Export ambitions down, but not out

By Dylan Brown | 04/26/2016 01:07 PM EDT

In the span of a few years, the downturn of the coal industry shredded a web of proposed coal mines, railroad lines and export terminals stretching from the Powder River Basin to the coast of Washington state. Still, advocates refuse to forsake the remaining few projects based on the belief that, eventually, foreign demand for American coal will recover.

Even though the coal industry wants to expand export capacity from Western ports, the majority of shipments have historically come from terminals in the east, like this Consol Energy Inc. facility in Baltimore.

Even though the coal industry wants to expand export capacity from Western ports, the majority of shipments have historically come from terminals in the east, like this Consol Energy Inc. facility in Baltimore. Photo by Manuel Quinones.

Mining industry plans to ship Powder River Basin coal to Asia from Western ports refuse to die, much to the chagrin of opponents from source to sea.

In the span of a few years, coal’s precipitous downturn shredded a web of proposed coal mines, railroad lines and export terminals stretching from the nation’s most productive coal region to the coast of Washington state.

Cheap natural gas, a global supply glut and fears of climate regulations torpedoed many projects. Still, advocates refuse to forsake the remaining few based on the belief that, eventually, foreign demand for American coal will recover.


Out of half a dozen Pacific Northwest projects in the works since around 2012, only two bulk export facility proposals remain — the Gateway Pacific Terminal near the Canadian border and the Millennium Bulk Terminals near the mouth of the Columbia River.

Regulators have set up new public hearings for May and June on the Millennium site in Longview, Wash. Their ongoing review comes as 38 percent stakeholder Arch Coal Inc. has filed for bankruptcy.

Arch abandoned its Otter Creek strip mine, a proposed southeastern Montana facility that would have sent 20 million tons of coal through the new terminal.

The company’s move also affected the associated Tongue River Railroad proposal (E&ENews PM, March 10). Today, the federal Surface Transportation Board dismissed the permit application for the 42 miles of track that would have connected Otter Creek to existing rail lines.

"While it is possible that Otter Creek Coal or another party could restart the mining permit application process in the future, it is unclear whether and when this might occur," the board wrote in its decision. "Therefore, to keep this docket open would serve no purpose."

When it comes to Gateway, the Army Corps of Engineers’ environmental review is on hold pending the agency’s decision on whether the joint venture — backed by SSA Marine and Cloud Peak Energy Inc. — impairs Lummi Nation treaty-protected tribal fishing rights (Greenwire, April 4).

Yet despite the howling global market headwind, plus unrelenting opposition, project proponents maintain that exports are inevitable.

"We continue to see long-term demand growth for reliable, affordable electricity with much of this growth met by coal-fueled generation," said Cloud Peak spokesman Rick Curtsinger. "As this demand catches the current oversupply, we expect prices to rebound."

Attorneys for the Tongue River Railroad’s joint owners Arch and BNSF Railway Co. pointed to "medium and long term" viability for their projects.

"It would be inconsistent with the record in this case to conclude that the Otter Creek tracts will never be mined and that the Tongue River Railroad will never be needed," they wrote in Surface Transportation Board documents.

Opponents, from the prairies of Montana to Puget Sound, are baffled.

Mary Lyons, co-president of Longview-based Landowners and Citizens for a Safe Community, said coal export backers sounded like the Wizard of Oz saying, "Pay no attention to the man behind the curtain."

"The long-term predictions for this industry are so iffy and unpredictable and unreliable that they have to shout even louder about what they do have, in order to drown out the reality of what the market is saying and also what the world is saying," she said.

Battle lines over coal exports show no signs of fading.

Taking the bet

In 2013, bullish forecasts predicting a 25 percent bump in global coal consumption made analysts at Wood Mackenzie Ltd. the darlings of coal export supporters.

Just three years later, the London-based firm published a blog post calling terminals "nothing more than a risky long-term bet" (Greenwire, Feb. 18). Environmentalists relished Wood Mackenzie’s about-face.

Millennium President and CEO Bill Chapman responded in a Longview, Wash., newspaper op-ed. "What you often hear is the view that some see coal as a risky long-term bet," Chapman wrote in The Daily News. "We’ve taken that bet. We view energy and trade differently."

Chapman said recent "short-term market fluctuations" didn’t affect terminal advocates’ confidence in the long-term viability of their $680 million project, which they point out would bring jobs to a depressed economy.

The U.S. Energy Information Administration reported the first decline in global coal trading in 21 years in 2014. But Chapman pointed to environmentalists’ own worries about an increase in global coal plant construction.

Environmentalists have cited efforts in China and other parts of the developing world to reduce coal use. At the same time, they have released reports warning about the barrage of planned coal plants (Greenwire, March 30).

Bankrupt Peabody Energy Corp. allowed an option to ship 24 million metric tons of coal from Gateway to expire. But terminal proponents say that is also not thwarting their plans.

"We remain supportive of activities to increase Powder River Basin exports from the West Coast over time and see no impact on our activities resulting from the filing," said Peabody spokeswoman Beth Sutton.

With Arch and majority Millenium shareholder Lighthouse Resources Inc. committed to exports, Chapman told the Associated Press that Peabody’s bankruptcy actually "highlights why we need to open new markets to the U.S. coal industry through exports."

"For us, and our partners, the reasons this project made sense when we started permitting four years ago still hold true today and will hold true many years into the future," he said.

Chapman said Millennium would likely be online in 2020 right when Wood Mackenzie predicted exporting American coal to Asia could be competitive again.

Delays the ‘more prudent option’

Andy Roberts, Wood Mackenzie research director for global thermal coal markets, actually predicted the earliest exports could compete would be 2025.

In an email to Greenwire, he reiterated why coal terminals were "a riskier bet now than in the past."

Slowing global economic growth upended conventional wisdom that Powder River Basin coal would fill a global coal void created by Asian demand. China, once the linchpin of hopes for U.S. coal exports, is driving the slowdown like it did growth for decades.

"Chinese thermal coal imports are unlikely to grow for a decade," Roberts said, as the world’s largest coal producer and consumer works "to modernize and rationalize its coal industry."

China recently instituted a moratorium on new coal plants and plans to shutter more than 1,000 coal mines to address a chronic overcapacity of between 500 million to 1 billion metric tons, Roberts said (ClimateWire, March 1).

To drain the supply glut, Roberts said China could boost exports, and Australia and Indonesia were ready to step in if not. "Slower growth will allow Asian regional suppliers to meet the bulk and maybe all Asian demand," Roberts said.

To make matter worse for U.S. exports, power plants are increasingly efficient. And key Asian countries are poised to cut energy intensity, the ratio of energy to gross domestic product, in half within decades, said Roberts.

As environmental awareness grows, Roberts sees investment fleeing to renewables as those technologies advance faster than efforts to trap and store coal plant emissions.

All factors combined, Roberts said delaying planned Pacific Northwest terminals was the "more prudent option at this time."

Now or never

Booming coal initially spurred the Millennium and Gateway projects, but the terminals could provide bulk capacity for more than just one commodity in Washington, the most trade-dependent state in the country, said Washington Farm Bureau President John Stuhlmiller.

"The more faucets that you can turn on if you will, the better for everybody," he said. "And clearly we get backed up in the ports now."

In 2014, Stuhlmiller said farmers lost millions of dollars when overcrowded ports and railways doomed perishable commodities like Washington’s famous apples.

Opponents blamed oil and coal trains for clogging the rails. But Stuhlmiller noted that coal export opponents helped block infrastructure that could have addressed the demand.

Stuhlmiller said he was "proud" of terminal proponents in the face of tightening regulations and environmental opposition. "If they don’t keep pushing and get ‘er done now, it’s not going to happen," he said.

Kerry McHugh, spokeswoman for the Washington Environmental Council, said the terminals will not happen because of swelling local opposition seen on the ground and in polls.

"The more people learn about these proposals, the less they care for them," she said.

Proponents, McHugh said, also cannot explain away the coal market collapse. Export critics like her point out that coal’s woes plus low oil prices have significantly dented the demand for rail.

"I just don’t see how this plays out in any way that works out for them," she said.

In Longview, Lyons said support for short-term jobs was also giving way to concerns about long-term impacts on the environment and property values. With Longview already cleaning the toxic legacy of heavy industry, activism has taken hold.

"The community is really determined to drag their leaders into a healthier, more sustainable economy," she said.

Lyons is looking forward to a big turnout at the upcoming hearings on environmental analysis.

"The taxpayers are starting to get smart and realize that these bust-boom industries — like coal and oil and the fossil fuels — are just resulting in communities being worse off after the boom in the bust than they were before," she said.

Future of Otter Creek, Tongue River

More than 1,000 miles to the east, Northern Plains Resource Council advocate Dawson Dunning makes a similar argument against the Otter Creek Mine and Tongue River Railroad.

Dunning’s family has ranched for a century upstream from the proposed Montana coal mine. For decades, ranchers have fought the mine and railroad proposals.

While Arch’s latest iteration is on its last legs, ranchers, tribal activists and other opponents are trying to permanently end mining ambitions in the area east of Billings. Dunning said investing in a single form of energy has repeatedly proved to be a bad idea historically.

He is trying to spread the message in Colstrip, the Montana town where the derailed Tongue River Railroad would have connected to an existing line. The coal-dependent community refuses to give up on the energy resource despite the industry’s recent hard times (ClimateWire, April 12).

"If we stick our heads in the sand and keep going down the road with coal, there are going to be more places like Colstrip," Dunning said.

Colstrip leaders are unconvinced. Coal proponents saw the Otter Creek failure as losing a chance to create hundreds of well-paying jobs.

Montana Sen. Steve Daines (R), Rep. Ryan Zinke (R) and Crow tribal leaders have all been fighting hard for the Gateway Pacific terminal, the speculative destination for Otter Creek coal.

Even though Arch announced it was abandoning Otter Creek, the Montana Department of Environmental Quality had not received any new correspondence from the company, spokeswoman Kristi Ponozzo said.

The agency is in the process of drafting a letter to figure out what to do about permitting deficiencies and an environmental impact statement on hold since Arch missed required payments last year.

Missed payments also cost Arch the lease covering half of its Otter Creek coal tracts. An Arch spokeswoman did not respond to requests for comment.

In case of a sale or renewed interest, Ponozzo said the agency was using the necessary data already gathered to complete an alluvial valley floor determination, a process that identifies groundwater close enough to the surface to support flood and sub-irrigation.

"Since we’re so close to having that completed and it would potentially be useful if anything else were going to happen out there, we are going attempt to finish it, but we do have other priorities," Ponozzo said. "It’s not high on our list."

Dunning hopes the designation proves something area ranchers have known all along. "We all knew it was an alluvial valley floor," he said. "We just didn’t see any way they were not going to have an impact on that."

After decades of the projects hanging over his family, Dunning is pressing to quash hopes for the mine and railroad once and for all.

"At some point, it’s gotta end," he said.