COAL:

Peabody to boost exports from Gulf Coast as Pacific Northwest terminal plans stall

Peabody Energy Corp., the world's largest private coal company, tipped the U.S. coal export scales southward yesterday by selecting Houston and New Orleans as primary ports for shipping Colorado, Powder River Basin and Illinois Basin coal to international markets.

Under new agreements with Kinder Morgan Energy Partners, Peabody said it would gain additional coal export capacity from Kinder Morgan's Deepwater Terminal and Houston Bulk Terminal in Texas, as well as increased access to the International Marine Terminal at Myrtle Grove, La., south of New Orleans.

The planned expansion would more than double Peabody's export capacity along the Gulf Coast to between 5 million and 7 million tons annually between 2014 and 2020, according to company officials. In 2011, Peabody shipped 6.6 million tons of coal through export terminals on the Atlantic, Pacific and Gulf coasts, and it has projected total exports of 10 million tons for this year.

Much of the coal being shipped from Texas and Louisiana will serve Peabody's European markets, the St. Louis-based company said.

Gregory Boyce, Peabody's chairman and CEO, said in a statement that the partnership with Kinder Morgan's Gulf Coast terminals will help the company establish "a large-volume, sustainable U.S. export platform to meet growing global seaborne coal demand."

The company expects to begin shipping Colorado and Powder River Basin coal through the Houston terminal in 2014.

Shipments of Colorado and Powder River Basin coal from Louisiana will begin around the same time, and Peabody will extend contracts at the Cora River terminal in Illinois to facilitate shipments of Illinois Basin coal for domestic and international markets.

Big coal export market expected

Coal industry experts predict that U.S. exports will surge to more than 100 million tons per year over the coming decade as consumption shifts away from the United States -- where electric utilities are relying increasingly on natural gas and other fuel sources for power generation. The coal would go to emerging markets in China, Southeast Asia, India and Latin America where coal remains a primary fuel for electricity.

To help facilitate its Gulf Coast export expansion, Peabody has secured a rail service agreement with Union Pacific Railroad to transport coal from its Colorado mines to Kinder Morgan's Houston terminals, the company announced. Kinder Morgan has also agreed to invest roughly $400 million in its Gulf Coast terminals, boosting its export capacity through the Gulf of Mexico to roughly 27 million short tons annually.

Kinder Morgan Terminals President Jeff Armstrong said in a statement, "Export coal demand continues to grow around the country, and Kinder Morgan is well positioned with our network of terminals to serve our customers' needs in multiple locations."

The United States exported roughly 107 million tons of coal last year, breaking a 20-year record, and is on pace this year to exceed 120 million tons, which would break the all-time record of 112.5 million tons set in 1981.

Yet if such numbers are to be realized, export capacity must be expanded quickly, officials say, and they are opening fronts on all three major coasts -- from Charleston, S.C., to New Orleans and Houston, to Los Angeles, Portland and Seattle.

West Coast dreaming

One location where U.S. coal companies and shipping firms have worked hard to expand terminal capacity, but failed so far, is the Pacific Northwest, where some estimate exports of the Powder River Basin coal could reach 75 million tons by 2017, and more than double again to 170 million tons by 2022.

Various entities, including consortia involving Kinder Morgan, Peabody, Arch Coal, Ambre Energy of Australia and SSA Marine, have proposed up to six coal terminals for the Washington and Oregon coasts. But those efforts have been stymied by permitting delays, environmental opposition and calls for comprehensive environmental reviews by permitting authorities.

A major coal terminal sought by Peabody and partner SSA Marine at Cherry Point, Wash., would allow for the export of 24 million tons of coal annually, and backers of the Gateway Pacific Terminal say it will create between 300 and 400 permanent direct jobs and generate $140 million in wages and tax revenue annually, according to the project's website.

But the terminal, combined with the other five proposals, has garnered skepticism and outright opposition from those who believe a massive coal terminal will diminish air and water quality in the region while increasing noise, congestion and wait times at rail crossings.

Sen. Patty Murray (D-Wash.), a member of the Senate Energy and Water Development Appropriations Subcommittee, is among those critics. She wrote to the Army Corps of Engineers last month expressing concern about how a major influx in coal export activities would affect environmental and public health.

So far, the Army Corps has resisted such calls. In a recent letter to Oregon Gov. John Kitzhaber (D), Jo-Ellen Darcy, assistant Army secretary for civil works, said her agency would limit its reviews to individual project sites and cast a broader regulatory net only where required under the National Environmental Policy Act (Greenwire, June 18).

Even so, executives behind the coal terminal proposals have expressed frustration at the slow pace of approvals. "The opposition thrown at these projects has caused delay after delay after delay," John Schlosser, another senior Kinder Morgan executive, told the trade publication SNL Coal Report in a recent interview. "The coal industry needs these facilities."

Brighter prospects on Gulf Coast?

Schlosser and other proponents of coal exports may have reason to be more optimistic about their prospects on the Gulf Coast, where rail and shipping infrastructure have been developed to handle bulk commodities like coal, gravel and timber products.

Coal is also likely to face less opposition from environmental groups along what is known as the "Energy Coast," a moniker born of extensive offshore oil and gas drilling, petroleum refining and other energy-related activities along a 700-mile stretch of coast from Alabama to Texas.

But there are logistical and financial drawbacks to Gulf Coast ports, which are far removed from both the Powder River Basin coal fields and the fastest-growing international coal markets. Asia-bound exports of U.S. coal from Gulf Coast terminals, for example, would require passage through the Panama Canal, after which the loaded ships would face very long trans-Pacific journeys.

By contrast, shipments from the Pacific Northwest offer a more direct and much shorter route to China, South Korea and other Asian markets.

According to the Seattle-based Sightline Institute, which has studied the Pacific Northwest coal export market, British Columbia ports are nearly 1,200 nautical miles closer to Shanghai than the Port of Los Angeles.

A 2011 analysis by Sightline found that while coal exports have increased at the three largest British Columbia terminals -- Ridley, Westshore and Neptune -- there is not enough room at those ports to absorb a major increase in U.S. exports.

"The expanded capacity planned for [British Columbia's] coal ports would not come close to handling the volumes of coal called for by the recent proposals in Washington state," the analysis found. Moreover, Sightline said the British Columbia ports would continue to favor metallurgical-grade Canadian coal that fetches a higher price on international markets.

Peter Epstein, a senior coal analyst with MockingJay Inc., noted recently in a Seeking Alpha blog post that with the slow development of U.S. export facilities in the Pacific Northwest, Powder River Basin coal producers have been forced to jockey for port allocations at two major British Columbia terminals, Ridley and Westshore.

"PRB exports through the Gulf [of Mexico] are feasible," Epstein wrote, "but that route is also the main export venue for Illinois basin coal," which has also become highly competitive due to its low costs and high heating value.

For that reason, Epstein predicted, Powder River Basin producers may need to find new markets for between 20 and 25 percent of the region's 450 million tons of annual production.