Demand cools amid fight over coal terminals

With projects proposed in Northwest, export prices have plunged

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There are three active proposals for Northwest coal-export terminals: the plan by Millennium Bulk Terminals-Longview — owned by Ambre Energy and Arch Coal Inc. — which would export up to 44 million metric tons of coal annually to Asia; Pacific International Terminals, a subsidiary of SSA Marine Inc., wants to handle 54 million import/export tons of bulk commodities annually, largely coal exports, near Bellingham; and the “Morrow Pacific” plan, proposed by Ambre Energy. Up to 8 million tons of coal would be hauled annually on covered barges from the Port of Morrow near Boardman, Ore., 190 miles down the Columbia River to the Port of St. Helens, Ore., where it would be loaded onto vessels to Asia.

Back in 2011, when SSA Marine laid out plans for a major coal-export terminal in Northwest Washington, international markets were on a tear as the demand for coal pushed prices to record levels.

But this summer, export prices have plunged by more than 40 percent, prompting some coal-export projects in Australia to be scaled back or scuttled.

That's raising new questions about the prospect for large-scale exports from the proposed SSA Marine terminal at Cherry Point in Whatcom County and a second terminal proposed for Longview in Southwest Washington.

Environmentalists, trying to block efforts to turn the region into a center for coal exports, are mounting a major campaign against the projects.

The big drop in export prices reflects an oversupply of coal and diminished demand as China has reduced imports amid an economic slowdown. Some financial analysts suggest coal-export markets face a prolonged downturn that reflects fundamental changes in the markets.

Goldman Sachs, in a research report released earlier this summer, declared that "the window for profitable investment in coal mining (for export) is closing."

The Longview and Cherry Point terminals combined would have the capacity to export more than 90 million tons of coal a year. Both terminal projects have to navigate lengthy federal, state and local permit processes before any construction can begin. And developers are hopeful that markets will have improved by then.

"The market for any bulk product will fluctuate, but our perspective is that we will be making a long-term investment in Longview. We believe strongly that demand for electricity in the developing world will continue to grow, and so will the demand for coal from the United States," said Ken Miller, president of Millennium Bulk Terminals.

International prices, as measured by an Australian benchmark that's considered a key industry indicator, have dipped below $80 a ton this summer. That's far below peak prices of more than $140 a ton reached in 2011. At that time, developers were piecing together proposals to export coal from the Powder River basin that runs through Montana and Wyoming.

Much of the run-up in prices occurred as China, which has rapidly built coal plants to help power a dramatic economic expansion, bought international coal to supplement its vast reserves. But some analysts suggest that China, in the years ahead, is unlikely to push up prices with a big surge in buying on international markets.

"A recent report by Bernstein Research, which provides analysis for investors, predicts China would stop importing coal in 2015 and begin decommissioning coal plants and replacing them with nuclear and renewable-energy plants during the second half of this decade.

The Goldman Sachs report called 2013 a "watershed year for global coal markets," and predicted that export coal markets will continue to be characterized by ample supply and lackluster demand in the short to medium term -- and that prices will eventually be capped at $85 a ton "for the foreseeable future."

Wood Mackenzie, another energy consulting firm that tracks the coal industry, has a substantially more upbeat outlook. Its researchers predict that Asian demand for coal, as it increases over time, will shore up the export market.

By 2035, Wood Mackenzie forecasts that more than 420 million tons of Powder River coal could be exported annually.

Yet even Wood Mackenzie doesn't predict that exports prices based on the Australian benchmark will bounce back anytime soon.

Their analysts predict the benchmark won't fetch more than $100 a ton in real prices until 2023 or 2024.

The U.S. coal industry also faces uncertainties on the home front, with President Obama calling for new regulations to control carbon-dioxide emissions, which contribute to global warming, from existing coal plants.

In the Pacific Northwest, the proposals are generating one of the more heated environmental battles of recent years, with opponents arguing the region shouldn't be in the business of exporting a resource that is a major contributor to global warming.

Last week, researchers from three organizations -- Sightline Institute, Climate Solutions and Greenpeace -- highlighted the downturn in coal markets during a news conference.

"There is no question that the U.S. coal companies need Asian markets for Powder River coal. The key question is, do Asian markets need Powder River coal?" said Ross MacFarlane, a senior adviser at Climate Solutions.