Kinder Morgan Energy Partners LP (NYSE: KMP) announced Jan. 24 that it plans to invest, with some help from Arch Coal Inc. (NYSE:ACI), about $140m to further expand its coal handling facilities along the Gulf Coast.
Arch Coal has signed a long-term throughput agreement with KMP that will help support the expansion of these export facilities. Arch and KMP are also in final discussions to include, in the throughput agreement, port space for coal shipments at KMP-owned facilities on the East Coast.
Arch Coal is one of the largest U.S. coal producers, with mines in various states including Wyoming, Colorado, Utah, Illinois, Kentucky, West Virginia and Virginia.
Upon completion of the proposed terminal upgrades and subject to certain rail service agreements, Arch will ship coal at guaranteed minimum volume levels through KMP-owned terminals. The expansion of KMP’s export facilities along the Gulf Coast and East Coast will provide incremental port capacity for Arch’s growing seaborne coal volumes.
“The demand for export coal continues to grow and we are pleased to offer Arch and other customers options in various markets through our multi-location terminal network,” said Jeff Armstrong, President of Kinder Morgan Terminals. “We are also extending existing long-term coal agreements with Arch at our upriver terminals (Cora, Cahokia and Kellogg) in Illinois.”
“This strategic partnership with Kinder Morgan, a company with a proven track record of running successful terminal operations, will allow Arch to significantly increase our participation in the global coal market,” said Arch President and COO John Eaves. “This dedicated capacity directly underpins our long-term strategy to grow Arch’s coal exports by fourfold in the next decade, and is consistent with our view that a global coal supply shortfall will persist over that time frame.”
On the Gulf Coast, KMP said it will install a new shiploader and a railcar loop track to handle three 135-car unit trains at its Deepwater terminal in Houston. Following completion of the project, the Deepwater will have throughput capacity of 10 million tons of coal per year.
KMP’s Deepwater and East Coast facilities offer dual rail access from Class 1 railroads, while the International Marine Terminal (IMT) on the Mississippi River below New Orleans provides barge access to the inland waterway system. The Deepwater terminal will be capable of handling panamax- and post panamax-size vessels, while one East Coast terminal and IMT will be capable of handling cape-size vessels.
Panamax vessels are small enough to transit the Panama Canal, while larger cape-size vessels can round the capes at the southern tips of South America and South Africa. Post panamax vessels are sized between panamax and cape-size. Notable is that the Panama Canal is being expanded and when that project is done, expected in 2014, the canal will be able to handle larger vessels than it does currently.
These multiple transportation options will allow Arch to unlock incremental value for its domestic coal production and coal reserves over the next 10 years, KMP noted. Anticipated throughput volumes will consist of metallurgical and thermal coal from Arch’s major coal producing regions, including Appalachia, the Powder River Basin, the Western Bituminous Region and eventually the Illinois Basin.
Arch currently has only one operating mine in Illinois, the Viper deep mine, which it got last year in a buy of International Coal Group (ICG). It also has the permitted but undeveloped Lost Prairie deep mine in Illinois and a 49% stake in Illinois coal producer Knight Hawk Coal.
“Securing additional port capacity further supports the expansion of Arch’s international coal platform,” said Eaves. “Along with the acquisition of the ICG assets, the opening of new business offices in Singapore and London, and previous equity investments in port terminals on the East Coast and West Coast, this agreement strengthens Arch’s position as one of the top U.S. suppliers in the seaborne coal trade.”
St. Louis-based Arch Coal is a top five global coal producer and marketer. Arch is the most diversified American coal company, with mining complexes across every major U.S. coal supply basin.
KMP is a leading pipeline transportation and energy storage company in North America. It owns an interest in or operates approximately 29,000 miles of pipelines and 180 terminals. Its terminals store petroleum products and chemicals and handle such products as ethanol, coal, petroleum coke and steel.