A few weeks back, we released a report on the shaky economic fundamentals of Ambre Energy’s Morrow Pacific coal export project. In a nutshell, documents released by Ambre Energy, the project’s developer, make the project look like a dud. By handling coal at two separate port terminals, Morrow Pacific incurs higher costs for transportation, operations, and capital than its likely competitors. In fact, the costs are so high that it’s not clear that Ambre could make any profit whatsoever selling coal into Asian markets.
But apparently we’re not the only ones saying that Morrow Pacific’s finances are dicey. The project’s chief executive is saying the exact same thing. A recent story in Platts Coal Trader, a subscription-only industry journal, quoted Ambre Energy’s North American CEO admitting that the project can’t make money unless international coal prices rise substantially:
Clark Moseley, the president and CEO of Ambre Energy North America, said…that the company is pushing ahead with the project, though he conceded current prices might prevent the terminal from making a profit.
“At today’s thermal prices, we could break even at best,” Moseley said.
Asked by a panelist why Ambre would go with the venture if it’s not profitable, Moseley said the coal market will strengthen based on projected international demand. [Emphasis added.]
There you have it, straight from the horse’s mouth. Ambre Energy is betting the farm—and its investors’ capital—on a substantial, long-term rise in international coal prices. I’d be the first to admit that could happen. But the historic volatility of coal prices—including a price decline of more than 30 percent over the past year due to massive oversupply in the global coal markets—makes Morrow Pacific look less and less like a sure thing, and more and more like a desperate longshot.