08 Dec 2011: Analysis
As Coal Use Declines in U.S.,
Coal Companies Focus on China
With aging coal-fired U.S. power plants shutting down, major American coal companies are exporting ever-larger amounts of coal to China. Now, plans to build two new coal-shipping terminals on the West Coast have set up a battle with environmentalists who want to steer the world away from fossil fuels.
Twenty-five years ago, the U.S. tobacco industry’s future looked bleak. The health consequences of smoking had seeped into the collective American consciousness, and the industry was fending off a barrage of liability lawsuits. Nevertheless, a few cigarette executives found room for optimism, comforted by the fact that a seemingly infinite overseas market could more than make up for losses at home. “No discussion of the tobacco industry ... would be complete without addressing what may be the most important feature on the landscape, the China market,” said Rene Scull, vice president of Philip Morris Asia, in 1986. “In every respect, China confounds the imagination.”
Coal is the cigarette of our new age, and not just because burning it causes respiratory problems. Demand for one of the dirtiest fossil fuels is expected to stagnate or diminish here in the U.S. So coal companies — particularly those that mine the vast reserves in the Powder River Basin in Wyoming and Montana — are looking for a new place to peddle their wares. They’ve found it in China. “China right now is having blackouts because they don’t have enough coal to fuel their electricity facilities,” Gregory Boyce, CEO of the world’s largest coal company, Peabody Energy, told CNBC this spring. “They continue to import more and more coal and they continue to look for coal resources across the globe. So we don’t see any signs of that slowing down.”
The Powder River Basin has sufficient coal to help light Chinese cities for years to come. The problem is getting it there. Existing ports in the northwestern United States cannot handle exporting such large quantities of coal, prompting the coal industry to propose building two new ports.
The Powder River Basin has sufficient coal to help light China for years — the problem is getting it there.Peabody has partnered with SSA Marine in hopes of building a new terminal near Bellingham, Wash. Arch Coal is working with an Australian company, Millennium Bulk Terminals, on a proposal to turn an old Reynolds Metal site into a coal terminal on the Columbia River at Longview, Wash., just downstream from Portland, Ore. The Longview proposal was put on hold this spring after leaked internal documents showed that the proponents planned on building a bigger terminal than they had applied for, but they say they will re-apply.
Fearful that mining and burning huge quantities of Powder River coal will worsen global warming, environmental groups have targeted the port projects as a vital chokepoint. This summer, green activist and author Bill McKibben visited Bellingham to rally strong local opposition to the Gateway terminal. And the Sierra Club and Earthjustice have buttressed the legal fight against it, helping to convince the state to deem an old permit for development at the terminal site invalid.
The battle over the ports is reminiscent of a far more acrimonious fight over efforts to ship Alberta tar sands oil to Texas refineries via the proposed Keystone XL Pipeline — a project that also is in limbo following President Obama’s decision to delay a ruling on the pipeline until after the 2012 presidential election. Environmentalists believe both struggles are crucial to the effort to steer the world away from fossil fuels and onto renewable sources of energy, particularly given the lack of international action on global warming.
The U.S. has been selling coal overseas since World War II, annually shipping 30 million tons or more to countries as far-flung as Morocco, Egypt, Italy, and Germany. Exports shot up to around 100 million tons in the early ‘80s — thanks to high oil prices — and the early ‘90s, when Europe phased out much of its coal mining. Yet even a few years ago it would have seemed absurd to think that China would want U.S. coal.
China has enormous coal reserves, and its thousands of mines churn out more than 3 billion tons each year — more than the U.S., Russia, Australia, and India combined. But it’s an industry in crisis. In early November, the world got a glimpse into the turmoil when an explosion ripped through a mine in a southwestern province of China, killing 43. More than 500 coal miners have been killed in China this year. Ninety percent of China’s coal reserves are in arid, environmentally sensitive regions. Inadequate rail capacity between coal mining centers and power plants has forced the mines to ship some 500 million tons of coal per year by truck, which is costly, dirty, and has caused traffic jams that take weeks to clear.
Today, China burns about 3.7 billion tons of coal each year, or roughly three times what it consumed in 2000 and three-and-a-half times what the U.S. uses. It continues to build new coal plants at a blistering rate. (In
China burns about 3.7 billion tons of coal each year, more than three times what the U.S. uses.2010, China, already the world’s number one emitter of carbon dioxide, became the world’s largest energy consumer.) Yet when the Chinese government fully deregulated coal prices in 2006, utilities on the heavily populated coast suddenly saw prices for their favored fuel skyrocket, causing them to look overseas for new supplies. In 2009, China went from being a net exporter to a net importer of coal, bringing in about 100 million tons per year, mostly from Indonesia and Australia.
That same year, the electric power sector in the U.S. suddenly cut its coal use by 10 percent. The recession, not environmental concerns, caused demand to diminish, but the slump is an indication of what’s to come even if the economy rebounds. The bulk of the nation’s coal-fired power plants are more than 30 years old. Pollution controls are often outdated, and utilities face the choice of either expensively updating the controls, or retiring the plants altogether, with more and more choosing the latter. The Edison Electric Institute has announced that utilities will take 48,000 megawatts of coal-burning units off-line by 2022, roughly 14 percent of total coal-fired electricity generation. More than 200 power plants will be retired in the next several years, utility executives say.
Meanwhile, lawsuits from the Sierra Club and other groups, along with a dearth of financing thanks to regulatory uncertainty regarding greenhouse gases emissions, have kept new power plant construction at bay. In a 2010 report, Credit Suisse predicted that domestic coal demand could drop by as much as 15 to 30 percent over the next decade.
Still, the U.S. coal industry is ready to meet a growing demand. The gargantuan mines in the Powder River Basin operate on a massive scale, with 200-foot-high draglines gouging into eight-story-deep coal seams. Dozens of mile-long trains slide out of the basin’s mines each day en route to distant states; collectively, they carry about 40 percent of the nation’s electricity-generating coal. Because the mines are open and above ground, coal is extracted more safely (Wyoming’s has only had six coal-mining fatalities in the last decade), more efficiently, and more cheaply than anywhere else in the world.
Coal exports from the U.S. climbed from 60 million tons in 2009 to more than 100 million tons in 2011. Most of that coal is going to Canada, Mexico, and Europe, but for the first time substantial quantities are also going to China, including about 4 million tons from the Powder River Basin. The flow, however, is being hampered by the lack of major coal shipping terminals on the U.S. West Coast.
The Gateway Pacific Terminal near Bellingham would allow Peabody and other companies to ship as much as 50 million tons of coal to the Pacific market annually, and the Longview port near Portland could add another 60 million tons. The prospect is anathema to many environmentalists, who see exports as a way to get around their efforts to hamper coal burning in
Environmentalists see exports as a way to get around their efforts to hamper coal burning in the U.S.the U.S. Moving all that coal, they contend, will also jam rail lines, result in tons of coal dust being shed from trains into communities, and hurt fish near the terminals.
Targeting proposed coal export terminals is the environmentalists’ best bet politically, since the chances of stopping coal-mining in Wyoming or Montana are slim. Montana Gov. Brian Schweitzer has personally intervened in the terminal battles on the side of the coal companies, and former Wyoming Gov. Dave Freudenthal, who heavily courted China as a trading partner during his tenure, is a director at Arch Coal.
Opponents say that the long-term effect of the exports could be devastating. Thomas M. Power — a former economics professor at the University of Montana who has watched the natural resource industry in the West for years — says that by adding to China’s overall coal supplies, U.S. exports will help bring prices there down. According to Power, that will give Chinese utilities the incentive to burn more coal for power, and take away the main reason for making power plants more efficient. “There is nothing startling or controversial about these results,” writes Power in a paper published this summer by the Sightline Institute, a Seattle-based think tank. “Price and cost matter. Lower prices and costs encourage consumption. Higher prices and costs discourage consumption.”
If U.S. suppliers put enough coal into the global market, it could potentially lower prices for everyone from Germany to Japan, says Power. That would give those two nations, in particular, a new incentive to choose coal as their alternative to Fukushima-tainted nuclear power. Overall, U.S. exports would then result in a net increase in global greenhouse gas emissions.
Or not. Richard K. Morse, the director of research on coal and carbon markets at Stanford’s Program on Energy and Sustainable Development, predicts a subtly different scenario, with dramatically different outcomes. Opening up U.S. coal supplies to China’s huge demand will increase coal prices for U.S. utilities, he says. That will further incentivize domestic utilities to switch from coal to natural gas, which emits about half the greenhouse gases of coal.
As for China, Morse believes its hunger for electricity is so great that it’s currently incapable of replacing a significant amount of coal generation with cleaner power sources, regardless of coal’s cost. Replacing China’s dirty coal with the relatively low-sulfur coal from the Powder River Basin, he says, would help to clean up the air in China’s coastal cities and might take pressure off the nation’s coal mining sector.
“The more expensive China makes global coal supplies, the more competitive cleaner energy becomes in the developed world and the lower will be CO2 emissions,” says Morse. “In a world without a price on carbon, we can only hope that China takes all of the rest of the world’s coal it can get.”
MORE FROM YALE e360
The Triumph of King Coal:
Hardening Our Coal Addiction
READ MORE
Even during these hard economic times, coal company profits have soared. Peabody is having a record year. Its rival, Arch, is sending more coal overseas than ever before, proving that it doesn’t matter if the U.S. quits coal, so long as the rest of the world keeps puffing away.
POSTED ON 08 Dec 2011 IN Energy Oceans Policy & Politics Pollution & Health Asia North America
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ABOUT THE AUTHORJonathan Thompson is a contributing editor at High Country News and a 2011-2012 Ted Scripps fellow in environmental journalism at the University of Colorado, Boulder.
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We own property on the Columbia River, where the federally endangered chum salmon spawn.
Coal would be transported along the river for many miles, spewing toxic coal dust along the way. Washington and Oregon are working diligently to protect rivers, waterways, streams, marshes, etc. Allowing the coal companies to contaminate our waterways would be an environmental disaster.
The many people who live along the tracks, oddly enough a positive thing in many areas, since also living along the river, would be exposed to the heavy metals, lead, mercury, arsenic, etc in the coal dust. These are micro-particulates, sucked deep into your lungs.
10 to 20 mile and a half long coal trains a day: 50# of coal dust a mile. . .you do the math!
The terminals would be another environmental disaster, for the ports, the community, the people.
Are we so hungry for profit for the railroad and coal companies that we would sacrifice thousands of people along the way, giving the communities no jobs to even "balance" the environmental and health problems?
Then, we get to breath more contaminates as the winds from China blow them back to us.
Communities rely on property taxes for their budgets; how much tax can they charge on wasteland?
When will mankind wake up and stop raping the Earth? It's our only home.
“All things are connected. Whatever befalls the earth Befalls the sons of the earth. Man did not weave the web of life, He is merely a strand in it. Whatever he does to the web, He does to himself.”
~ Chief Seattle
So why are still giving huge subsidies to coal companies? So China and India can benefit from cheaper prices made possible by taxpayer money?
Sandy,
As someone actively involved in salmon restoration efforts--make your case against coal-but leave the salmon out of it. They have enough real problems.
Kimberly,
Are you sure Chief Seattle said these things? Do a little digging- you may be surprised (or
disappointed) at what you find.
I'm wondering if the fire terraforming practiced by Native Americans converting hundreds of millions of acres of forest into prairies constitutes rape using your definition. And how you draw the line?
Mark,
What is more relevant the size of the subsidy or the net taxes generated per unit of energy?How do you define a subsidy?
The US solar power industry is in trouble. Costs are skyrocketing, government is losing money on it’s investments in manufacturers, and that got ripple effects for nervous investors. We’re dying to see panel manufacturers get it under control! Solar power is an incredible resource and the sooner we can successfully harvest it the better.
I think some perspective is in order:
Combined, these two proposed terminals have the capacity 110 million tons of coal annually. China uses 3.7 billion annually, of which 100 million is currently imported, mostly from Australia. Chinese domestic production is capped at 3 billion per year. This gap of 700 million tons is to be met by exports, of which, assuming these two terminals are built, one-sixth will be met by US exports.
That seems a small percentage to appreciably reduce Chinese prices, but it will certainly increase the cost of coal domestically, as well as the raise the price for the exports produced domestically.
My point is that in any scenario, global production is insufficient to reduce prices to a point where alternatives become a less attractive option. The Powder River Basin coal is attractive because its cheap to produce and low sulfur, but its also less energy dense, meaning that a greater weight of it must be burned to achieve the same thermal output. A lower cost per ton is irrelevant if you have to move more tonnage to produce the same output. Meanwhile, as global production costs continue to rise as more marginal reserves are brought online, you get to a point where coal can no longer compete with nuclear, for example. I'd wagers price trumps radiological concerns in China.
I think this will serve to hike domestic production energy prices, but I'm not convinced it'll do much to lower prices in the developing world. Demand is just greater than what we can pull out of the ground.
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