The Western Organization of Resource Councils (WORC), which is a consortium of environmental groups, has released a new study designed to forestall a number of export coal terminal projects in Oregon and Washington that would ship mostly Powder River Basin coal into Pacific Rim markets.
A number of parties, including leading U.S. coal producers Peabody Energy (NYSE: BTU) and Arch Coal (NYSE: ACI), are developing terminals to get PRB coal, which traditionally has not been a major export commodity, into the seaborne market. Environmental groups are concerned about various aspects of that plan, including environmental impacts of mining the coal, transporting it by rail via the BNSF Railway and Union Pacific to the terminals, the impacts of the terminals themselves, and the impacts of burning this coal at foreign power plants.
“U.S. coal producers and suppliers are actively looking to expand steam coal production from mines and origins in the Powder River Basin (PRB) in Montana and Wyoming and shift significant coal volumes away from domestic destinations to existing and proposed Pacific Northwest (PNW) export coal terminals, in order to compensate for a recent and projected decline in domestic steam coal-fired power production and take advantage of the growing Asian steam coal market,” the report noted. “Currently, there are only three (3) PNW export coal terminals in British Columbia (BC), which handle approximately 5 million tons of PRB coal per year. In order to meet large export tonnage goals and reduce transportations costs, at least six (6) U.S. PNW export terminals are being considered in Washington and Oregon.”
The report added: “The proposed expansion of PNW export coal terminal capacity will likely result in an explosion in PRB to PNW coal exports and railroad export coal movements. Two major U.S. Class I railroads dominate the PNW region as well as the PRB coal transportation market: BNSF Railway Company (BNSF) and Union Pacific Corporation (UP). BNSF serves PRB origins in Montana and Wyoming. UP serves PRB origins in Wyoming, which are jointly served by BNSF. There are currently six railroad PRB coal lines in Montana and Wyoming and one proposed new coal line in Montana, which serve approximately twenty coal mines and would feed PRB export coal trains onto railroad mainlines for movement to the nine existing and proposed PNW terminals. The coal mines served by BNSF and UP are owned and operated by a few major coal companies, such as Peabody Energy, Arch Coal and Cloud Peak, which would work with the railroads and PNW export terminals in regard to export coal shipments.”
Repetitive and voluminous PRB coal moves to Pacific Northwest export terminals will obviously benefit the coal companies, railroads and terminal companies by generating billions of dollars in annual revenues and profits, but these coal movements will have a wide-range of adverse environmental, economic, transportation, public safety and other impacts, the report said. The rail routes potentially impacted by the increase in PRB-to-PNW export coal cover an extremely broad impact area covering a total rail distance of over 4,000 miles. The impacted railroad routes traverse through many major populated areas, such as Spokane and Seattle, Washington, Billings, Montana and Portland, Ore., as well as environmentally sensitive areas, such as Glacier National Park in Montana.
WORC retained the consulting firms of Whiteside & Associate, a transportation and marketing consulting firm located in Billings, Mont., and G. W. Fauth & Associates Inc., an economic consulting firm specializing in transportation issues located in Alexandria, Va., to study the possible environmental, economic and transportation impacts associated with the expected increase in railroad export coal movements. Richard Streeter, an attorney in Washington, DC specializing in transportation issues, also contributed to the report.
Report: BNSF will dominate these moves since its served Montana mines are closer to ports
The projected movement of 75 million tons per year by 2017 to 170 million tons per year by 2022 will generate billions of dollars in annual revenues for railroad, coal and terminal companies, said the report. Although BNSF, UP and other railroads will be involved in the PRB to PNW export coal transportation market to some extent, BNSF’s routes are significantly shorter than UP’s routes and BNSF has a lower cost structure. Thus, BNSF can provide transportation rates which are significantly lower than UP and will likely capture the lion’s share and dominate the expanding and lucrative PRB to PNW export coal market, the report added. For the purpose of this report, it has been assumed that BNSF would originate 100% of the PRB coal, but UP would terminate about 14% of the tonnage by 2022 via its interchange with BNSF at Spokane, Wash. UP could originate PRB coal and obtain a larger market share by the utilization of its longer, but less congested, southern routes. However, an evaluation of these UP routes was not included as part of this study.
The study broke down the existing three British Columbia terminals and six planned Oregon and Washington facilities.
Roberts Bank, BC (Westshore): Westshore Terminals in Roberts Bank, BC, is currently the largest PNW export coal terminal, with an annual capacity of about 32 million tons. Westshore indicates that it currently moves U.S. coal from the PRB, but the majority of the coal exported from Roberts Bank is from Canada. U.S. PRB coal was first shipped through Westshore in 1988. In 2009, Westshore shipped a record 2 million tons of US coal, including several shipments from Utah mines. Cloud Peak Energy (NYSE: CLD) exported about 3.3 million tons to Asian customers in 2010 through Westshore and indicated that it would ship 4 million tons in 2011, the report said. Gunvor Group, which last year acquired part of the Signal Peak longwall mine in Montana (which is not in the PRB), also has an agreement with Westshore Terminals to ship export coal, the report noted.
North Vancouver, BC (Neptune): Neptune Bulk Terminals (Canada) Ltd. in the Vancouver Port Metro area handles potash, coal, bulk vegetable oils, fertilizers and agricultural products. The coal handled at Neptune Terminals is predominantly metallurgical grade out of western Canadian mines. Currently, Neptune has a total coal capacity of about 8 million tons, but is expanding to over 10 million tons to meet growing demand from Asia.
Prince Rupert, BC (Ridley): The Prince Rupert coal export facility is operated by Ridley Terminals Inc., a Federal Crown Corporation owned by Canada. The coal terminal is in a remote location in the northwestern part of the province near Alaska, which is a long distance away from the PRB mines in Wyoming and Montana, but closer in nautical miles to the Asian market. Currently, Prince Rupert has an annual capacity of around 13 million tons, but plans are underway to double the capacity to over 26 million tons. Ridley Terminals indicates that it began to receive U.S. PRB coal shipments in 2011. In January 2011, Arch Coal announced that it had reached agreement with Ridley to export about 2.75 million tons from Prince Rupert. CP and CN rail are also examining increased Canadian coal movements to Prince Rupert.
Cherry Point, WA (Bellingham): In June 2010, SSA Marine began the environmental review process for a Gateway Pacific Terminal project at Bellingham, Wash. The project, known as Cherry Point, could export up to 60 million tons per year. On March 19, SSA Marine, through its subsidiary Pacific International Terminals Inc. (PIT) submitted additional information to Whatcom County concerning the Cherry Point project. The submission indicates that the project will be completed in two stages. The first stage is planned to commence in 2014 and the second stage is expected to be completed by 2017. BNSF would provide rail service to Cherry Point via the 6.2 mile Custer Spur. SSA Marine has already signed a contract with Peabody Energy, an investor in the project, agreeing to export 26.5 million tons of coal from its proposed terminal, the report said.
Longview, WA: In February 2012, Millennium Bulk Terminals Longview LLC (MBTL) submitted several permit applications for a coal terminal on a 416 acre site on the Columbia River near Longview, Wash., which, by 2018, would handle 48.5 million tons per year, said the report. Australia’s Ambre Energy owns 62% of the shares of this project company and Arch Coal owns the remaining 38%. Longview is served by both BNSF and UP.
Grays Harbor, WA (Hoquiam): RailAmerica, which owns the Puget Sound and Pacific Railroad (PSAP) that serves the Port of Grays Harbor, near Hoquiam, Wash., has been exploring an export coal terminal, the report said. RailAmerica states that the Port of Grays Harbor “is the only deep-draft shipping port on Washington’s coast, only 2 hours from open sea.” RailAmerica states that this would be a “relatively small project” with a capacity of 5 million tonnes (5.5 million tons). PSAP connects with the UP and with the BNSF.
Coos Bay, OR: The Port of Coos Bay, Ore., is considering an international shipping terminal. Coos Bay is served by Coos Bay Rail Link (CORP). The Oregon International Port of Coos Bay bought the 126-mile railroad in 2009, which interchanges with BNSF (via PNWR) and UP at Eugene, Ore. The line is currently in serious disrepair. CORP plans to resume freight service, but requires significant funding to repair and upgrade 110 bridges (70 of which are in poor condition) and nine tunnels. The port has been negotiating with investors. David Koch, the port’s CEO, stated that three companies are drawing up plans for a coal terminal that could export up to 10 million tons per year, said the report. Mitsui, an international trading firm headquartered in Japan, and Metro Ports, a company that specializes in terminals, are reportedly involved in the negotiations with Coos Bay.
St. Helens, OR (Westward): In January, Kinder Morgan Terminals and Pacific Transloading, a subsidiary of Ambre Energy, submitted a proposal to export coal from St. Helens, Ore., Port of Westward. Ambre Energy expects to ship as much as 30 million tons from St. Helens. Port of Westward is served by PNWR, which connects with both BNSF and UP at Portland, Ore.
Boardman, OR (Morrow): The Port of St. Helens plans plans a water transloading facility, which is part of the “The Morrow Pacific Project” under which PRB coal would be shipped by train to Morrow and from there by barge on the Columbia River to Port Westward Industrial Park at the Port of St. Helens and then transferred directly from the barges to oceangoing vessels. Initially, Ambre anticipates shipping 3.5 million tonnes (3.85 million tons) of coal per year beginning as soon as mid-2013, the report said. Full operational and permitted capacity is expected to be 8 million tonnes (8.82 million tons) annually, subject to approval. Port of Morrow is served by UP.