Coal industry seeks exports to Asia while U.S. market falters

2011-01-21T00:00:00Z Coal industry seeks exports to Asia while U.S. market falters

By DUSTIN BLEIZEFFER

WyoFile.com

The Billings Gazette
January 21, 2011 12:00 am  • 

CASPER, Wyo. — America's No. 2 coal-producer, Arch Coal Inc., announced last week that it paid $25 million to acquire 38 percent interest in Millennium Bulk Terminals-Longview, LLC, one of dozens of companies scrambling to boost coal export capacity from the West Coast to customers in Asia.

“With our superior operating position in the Powder River Basin and Western Bituminous Region, we have the capability to service growing coal demand in Asia, the world's largest and fastest-growing coal market,” Arch Coal Chairman and CEO Steven F. Leer said in a prepared statement.

Arch has several other projects in the works to increase the company's stake in the “seaborne thermal market,” Leer said. It's all part of a rush among U.S. coal producers to get a toehold in the Asian market.

With the Millennium Bulk deal, Arch joins Peabody Energy Corp. — both major producers of Powder River Basin coal in Wyoming — in banking on the Asian coal market for growth. Wyoming coal producers Peabody Energy, Arch Coal, Cloud Peak Energy and railroads Union Pacific and BNSF Railway have all expressed interest in boosting coal exports from the West Coast.

The potential new market presumably translates to job security for more than 6,000 Wyoming coal miners who dig and ship more than 420 million tons annually from the Powder River Basin. But this optimism about sending more U.S. coal overseas is in proportion to growing pessimism about coal's future in the United States.

Coal is losing its share of the U.S. utility market to natural gas, and industry leaders and their biggest political supporters say mining is under attack.

“This (Obama) administration is flat-out against coal, and they're not going to let another permit go through. In 10 years, the coal industry will be done,” U.S. Sen. Mike Enzi, R-Wyo., told WyoFile.

Energy policy void

In 2010, U.S. utilities continued to shift away from coal to natural gas for baseload electric generation, based on increasing gas supplies within the U.S. and a need to meet more stringent emission standards.

The percentage of coal-fueled electric generation in the U.S. has slipped from 48.2 percent in 2008 to 44.6 percent in 2009, according to the U.S. Energy Information Administration. Coal industry leaders note that the decrease in the actual volume of coal consumed in the U.S. is less severe and U.S. coal consumption is forecast to remain flat or slightly increase in the near-term.

Yet there's little progress in the build-out of the coal gasification and carbon sequestration technologies that are seen as essential to preserving Wyoming's coal industry in a future energy regime that forces nations to curb greenhouse gas emissions and become more energy independent.

While it focuses on serving the Asian market, the coal industry remains against a cap-and-trade policy or any other market-driven carbon emission reduction policy in the U.S.

“It's evidence there's lack of confidence that the coal market for power generation in the U.S. will be vibrant for the future,” said Mark Northam, director of the University of Wyoming's School of Energy Resources.

Northam said he believes the U.S. has plenty of coal on hand to increase exports — which will help correct a trade imbalance — while still serving the nation's electric utility needs. But the volume of additional coal going overseas isn't much.

Total U.S. coal exports in 2009 were only 26.2 million tons, according to the U.S. Energy Information Administration. By October 2010, U.S. coal exports were 39.7 million tons. At best, U.S. coal exports might increase in increments of 10-20 million tons per year in the near-term, according to industry analysis, compared to current total domestic demand at slightly more than 1 billion tons annually.

Utilities, financiers and even coal industry leaders say carbon capture and sequestration technologies are the only way to secure a future market for coal in the U.S.

“We want to see the research going forward with the technology and start getting some of these projects to capture and sequester CO2 going forward,” said Marion Loomis, executive director of the Wyoming Mining Association. “Hopefully, in the near term as we start to capture carbon we can start to sell it for enhanced oil recovery. Then you have to start looking at sequestration.”

Loomis said the coal industry doesn't want to see any carbon emission reduction mandates until the technologies are in place to achieve them.

Northam insists that pouring money into efforts to commercialize advanced coal technologies isn't likely to convince utilities and financiers to invest in them. A U.S. energy policy that clearly defines emissions goals and how to pay for them is needed first, he said. Until then, more U.S. coal will go overseas and U.S. utilities will continue to shift to other energy sources.

No expectations

Northam said the federal government needs to establish a timetable for greenhouse gas emission reductions and figure out who pays for it. And the federal government, not industry or the states, should accept the long-term environmental and human health hazard liability for underground carbon storage, Northam said.

He said federal officials have resisted accepting liability, and they haven't crafted rules guiding carbon capture and sequestration.

“The federal government is investing hundreds of millions of dollars in these technologies that have no clear end-point application,” said Northam.

But there's little expectation that the new GOP-led U.S. House of Representatives will offer an energy bill in the next two years.

Wyoming's three congressional delegates are among those who equate any additional regulatory expense as a “tax.” Like many European nations, Congress could impose a straight tax on carbon and spend those revenues on energy efficiency, renewable energy and cleaner coal plants. Some European-style energy “tariffs” have already emerged in California's energy policy.

What the U.S. is left with now, however, is the Environmental Protection Agency's still-developing plan to phase in greenhouse gas emission reductions under the Clean Air Act, forcing utilities to spend money on upgrades that reduce emissions, and passing those costs on to ratepayers.

While GOP leaders insist that those regulations amount to a tax, utilities note that it simply results in higher utility rates for customers. While some of that money goes to renewable energy components — solar panels and some wind turbine components, for example — built in foreign nations, all of it necessarily goes toward updating America's energy infrastructure, requiring the creation of American jobs.

Whether those jobs outnumber jobs lost in fossil fuels is a point of contention.

Enzi, U.S. Sen. John Barrasso, R-Wyo., and U.S. Rep. Cynthia Lummis, R-Wyo., oppose the current EPA plan to regulate greenhouse gas emissions. GOP leaders have vowed to block implementation. But even if they're successful, utilities say it would only add to the uncertainty.

“We're at a point in this country where some tough decisions are going to have to be made fairly soon,” said Jeff Hymas, spokesman for Rocky Mountain Power, a regulated utility in six western states, including Wyoming.

For several years, Rocky Mountain Power has said the lack of a U.S. energy policy and clear emissions reduction goals has forced the utility to take coal off the table when it comes to planning to meet future electrical demand. Many other utilities have done the same while expediting plans to shutter older and smaller coal units that don't justify expensive emissions control upgrades.

“It's such an obvious gap; that lack of a U.S. energy policy. And everybody agrees. But when it comes time to say what that set of policies should be, everyone goes on the attack,” said David Wendt, president of the Jackson Hole Center for Global Affairs.

Wendt was the Democratic challenger in the 2010 U.S. House race against incumbent Republican Cynthia Lummis. He touted a cap-and-trade system as a means to preserve Wyoming's coal market.

Yet many in the coal industry insist that no energy policy is better than the cap-and-trade program offered under the Waxman-Markey bill, which passed the House in 2009 but failed in the Senate.

“We don't want to see cap-and-trade or a tax until we get some technologies out there that work. That's where we think the effort should be made, is to develop those technologies,” said Loomis.

Some of coal's biggest opponents say this stance only serves to waste billions of federal dollars spent on carbon capture and sequestration programs.

“We'd prefer capital is put in proven and clean technologies that are available today opposed to putting money into a project that has not been successful,” said David Graham-Caso, associate secretary of the Sierra Club.

The Sierra Club estimates some 148 planned coal units have been canceled in the U.S. in recent years.

Utilities move on

Many in the industry point to electric utilities and say they — along with the federal government — should be the biggest investors in commercializing cleaner coal technologies.

“The producers really aren't the ones to talk to. It's your utilities, to see what they think they can pass on to the ratepayer. That's where it's going to happen,” said Steve Rennell, president of Alpha Coal West, which operates the Belle Ayr and Eagle Butte coal mines in Campbell County.

That's difficult for regulated utilities, which are required to justify all new costs, Hymas said. State utility commissions require that investments by regulated utilities are “used and useful” for customers before those costs can be included in electricity prices.

And few unregulated merchant power producers have the financial wherewithal to blaze a trail to an advanced coal power future.

Rather than advancing coal technologies, Rocky Mountain Power and its parent companies, MidAmerican Energy Co. and MidAmerican Energy Holdings Co., are meeting cleaner energy goals by installing wind energy while they explore biomass and nuclear power and invest in battery storage technology.

“Looking at the big picture, these types of investments, together with additional public and private investments in carbon capture and sequestration technologies, are what is needed in order to make major advances in reducing carbon emissions,” said Hymas.

Rennell said coal companies are simply fighting to make sure that an energy and climate bill doesn't exclude coal. He agreed that until such a policy is in place, U.S. utilities aren't likely to build new coal facilities.

Wyoming Gov. Matt Mead, a Republican, has echoed the coal industry's preferred energy strategy of bolstering cleaner technologies, but only outside the framework of targeted greenhouse gas emission reductions.

In his State of the State address last week, Mead said Wyoming is on the “cutting edge” of these technologies, citing the University of Wyoming and G.E. Energy collaboration on a coal-gasification research center in Cheyenne, and DKRW Advanced Fuels' coal-to-gasoline plant under construction in Carbon County.

Additionally, the U.S. Department of Energy has helped fund two separate pilot projects in Wyoming to determine the potential commercialization of carbon sequestration.

Mead prefaced his remarks by saying, “I am skeptical about man-made global warming without more and better science, but I am not skeptical about growing demand by our energy customers for cleaner coal and gas, and I am not skeptical about our oil industry's need for carbon injection technology for enhanced oil recovery.”

Barrasso and Lummis did not respond to requests for comment.

WyoFile is a nonprofit, Wyoming-based news service.

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