DECKER — Officials from the nation's third largest coal producer say Montana coal exports to Asia are expected to top 3 million tons this year, nearly double last year's level.
And millions of additional tons could cross the Pacific within a few years if developers succeed in expanding port facilities along the West Coast.
Colin Marshall, chief executive officer of Cloud Peak Energy, is confident that scarce port capacity, one of the biggest constraints to shipping Montana coal overseas, will soon be addressed.
Expansion is “absolutely more than a pipe dream,” Marshall said during a recent investment seminar hosted by Raymond James. “The demand for an export market is absolutely there. It's difficult getting large projects together, but it should happen.”
Cloud Peak expects to ship about 3 million tons of coal to Asian customers this year from its Spring Creek mine near Decker. That's nearly double the 1.6 million tons exported last year.
Assuming the port capacity bottleneck is addressed, Cloud Peak could economically boost its production and increase exports because of growing demand for coal in Asia, Marshall said.
During a recent tour of the Spring Creek mine, Cloud Peak officials said the company's domestic market is rebounding from 2009, when coal production dipped by 3 percent from 2008 levels. Cloud Peak's three mines — one in Montana and two in Wyoming — are on track to produce 94 million tons of coal this year, compared to 90.9 million tons in 2009.
Most of Cloud Peak's employees live in Sheridan, Wyo., but company officials like to point out that they bring a lot of business to Billings. In 2008, Cloud Peak spent $57 million in Billings, much of that in the purchase of haul trucks. Last year, Cloud Peak spent $9 million in Billings.
Transportation costs typically account for a large portion of the final price that utilities pay for coal. Because it's closer to Asian markets than other coal mines in the Powder River Basin, Spring Creek enjoys a competitive advantage for sending coal to Asia, company officials said.
In one proposal that aims to boost coal export capacity, Ambre Energy of Australia has plans to expand coal-loading facilities on the Columbia River. Other proposals call for expanding coal-handling facilities at the Port of Longview and in Woodland, Wash.
Environmental groups are fighting plans to increase coal exports, saying that increased coal usage contributes to global warming.
Todd O'Hair, Cloud Peak's director of government affairs, said the company believes there's more to be learned about climate science.
“Our position is that the debate should be continued because the science isn't completely settled,” he said.
To date, Cloud Peak's exports have gone through the Westshore facility near Vancouver, B.C. But that port has also reached capacity, company officials said.
Bruce Jones, manager of Cloud Peak's Spring Creek mine, said growing demand for coal in Asian markets is driving the market.
“If they can open up a port on the West Coast, we could see a fair amount of growth” in exports, Jones said.
In response to a question posed at the investment seminar, Marshall said that utilities in South Korea are looking more favorably at buying coal from the United States.
“They would like to be assured of coal supply in the long term, because they are building power stations that are going to run for a long time,” Marshall said.
PIRA Energy Group, an international energy consulting firm, expects American coal exports to top 80 million tons this year, up 30 percent from 2009.
Also, coal from the Powder River Basin is grabbing a larger share of the domestic market as production wanes in other regions. The Energy Information Administration reports that Appalachian coal production is down by 2.4 percent this year, while rail shipments from the Powder River Basin have increased by 3 percent.
South Korea's advanced power plants are capable of burning different varieties of coal. Cloud Peak's coal is low in sulfur but high in sodium. High-sodium coal can create slag buildup in some power plants. But the slagging problem can be minimized by blending Cloud Peak's coal with lower sodium coal or by burning the coal in plants that are properly designed, Jones said.
Cloud Peak, headquartered in Gillette, Wyo., is a publicly-traded energy company that international mining company Rio Tinto spun off in an initial public offering in November 2009. It's the only Wyoming-headquartered company whose stock is traded on the New York Stock Exchange.
Cloud Peak operates three Powder River Basin mines — Spring Creek in Montana and Cordero Rojo and Antelope near Gillette. Only Peabody Energy Corp. and Arch Coal Inc. produce more coal in the United States.
A visit to the Spring Creek mine, which produced 17.6 million tons last year, illustrates the tremendous productivity of western surface mines. Jones said mines in Appalachia tunnel miles into the earth to mine coal in seams that are around 6 feet thick. By contrast, the coal seam at the Spring Creek mine is 80 feet thick.
After a giant dragline removes 200 feet of overburden to expose the coal seam, electric shovels load the coal onto haul trucks, which transport it to conveyor belts, a coal storage barn and then on to trains. Officials in Gillette can track each mine vehicle using a GPS system.
Marshall told investors that Cloud Peak has a lot going in its favor: a safe, productive work force, plenty of coal reserves and a good track record for reclamation.
“This is an exciting time for us,” Jones said.