirty headed to Northwest ports, through the Columbia Basin, each would have 125 cars. Each car can lose 500 to 2000 pounds of coal dust during the trip. Pro-rating for just the portion of the trip through the Basin results in anywhere from 500,000 to well over 1.2 million pounds of coal dust a day in the airshed, the waterways, and on the ground.

    The facilities at the other end will have to be scaled up, enormously, to deal with this nearly unimaginable volume. That’s over five coal cars that have to be unloaded every single minute of every single day – one every 12 seconds. Putting numbers to this reveals the mindless arrogance and desperation of such a destructive scheme.

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