Coal export terminals on the rocks

The future looks bright for those those fighting coal trains and coal export terminals.. Check out the Politico article below for a good analysis, and No Need for New U.S. Coal Ports:Data Shows Oversupply in Capacity for more details.

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Source: Politico

How the ‘War on Coal’ went global

Republicans are trying to prop up the industry, but the world is not cooperating.

Congressional Republicans who vow to defeat President Barack Obama’s “War on Coal” can do little to defend the industry against a growing international threat — the drying up of its once-promising markets overseas.

Just a few years ago, domestic producers had high hopes for selling coal to energy-hungry Asia, but prices in those markets are plummeting now amid slowing demand and oversupply, ceding much of the market space to cheaper coal from nations like Indonesia and Australia. Meanwhile, a lot of U.S. coal can’t even get out of the country, thanks to greens’ success in blocking proposed export terminals in Washington state and Oregon. And China, the world’s most voracious coal customer, just pledged to cap its use of the fuel and is promising to curb its greenhouse gas pollution.

The industry’s supporters in Congress notched a minor victory in this week’s $1.1 trillion spending deal, which bars the Export-Import Bank from cutting off financing for coal-burning plants overseas. But coal’s prospects will only darken further if the climate talks underway in Lima, Peru, pave the way for a global agreement next year to throttle carbon emissions, a step that scientists say can come only by limiting the world’s appetite for coal.

Meanwhile, the World Bank is backing away from funding coal projects, hedge funds are eyeing major U.S. coal companies as high-risk investments, and the strong dollar is hampering the market for all kinds of exports. The oil train boom also burdens coal producers’ access to rail lines from Western mining hot spots like Wyoming and Montana.

The upshot: Coal exports, which more than doubled from 2007 to 2012, are expected to fall by nearly one-fifth this year, the U.S. Energy Information Administration says. In 2015, the number of tons exported could hit its lowest level in five years.

It’s sobering news for an industry already beset by EPA climate and pollution regulations that Republicans denounce as Obama’s “War on Coal” — their rallying cry on the way to big victories in the midterm elections. And it’s a far stretch from the export-driven boom that coal supporters like House Energy and Commerce Chairman Fred Upton were expecting as recently as a year ago.

“All that is missing is the additional infrastructure to make expanded exports possible, and achieving our export potential would have the added benefit of creating thousands, tens of thousands, of new jobs,” the Michigan Republican said at a June 2013 hearing on exports.

In recent years, with coal prices rising and China’s appetite seeming unquenchable, the industry was proposing a slew of projects to build or expand terminals at ports in the Pacific Northwest to export coal from states like Wyoming and Montana, where coal is abundant and cheap to produce. But now it appears that Chinese coal consumption will peak within the next decade, if it hasn’t already. Opportunities for the U.S. to capitalize on that market could be limited even if coal prices rebound and the West Coast export terminals go through.

Some of coal’s critics say the Asian hopes were always overblown. “I don’t think there ever was a serious prospect of increased coal exports offsetting the coal use in the United States,” said David Hawkins, director of climate programs at the Natural Resources Defense Council, adding that the coming decline in U.S. coal use will be “several times larger than the growth of coal exports.”

National Mining Association senior vice president Nancy Gravatt said the industry is still optimistic about exports, though she acknowledges that the lack of terminals on the West Coast is an obstacle. The “assumption is that once economies pick up, the major consumers will need coal again and the U.S. will be ready,” she said.

“Given the proper conditions, there is still good prospects for the U.S. to export coal,” said Jim Thompson, director for coal markets at the consulting firm IHS. “Are they going to reach the kind of exports that people thought they might at one point? We’ll see, but I think that is tough.”

For the moment, transportation costs are one of the biggest obstacles to exporting more coal.

Many of the hopes for future U.S. coal exports lie in the West: Wyoming produces about as much “steam” coal — the type suited for use in power plants — as the next seven states combined, and now exports only around 1 to 3 percent of it. But the cost of moving coal from mine to port can make or break its chances of shipping to the international market. Distance makes it uneconomical to use East Coast or Gulf of Mexico ports for coal from states like Wyoming and Montana.

Coal from Illinois and Indiana could economically be exported through the East Coast or the Gulf, but it’s having increasing trouble finding room on rail lines crowded with oil trains.

In recent years, about 90 percent of U.S. coal exports went through the East Coast or the Gulf. Half of U.S. exports go to Europe, though demand there is expected to decline in coming years.

Hence the need for more coal exports on the West Coast. But the Pacific Northwest has no coal export terminals, and environmental and political opposition has stymied four proposed terminals in Oregon and Washington state. Prospects don’t appear bright for the handful of projects in the region that remain on the table.

Some coal moves out of the U.S. through ports in California and Western Canada, but experts say the Canadian ports have little room for expansion. And environmental opposition in California has made the prospect of building new coal terminals there unthinkable, Thompson said. “I’m probably more likely to beat out George Clooney for sexiest man in the world,” he said.

As the projects lag, the blue-chip investment firms that used to provide financial backing for the proposed West Coast terminals have largely given way to smaller firms with a “penchant for high-risk” investments, said Clark Williams-Derry, a research and communications director for the Sightline Institute, which opposes boosting coal exports. “It’s really a shift from investment to speculation,” he said.

As for the ports themselves, they’re predicated on “a demand we don’t see materializing,” given low prices and competition from better-positioned mines in Australia, Indonesia and South Africa, said Tom Sanzillo, the director of finance for the Institute for Energy Economics and Financial Analysis. Even the existing U.S. coal export terminals have been operating far below capacity, he wrote in a November report.

One reason is simple economics: For exporting to be cost-effective, the U.S. needs a higher price than the international market is offering, Sanzillo said. International coal prices have been on a roller-coaster ride in recent years, jumping from $70.25 a ton in 2007 to $148.86 four years later before dropping dramatically again.

The proposed West Coast projects could move a lot of coal: Their capacity would be roughly equal to the entire U.S. export tonnage in the 2012 boom year.

“You don’t really have an investment rationale for the ports at the current size,” Sanzillo said. “You may have one at a smaller size, but I don’t see that being viable for other reasons.”

The industry’s big hope for the future has been an expectation that Asian countries’ demand will grow so much that they’ll “require all coals on deck,” said Andy Roberts, a coal markets analyst at the research and consulting firm Wood Mackenzie, who said the acceleration would probably come in the next decade.

“In the long term, we’re still pretty bullish on demand from Asia and that driving then a need for U.S. coal in Asian markets,” Roberts said.

But China’s new climate pledges put that timeline in doubt.

China’s State Council announced plans on Nov. 19 to cap the country’s coal consumption in 2020, by which it plans to get 15 percent of its energy from non-fossil fuels. That news came a week after President Xi Jinping pledged to Obama that China will try to make its carbon emissions level off by around 2030. Taken together, the steps would have a significant impact on world coal markets — especially if other major Asian coal consumers follow suit.

“In terms of sending a signal about seriousness and in terms of reversing direction about the use of coal and emissions from coal, it’s a very powerful signal,” the NRDC’s Hawkins said of the pledge.

China is by far the world leader in coal imports, bringing in 331 million tons in 2012 — “the highest figure ever for any country,” the International Energy Agency reported last year, while noting that China made up more than half of the world’s coal consumption.
But China’s thirst for coal imports has already begun to wane. They dropped this year for the first time since 2000, according to a September analysis by Greenpeace.
Greenpeace’s Kelly Mitchell said China’s need for coal went up as the country produced a lot of steel, cement and glass, but since then economic growth and coal use have decoupled: In 2013, China’s coal use remained relatively flat, while GDP grew at 7.5 percent.

Other major coal importers in the region include India, Japan and South Korea, but it’s increasingly unlikely they could make up for a declining Chinese market growth. In fact, some of them are already taking steps to curb their coal consumption.

Take South Korea, the intended destination for some proposed West Coast exports. On July 1, the country imposed an import tax designed to discourage coal use, although industry analysts say the tax really only affects coal from the southern part of the Powder River Basin. India is still building more coal plants to turn the lights on for more than a billion people — but with climate talks taking place this week in Lima, the Indian government appeared to be inching the door open to future limits on carbon.

Meanwhile, Thompson said, the strength of the U.S. dollar is another hindrance to competing with countries that pay their workers in weaker local currencies. “If you take the current economic climate, particularly in Asia, with the slowing growth, it certainly becomes more difficult for U.S. exports,” he said.

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