Powder River Basin coal producers face Korean tax

2014-07-10T11:30:00Z 2014-07-10T13:44:07Z Powder River Basin coal producers face Korean taxBy BENJAMIN STORROW Casper Star-Tribune The Billings Gazette

CASPER, Wyo. — Powder River Basin coal producers face a new tax in South Korea, which has emerged as one of the bigger foreign markets for American coal in recent years.

The tax represents an effort by the Korean government to prevent rolling blackouts by limiting demand for electricity. The country has struggled to meet electricity demand in recent years at times of peak power use following a scandal over the safety of South Korea’s nuclear reactors.

Higher electricity prices are expected to curb power use, South Korean officials told Reuters.

“The government aims to lower power demand and boost demand for other fuels by hiking electricity fares or the taxes on coal for power generation,” an unidentified finance ministry official said in an interview with the news service.

The government also lowered taxes on exports of liquid natural gas from 60 won (6 cents) per kilogram to 42 won (4 cents) per kilogram in an effort to boost LNG consumption.

Gillette-based Cloud Peak Energy is the largest American exporter of thermal coal in South Korea. The country is Cloud Peak’s second-largest market, according to filings with the U.S. Securities and Exchange Commission, though its Korean revenues of $165 million lag far behind its $1.1 billion in domestic sales.

Cloud Peak may benefit from the way the tax is structured. A coal tax of 17 won per kilogram, or roughly $16.80 per metric ton, will be levied against coal with a fuel value below 5,000 kilocalories per kilogram. A tax of 19 won per kg will be brought on coal above 5,000 kilocalories per kilogram.

The split effectively means that coal with a higher fuel content will have an advantage over coal of lower fuel content.

Cloud Peak’s coal exports come from the Spring Creek mine in Decker, Montana. The mine’s 5,200- to 5,800-kilocalorie-per-kilogram British thermal unit coal has among the higher calorific values in the Powder River Basin, according to The Argus, a trade publication.

The company’s Wyoming mines produce coal of 4,500 to 4,900 kilocalories per kilogram.

American exports account for about 5 percent of South Korea’s coal consumption. The country annually imports about 80 million tons, with much of its coal coming from Australia and Indonesia.

South Korea plans to add about 12.5 gigawatts of coal-fired power generation in the coming years. Additional U.S. coal generation is expected to add 3.5 gigawatts, by contrast.

The discrepancy is one of the reasons Cloud Peak executives have been bullish on boosting their Asian exports.

Said Cloud Peak CEO Colin Marshall in the company’s last earnings call: “All our analysis indicates Asian demand will continue to grow strongly. We are continuing to build our supply relationships with utilities in Japan, Taiwan and South Korea, who are building new high-efficiency coal-fired power stations in the face of growing electricity demand, and we want to diversify their energy supplies.”

Copyright 2015 The Billings Gazette. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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