Plans falter for West Coast coal terminals

Coal companies look to Asia, but face port challenges.

 

Rev. Ken Chambers has lived in West Oakland for all of his 50 years and grappled with air pollution the entire time. The neighborhood, on the eastern shore of San Francisco Bay, is surrounded by three major highways, an active railroad, and the fifth-busiest port in the country. Chambers’ four children showed symptoms of asthma, he says, a common condition among their neighbors. And although air quality has improved since then — thanks to new laws regulating emissions — the neighborhood’s mostly black, low-income residents still suffer from asthma rates up to three times higher than other parts of Oakland.

Last April, Chambers and his neighbors caught wind of a plan to redevelop the old Oakland Army Base, located along the waterfront in West Oakland, including a major new terminal for shipping coal to Asia. Proponents said that it would bolster the neighborhood’s struggling economy, and that coal exports were a necessary component, because they would provide revenue to operate the terminal. Critics, however, including Chambers, argued that fugitive coal dust blowing from trains headed for the port would further deteriorate West Oakland’s air quality, and that burning the coal overseas would exacerbate climate change.

And then, in late July, opponents scored a major victory when the Oakland City Council voted to ban shipments of coal from the city, citing the “false choice” between jobs and the environment — and halting the multimillion-dollar coal export proposal in its tracks.

The decision, which came after more than a year of feisty debate, placed Oakland at the center of a growing battle over the fate of the coal industry. Domestic demand for coal has collapsed in recent years, displaced by cheap natural gas, along with wind and solar power. As U.S. coal companies look to overseas markets for salvation, plans for the necessary West Coast export terminals have been blocked by local communities and environmental groups worried about climate change and human health and safety. Taken together, says Sierra Club attorney Jessica Loarie, the long-term market forces and growing public opposition “do not bode well for the coal industry.”

 

The former Oakland Army Base pier at the Port of Oakland in Oakland, California, where the plans for a bulk shipping terminal for coal and other commodities have stalled.
Eric Risberg/ The Associated Press

None of this bodes well, either, for places like Carbon County, Utah, which got its name from its vast seams of coal. This rugged landscape southeast of Salt Lake City was already heavily mined by the late 1880s. It entered Old West history in 1897, when legendary bank robber Butch Cassidy and his partner, William Ellsworth “Elzy” Lay, stole the Pleasant Valley Coal Company’s $8,000 payroll. Later, nearly 400 miners died in two underground explosions, in 1900 and 1924.

Despite that early tumult, Carbon County grew to depend on coal. For most of the last century, coal supplied the vast majority of Utah’s energy needs and attracted the attention of other states as well. In the early 1980s, a Southern California electrical utility cooperative helped persuade the state to build a massive power plant, the Intermountain Power Project, in western Utah, promising to buy its coal-generated electricity.

But things changed as utilities increasingly switched to cheaper natural gas and renewables. In 2013, Los Angeles, which had a contract with IPP, voted to end its reliance on coal-fired electricity by 2025, in favor of natural gas. The decision stunned Carbon County, 75 to 80 percent of whose jobs depend on coal mining and power generation. Hundreds of locals have lost their jobs as coal-fired power plants have closed and mines have shuttered. “It put us into a tailspin,” says County Commissioner Jae Potter. “What do you do?”

That trend has rippled across the Interior West, from Colorado to Montana, amid plummeting U.S. demand for coal. After declaring bankruptcy, major firms like Arch Coal and Peabody Energy are downsizing — cutting jobs, closing unprofitable mines, and taking on less debt.

In the early days of coal’s decline, however, the industry still looked profitable to the private equity industry, which buys up troubled businesses, restructures them and sells them at a profit. Although the U.S. market was collapsing, Asia’s demand for coal appeared insatiable. Private equity firms, such as Salt Lake City-based Lighthouse Resources, bought mines in Montana and Wyoming and began pushing export projects in Washington and Oregon. And in 2013, Galena Asset Management invested over $104 million in Bowie Resources, a Kentucky-based coal company, to create Bowie Resource Partners. Backed by more than $800 million in private equity money, Bowie went on a spending spree, buying three Utah mines owned by Arch Coal. The company later bought three more mines — two in New Mexico and one in Colorado from Peabody Energy, another coal giant on the verge of bankruptcy. In a press release, Galena CEO Jeremy Weir heralded the Bowie partnership’s opportunity to “reshape the Western U.S. coal paradigm.”

In its financial documents, Bowie outlined plans to export its landlocked coal through West Coast ports. But it glossed over a major problem: The existing marine terminals in California and other West Coast states were too small to export the millions of tons of coal that its Utah mines could produce. A new larger terminal planned for West Oakland, however, could provide the opportunity Bowie needed.

 

When the marine terminal proposal for West Oakland first surfaced in 2013, coal was not mentioned. Instead, the developer said the terminal would ship bulk goods like iron ore, corn, wind turbines and auto parts. Chambers, like many of his neighbors, supported the project, which would help replace some of the 7,000 blue-collar jobs lost when Oakland Army Base closed in 1999.

Then, last April, a local Utah paper, the Richfield Reaper, broke a story that the developer had tried to keep under wraps: Four counties in Utah, where Bowie’s coal mines were located, intended to invest in the proposed Oakland terminal, with the intent of shipping their coal out of it.

The city’s vote against coal stalled the plan, and other blows soon followed, including new legislation banning state funding for bulk-coal terminals. In the signing letter, Gov. Jerry Brown highlighted California’s recent moves to replace coal with cleaner energy sources. “That’s a positive trend we need to build on,” he said, calling Oakland’s ban an important step that other localities — and the state — should follow.

By the end of August, things were looking even worse for the terminal: The four Utah counties where Bowie owns mines withdrew their application for the $53 million state loan to invest in the project, and Bowie canceled its IPO, citing poor market conditions.

In early November, construction began on the first phase of the Army base redevelopment, but whether or not the bulk terminal will still be part of the project remains uncertain. The developer, California Capital & Investment Group, and its terminal operator, Terminal Logistics Solutions, declined to be interviewed for this story.

One thing, however, is certain: The long-term economics of big export projects no longer appear as promising as they once did. Transporting coal by rail 1,500 miles from Utah to the West Coast is expensive, says Anna Zubets-Anderson, a senior analyst at Moody’s Investor Service. Add the cost of shipping it to Asia, and it’s tough for U.S. producers to compete with countries like India and Indonesia, which have much lower labor and transportation costs.

International coal prices have spiked recently, but Zubets-Anderson says the uptick is temporary, largely due to the Chinese government’s attempt to cut its own coal production and consumption. Heavy rain and flooding in other parts of Asia have also disrupted coal supplies. “When those issues are resolved, prices will go back down — likely by the middle of 2017.”

 

Elsewhere in the West, other export projects are facing a similar fate. Since 2007, the six coal terminal proposals slated for the Pacific Coast have dwindled to just one — the Millennium Bulk Terminal in Longview, Washington — after Lighthouse announced it was no longer supporting the Morrow Pacific Project in Oregon. In November, the project was terminated.

The proposed Millennium terminal in Washington is on similarly unsteady ground. After declaring bankruptcy last January, Arch Coal, a major investor in Millennium, sold its $57 million stake in the project, leaving Lighthouse as the sole backer. Meanwhile, hundreds of residents from across the Pacific Northwest testified against the project during the last round of public hearings in October, echoing the concerns expressed by other West Coast communities and Indigenous groups, such as Washington’s Cowlitz Tribe, who argue that coal export projects threaten cultural and economic resources like salmon, violating their treaty rights.

Other West Coast cities are also following Oakland’s lead. On Nov. 16, the Portland City Council voted 3-0 in favor of a resolution that would halt new fossil fuel infrastructure, such as export terminals, and expansions to existing facilities. A final vote is scheduled for Dec. 8.

For the industry, this combination of grassroots resistance and political opposition is creating financial risks — like a “one-two punch,” says Clark Williams-Derry, an energy expert at the Sightline Institute, an environmental think tank. And the uncertainty makes big projects harder and harder to justify.

Even President-elect Donald Trump’s campaign pledge to revive the ailing U.S. coal industry and put miners back to work is unlikely to turn things around. Increasing anti-coal activism and cheaper natural gas are discouraging utilities from investing in coal, says Zubets-Anderson — not just in the U.S., but around the world. “I don’t foresee the new administration being able to change that,” she says.

Though Chambers applauded Oakland’s decision to ban coal exports, he feels badly for places like Carbon County that hitched themselves to a single commodity. “They’re struggling, too,” he says. West Oakland can empathize. Like Carbon County, it needs jobs — but not, Chambers believes, at the expense of human health.

Correspondent Sarah Tory writes from Paonia, Colorado, covering Utah, environmental justice and water issues. 

Harvey H Reading
Harvey H Reading Subscriber
Dec 13, 2016 02:50 PM
I get a laugh out of Wyoming's gasbag governor talking out of both sides of his mouth. When it comes to transgender toilets, he wields the bloody shield of 'states' rights' and joins a lawsuit brought by other neanderthals against federal guidelines, but when it comes to coastal states saying no way to transport of his filthy coal, he goes crying to the Interstate Commerce Commission. Typical right winger.
Joe Cosentino
Joe Cosentino
Dec 13, 2016 04:05 PM
This is so funny in a very sad way. We have tightened environmental standards here in the US to a point where we can't use coal here but other countries still can. So in an underhanded way we are imposing our standards on the rest of the world. Now if I was someone living in a developing country I would hear something to the effect of; "we don't want you to ever become as developed as we are". Without an energy path from undeveloped to first world we are in fact blocking there path. This might be seen this as opression.

We also have some of the cleanest burning coal here in the US. Wouldn't it be better to sell them our cleaner coal to replace coal other countries are selling?

No matter if we do or don't sell to other countries, they will keep burning what ever they can buy. Selling our coal is a win win, plus we can help them move to cleaner fuels if there economies grow faster. We as a leading country need to be helping others move forward and should not dictate to them.

Now before someone twists this up into something else entirely, think long and hard about what's best for everyone and not just the few.
Tim Baker
Tim Baker Subscriber
Dec 13, 2016 04:59 PM
Joe, your comment suggests that developing countries have to follow the same path we did through the energy cycle to reach the cleaner fuels level that the U.S. is now seeking. And conveniently, it is one where we, or rather the coal companies, make substantial profits.

Wouldn't we all, be better off it we instead pushed renewable energies to these developing countries so they can skip the coal-burning phase? Because face it, there are far, far more people in the developing countries and if they all have to burn coal at the same rate the U.S. did to reach development enlightenment, there won't be much of a world left that anyone alive today would recognize.

Plus, I suspect most of the issues with energy in developing countries is distribution, not production and coal is not very good for decentralized energy generation whereas much of the renewable energy like solar, wind, and water are. Let's help those countries advance sustainable energy production in a smarter way and leave the coal in the ground.
Joe Cosentino
Joe Cosentino
Dec 13, 2016 05:47 PM
Tim, so I understand, you propose thst we stop buying steel from China? Coke would be hard to come by using say solar or wind or even................... (fill in the blank), coal is coke. Please be don't twist this, this ain't about charging your laptop or cell phone. By killing coal we have killed steel in this country and are forced to buy it where? Where they use coal...... Please look at the big picture. Think about aluminum, it takes lots of power to melt and purify, solar won't cut it, you need HUGE amounts and it needs to be cheap, coal or hydro. Hydro means huge dams that create all sorts of problems. We can go round and round but by withholding coal your just saying go buy coal someplace else. Done and out!