Falling coal prices may hurt N.W. terminal plans



PENDLETON, Ore. — Declining coal prices in once profitable Asian markets could spell financial trouble for three proposed Northwest export terminals, including Ambre Energy’s Morrow Pacific project, according to critics.

Portland General Electric, meanwhile, is preparing to phase coal out of its 600-megawatt Boardman power plant by 2020 rather than implement new emission controls that would cost the state’s largest utility hundreds of millions of dollars.

And yet, while the precise future of coal remains tangled in economic and environmental challenges, it still accounts for the majority of U.S. electric generation. The U.S. Energy Information Administration reports total consumption actually fell 112 million tons in 2012, but is expected to grow 5.1 percent this year based on higher demand and natural gas prices.

Utilities are faced, however, with the higher cost of treating coal under more strict air-quality standards, said Brad Jenkins, PGE general manager of diversified plants. In Oregon, the Environmental Quality Commission adopted a regional haze plan in 2009 that included stringent requirements in Boardman.

Rather than pay $500 million to $600 million to bring the plant up to standard, PGE agreed with environmental groups and regulators to install less expensive emissions controls while phasing out the use of coal by no later than 2020.

“Most utilities with coal in their fleet have to go through this same exercise,” Jenkins said. “Those things come at a huge cost.”

The Boardman Coal Plant, commissioned in 1980, is Oregon’s only remaining coal-fired facility. It runs almost nonstop, burning 300 tons of coal mined from the Powder River Basin in Montana and Wyoming per hour.

Coal is offloaded from trains on site, carried into the facility where it is pulverized into a talcum powderlike consistency and fed into the furnace. Water from Carty Reservoir is pumped inside at 90,000 gallons per minute, producing steam that drives a series of turbines.

PGE hopes to convert the Boardman plant from coal to torrefied biomass using locally sourced wood chips. It will test the process — similar to pyrolysis of biochar, burning material at high temperatures in the absence of oxygen — beginning next year.

“This would be a dispatchable renewable standard, which is what we’re aiming for,” Jenkins said. “It would be a great asset to our fleet.”

In addition, PGE plans to build a new 440-megawatt natural gas-fired plant next to the Boardman plant. That facility is scheduled to break ground next year, and come online by 2016.

As affordable clean coal is addressed in the U.S., companies are now looking to capitalize on shipping the fuel overseas through Oregon and Washington state. Just two years ago, coal prices in the Pacific Rim peaked at $142 per ton, said researcher Clark Williams-Derry with the nonprofit Sightline Institute that focuses on environmental policy.

In 2013, the price fell to $83 per ton. That has projects like Morrow Pacific — which would barge 8.8 million tons of Powder River Basin coal per year down the Columbia River from the Port of Morrow — at risk of losing money even if construction is permitted, Williams-Derry said during an Aug. 29 teleconference.

Three terminal projects have already folded after prices fell: one at Grays Harbor in Washington, another at Coos Bay, Ore. and a third near Clatskanie, Ore. But Morrow Pacific, Gateway Pacific and Millenium Bulk terminals are pushing forward, despite the market adjustments.

“Those projects are nowhere near as lucrative as they were when the coal prices were high,” Williams-Derry said. “All three of these projects are suffering their own financial vulnerabilities, especially given today’s conditions.”

‘Huge risk’

Ambre Energy, the Australian-based developer of Morrow Pacific, claims it is on track to potentially break ground next year and has every expectation of a solid return on investment. The project is estimated to cost $242 million.

Kelly Mitchell, coal campaigner with Greenpeace, said it all comes down to China, which has driven nearly 100 percent of global coal demand over the past decade. The Chinese government is “throwing down the gauntlet,” she said, on air pollution with coal reduction targets in major cities like Beijing and coastal provinces like Shandong.

“It’s a huge risk for exporters looking just now to enter this market, because I think we could be seeing some long-term reductions for years to come,” Mitchell said.

Ross Macfarlane, senior adviser of business partnerships at the nonprofit Climate Solutions in Seattle, said smaller markets will take their cues from China and, by themselves, do not have enough demand to make exports profitable. The question isn’t whether the change has happened, he said, but whether it is cyclical or permanent.

“The window for thermal coal exports is closing,” Macfarlane said. “I would expect financial rationality will prevail here.”