Congressional Republicans who vow to defeat President Barack Obama’s “War on Coal” can do little to defend the industry against a growing international threat — the drying up of its once-promising markets overseas.
The industry’s supporters in Congress notched a minor victory in this week’s $1.1 trillion spending deal, which bars the Export-Import Bank from cutting off financing for coal-burning plants overseas. But coal’s prospects will only darken further if the climate talks underway in Lima, Peru, pave the way for a global agreement next year to throttle carbon emissions, a step that scientists say can come only by limiting the world’s appetite for coal.
It’s sobering news for an industry already beset by EPA climate and pollution regulations that Republicans denounce as Obama’s “War on Coal” — their rallying cry on the way to big victories in the midterm elections. And it’s a far stretch from the export-driven boom that coal supporters like House Energy and Commerce Chairman Fred Upton were expecting as recently as a year ago.
In recent years, with coal prices rising and China’s appetite seeming unquenchable, the industry was proposing a slew of projects to build or expand terminals at ports in the Pacific Northwest to export coal from states like Wyoming and Montana, where coal is abundant and cheap to produce. But now it appears that Chinese coal consumption will peak within the next decade, if it hasn’t already. Opportunities for the U.S. to capitalize on that market could be limited even if coal prices rebound and the West Coast export terminals go through.
Some of coal’s critics say the Asian hopes were always overblown. “I don’t think there ever was a serious prospect of increased coal exports offsetting the coal use in the United States,” said David Hawkins, director of climate programs at the Natural Resources Defense Council, adding that the coming decline in U.S. coal use will be “several times larger than the growth of coal exports.”
National Mining Association senior vice president Nancy Gravatt said the industry is still optimistic about exports, though she acknowledges that the lack of terminals on the West Coast is an obstacle. The “assumption is that once economies pick up, the major consumers will need coal again and the U.S. will be ready,” she said.
“Given the proper conditions, there is still good prospects for the U.S. to export coal,” said Jim Thompson, director for coal markets at the consulting firm IHS. “Are they going to reach the kind of exports that people thought they might at one point? We’ll see, but I think that is tough.”
For the moment, transportation costs are one of the biggest obstacles to exporting more coal.
Many of the hopes for future U.S. coal exports lie in the West: Wyoming produces about as much “steam” coal — the type suited for use in power plants — as the next seven states combined, and now exports only around 1 to 3 percent of it. But the cost of moving coal from mine to port can make or break its chances of shipping to the international market. Distance makes it uneconomical to use East Coast or Gulf of Mexico ports for coal from states like Wyoming and Montana.
Coal from Illinois and Indiana could economically be exported through the East Coast or the Gulf, but it’s having increasing trouble finding room on rail lines crowded with oil trains.
In recent years, about 90 percent of U.S. coal exports went through the East Coast or the Gulf. Half of U.S. exports go to Europe, though demand there is expected to decline in coming years.
Hence the need for more coal exports on the West Coast. But the Pacific Northwest has no coal export terminals, and environmental and political opposition has stymied four proposed terminals in Oregon and Washington state. Prospects don’t appear bright for the handful of projects in the region that remain on the table.
Some coal moves out of the U.S. through ports in California and Western Canada, but experts say the Canadian ports have little room for expansion. And environmental opposition in California has made the prospect of building new coal terminals there unthinkable, Thompson said. “I’m probably more likely to beat out George Clooney for sexiest man in the world,” he said.
As the projects lag, the blue-chip investment firms that used to provide financial backing for the proposed West Coast terminals have largely given way to smaller firms with a “penchant for high-risk” investments, said Clark Williams-Derry, a research and communications director for the Sightline Institute, which opposes boosting coal exports. “It’s really a shift from investment to speculation,” he said.
One reason is simple economics: For exporting to be cost-effective, the U.S. needs a higher price than the international market is offering, Sanzillo said. International coal prices have been on a roller-coaster ride in recent years, jumping from $70.25 a ton in 2007 to $148.86 four years later before dropping dramatically again.
The proposed West Coast projects could move a lot of coal: Their capacity would be roughly equal to the entire U.S. export tonnage in the 2012 boom year.
“You don’t really have an investment rationale for the ports at the current size,” Sanzillo said. “You may have one at a smaller size, but I don’t see that being viable for other reasons.”
The industry’s big hope for the future has been an expectation that Asian countries’ demand will grow so much that they’ll “require all coals on deck,” said Andy Roberts, a coal markets analyst at the research and consulting firm Wood Mackenzie, who said the acceleration would probably come in the next decade.
“In the long term, we’re still pretty bullish on demand from Asia and that driving then a need for U.S. coal in Asian markets,” Roberts said.
But China’s new climate pledges put that timeline in doubt.
“In terms of sending a signal about seriousness and in terms of reversing direction about the use of coal and emissions from coal, it’s a very powerful signal,” the NRDC’s Hawkins said of the pledge.
Greenpeace’s Kelly Mitchell said China’s need for coal went up as the country produced a lot of steel, cement and glass, but since then economic growth and coal use have decoupled: In 2013, China’s coal use remained relatively flat, while GDP grew at 7.5 percent.
Other major coal importers in the region include India, Japan and South Korea, but it’s increasingly unlikely they could make up for a declining Chinese market growth. In fact, some of them are already taking steps to curb their coal consumption.
Take South Korea, the intended destination for some proposed West Coast exports. On July 1, the country imposed an import tax designed to discourage coal use, although industry analysts say the tax really only affects coal from the southern part of the Powder River Basin. India is still building more coal plants to turn the lights on for more than a billion people — but with climate talks taking place this week in Lima, the Indian government appeared to be inching the door open to future limits on carbon.
Meanwhile, Thompson said, the strength of the U.S. dollar is another hindrance to competing with countries that pay their workers in weaker local currencies. “If you take the current economic climate, particularly in Asia, with the slowing growth, it certainly becomes more difficult for U.S. exports,” he said.
The industry’s supporters in Congress notched a minor victory in this week’s $1.1 trillion spending deal, which bars the Export-Import Bank from cutting off financing for coal-burning plants overseas. But coal’s prospects will only darken further if the climate talks underway in Lima, Peru, pave the way for a global agreement next year to throttle carbon emissions, a step that scientists say can come only by limiting the world’s appetite for coal.
It’s sobering news for an industry already beset by EPA climate and pollution regulations that Republicans denounce as Obama’s “War on Coal” — their rallying cry on the way to big victories in the midterm elections. And it’s a far stretch from the export-driven boom that coal supporters like House Energy and Commerce Chairman Fred Upton were expecting as recently as a year ago.
In recent years, with coal prices rising and China’s appetite seeming unquenchable, the industry was proposing a slew of projects to build or expand terminals at ports in the Pacific Northwest to export coal from states like Wyoming and Montana, where coal is abundant and cheap to produce. But now it appears that Chinese coal consumption will peak within the next decade, if it hasn’t already. Opportunities for the U.S. to capitalize on that market could be limited even if coal prices rebound and the West Coast export terminals go through.
Some of coal’s critics say the Asian hopes were always overblown. “I don’t think there ever was a serious prospect of increased coal exports offsetting the coal use in the United States,” said David Hawkins, director of climate programs at the Natural Resources Defense Council, adding that the coming decline in U.S. coal use will be “several times larger than the growth of coal exports.”
National Mining Association senior vice president Nancy Gravatt said the industry is still optimistic about exports, though she acknowledges that the lack of terminals on the West Coast is an obstacle. The “assumption is that once economies pick up, the major consumers will need coal again and the U.S. will be ready,” she said.
“Given the proper conditions, there is still good prospects for the U.S. to export coal,” said Jim Thompson, director for coal markets at the consulting firm IHS. “Are they going to reach the kind of exports that people thought they might at one point? We’ll see, but I think that is tough.”
For the moment, transportation costs are one of the biggest obstacles to exporting more coal.
Many of the hopes for future U.S. coal exports lie in the West: Wyoming produces about as much “steam” coal — the type suited for use in power plants — as the next seven states combined, and now exports only around 1 to 3 percent of it. But the cost of moving coal from mine to port can make or break its chances of shipping to the international market. Distance makes it uneconomical to use East Coast or Gulf of Mexico ports for coal from states like Wyoming and Montana.
Coal from Illinois and Indiana could economically be exported through the East Coast or the Gulf, but it’s having increasing trouble finding room on rail lines crowded with oil trains.
In recent years, about 90 percent of U.S. coal exports went through the East Coast or the Gulf. Half of U.S. exports go to Europe, though demand there is expected to decline in coming years.
Hence the need for more coal exports on the West Coast. But the Pacific Northwest has no coal export terminals, and environmental and political opposition has stymied four proposed terminals in Oregon and Washington state. Prospects don’t appear bright for the handful of projects in the region that remain on the table.
Some coal moves out of the U.S. through ports in California and Western Canada, but experts say the Canadian ports have little room for expansion. And environmental opposition in California has made the prospect of building new coal terminals there unthinkable, Thompson said. “I’m probably more likely to beat out George Clooney for sexiest man in the world,” he said.
As the projects lag, the blue-chip investment firms that used to provide financial backing for the proposed West Coast terminals have largely given way to smaller firms with a “penchant for high-risk” investments, said Clark Williams-Derry, a research and communications director for the Sightline Institute, which opposes boosting coal exports. “It’s really a shift from investment to speculation,” he said.
One reason is simple economics: For exporting to be cost-effective, the U.S. needs a higher price than the international market is offering, Sanzillo said. International coal prices have been on a roller-coaster ride in recent years, jumping from $70.25 a ton in 2007 to $148.86 four years later before dropping dramatically again.
The proposed West Coast projects could move a lot of coal: Their capacity would be roughly equal to the entire U.S. export tonnage in the 2012 boom year.
“You don’t really have an investment rationale for the ports at the current size,” Sanzillo said. “You may have one at a smaller size, but I don’t see that being viable for other reasons.”
The industry’s big hope for the future has been an expectation that Asian countries’ demand will grow so much that they’ll “require all coals on deck,” said Andy Roberts, a coal markets analyst at the research and consulting firm Wood Mackenzie, who said the acceleration would probably come in the next decade.
“In the long term, we’re still pretty bullish on demand from Asia and that driving then a need for U.S. coal in Asian markets,” Roberts said.
But China’s new climate pledges put that timeline in doubt.
“In terms of sending a signal about seriousness and in terms of reversing direction about the use of coal and emissions from coal, it’s a very powerful signal,” the NRDC’s Hawkins said of the pledge.
Greenpeace’s Kelly Mitchell said China’s need for coal went up as the country produced a lot of steel, cement and glass, but since then economic growth and coal use have decoupled: In 2013, China’s coal use remained relatively flat, while GDP grew at 7.5 percent.
Other major coal importers in the region include India, Japan and South Korea, but it’s increasingly unlikely they could make up for a declining Chinese market growth. In fact, some of them are already taking steps to curb their coal consumption.
Take South Korea, the intended destination for some proposed West Coast exports. On July 1, the country imposed an import tax designed to discourage coal use, although industry analysts say the tax really only affects coal from the southern part of the Powder River Basin. India is still building more coal plants to turn the lights on for more than a billion people — but with climate talks taking place this week in Lima, the Indian government appeared to be inching the door open to future limits on carbon.
Meanwhile, Thompson said, the strength of the U.S. dollar is another hindrance to competing with countries that pay their workers in weaker local currencies. “If you take the current economic climate, particularly in Asia, with the slowing growth, it certainly becomes more difficult for U.S. exports,” he said.
