Environmental groups told the U.S. Surface Transportation Board on April 2 that reasons to reject the latest Tongue River Railroad Co. application include that coal moving over this line would contribute to global warming when burned, and that this coal has no real markets anyway, which seem to be somewhat contradictory points.
That is somewhat oversimplifying the points made by the Montana Environmental Information Center, National Wildlife Federation and Sierra Club in their comments regarding the Tongue River Railroad’s (TRRC) Dec. 17, 2012, Supplemental Application for Construction of a new rail line in Custer, Powder River and Rosebud counties, Mont.
This revamped, longstanding rail project would start at two points at Arch Coal’s (NYSE: ACI) planned Otter Creek strip mine and the undeveloped Montco strip mine, and run to an interconnect point with the BNSF Railway at the coal-fired Colstrip power plant. Arch Coal and BNSF have both taken ownership positions in the railroad lately.
The supplemental application fails to provide evidence to support a finding of public convenience and necessity, and also fails to meet the minimal requirements for applications for authorization to construct new rail lines, the environmental groups said.
Among other environmental consequences, the railroad will facilitate the development of the massive Otter Creek coal mine and other Ashland-area mines, allowing more than one billion tons of coal to be transported and burned at coal-fired power plants, thus contributing to climate change, the groups said.
TRRC has failed to identify any particular “market demand” for Otter Creek coal, they added. “Indeed, there is no reasonable prospect for selling Otter Creek coal to power plants in the United States and providing coal for transport to meet global demands is entirely speculative,” they added. “With respect to the domestic coal market, as described in the reports prepared by Synapse Energy Economics, Inc., and Power Consulting—both attached to the comments submitted by Northern Plains Resource Council and Rocker Six Cattle Company—the domestic coal market is rapidly shrinking. Further, as recognized by the company that performed the lease-sale valuation for Otter Creek coal, the domestic market for the coal that would be transported by the Tongue River Railroad is inherently limited due to the coal’s high sodium content, which makes it unsuitable for combustion by most utility boilers.”
Notable is that existing mines in this region, including Cloud Peak Energy’s (NYSE: CLD) Spring Creek mine, have sodium issues that limit markets, but at the same time Cloud Peak has increasingly been able to sell that coal on the export market.
“In light of the feeble domestic coal market, Otter Creek coal would more reasonably be viewed as an export commodity,” the environmental groups said. “However, there is currently insufficient infrastructure in place to enable export of significant quantities of coal from the West Coast and the future development of such infrastructure is questionable, at best. Further, TRRC has identified no prospective international buyer for Otter Creek coal, nor provided market forecasts that indicate that international coal demand, and in particular, demand from China and India, will be robust during the time frame in which the proposed Otter Creek coal mine is expected to be at peak production.”
Two other parties make similar opposition points against the TRR
The application is deficient on its face and should be rejected, said the Northern Plains Resource Council, a Montana non-profit organization comprised of ranchers, farmers and conservationists, and the Rocker Six Cattle Co., a ranch owned and operated by the McRae family that will be bisected by the Tongue River Railroad.
“The demand for Powder River Basin (PRB) coal is so low that Arch Coal, Inc., the ultimate owner of the Otter Creek mine and a major investor in the proposed Tongue River Railroad, slowed production at its existing PRB mines and reported a net loss of $295 million in the fourth quarter of 2012,” the council and the cattle company argued in their own April 2 filing. “Domestic demand for coal is declining precipitously due to low natural gas prices, pollution control costs, and impending greenhouse gas regulations. As a result, many electric utilities are retiring their coal-fired power plants or converting to natural gas. Compared to other PRB coal, there is even less demand for Otter Creek and other Ashland area coal because few electric utilities are willing to accept it due to its high sodium content. This already limited market is also in decline as even utilities that might potentially be willing to accept Otter Creek coal are scheduled or likely to retire in the foreseeable future.”
Foreign demand for Otter Creek coal is also declining, they argued. “The only potential international market for Otter Creek coal is Asia. Even assuming there is sustained Asian demand for coal, TRRC cannot compete against established Indonesian and Australian coal producers that enjoy a significant transportation advantage. Also, the infrastructure necessary for shipping PRB coal to international markets at competitive prices does not exist, may never exist, or will remain significantly under-developed when TRRC is ready to begin coal transport.”
The United Transportation Union, which represents many BNSF employees, did file positive comments April 2 about the construction of the line, but told the transportation board that BNSF needs to fill in many gaps yet about how it plans to operate the line.