China’s hunger for American coal in doubt

McClatchy Washington BureauMay 17, 2013 

— The push for mass coal exports from Washington state, already facing a huge environmental battle, also could get hit with slowing Chinese demand for coal shipments.

The American coal industry, stung by a drop in U.S. demand, hopes to revive its fortunes by sending Rocky Mountain coal to Asia from proposed terminals near Bellingham and Longview, Wash.

But a recent report by Wall Street colossus Goldman Sachs says this will be a transformational year for China, with its seaborne coal imports dropping for the first time since the global financial crisis of 2007 and 2008 and continuing to decline in the coming years. China’s own coal production has spiked, Goldman Sachs said, along with investment in Chinese railroads to move its coal.

China, with its cities shrouded in smog, also is trying to improve energy efficiency and diversify its fuel mix, including investments in nuclear energy and wind power, according to Goldman Sachs. Deutsche Bank also said in a report released this month that there are increasing signs of “softer Chinese coal demand growth going forward.”

The global German banking firm pointed to protests in China against coal-fired power plants and associated pollution. It also said urbanization of China’s interior means much of the future demand for coal will come closer to areas where China has its own mines and further from the coastal ports where America’s coal would be shipped.

The industry wants to ship Powder River Basin coal in trains from Montana and Wyoming to Pacific Northwest ports for export. It’s become one of the region’s biggest environmental battles in decades, with objections to the trains and the climate impact of coal burning.

Developers have dropped plans for three of the export terminals.

The major remaining projects are the Gateway Pacific near Bellingham, which seeks to ship up to 52.9 million tons of coal a year, and the Millennium Bulk Terminal in Longview at up to 48.5 million tons. There’s also a smaller project in Boardman, Ore., of up to 8.8 million tons.

Peabody Energy, which hopes to ship coal to Asia from the terminal near Bellingham, expressed confidence in the market. Peabody spokeswoman Beth Sutton said the Asian coal demand will rise with accelerating industrialization and urbanization.

“We see imports from China and India growing by more than 50 percent over the next five years, representing some of the fastest growing imports in the world,” Sutton said in response to questions. “China’s coal imports are expected to rise more than 10 percent this year, and India has now surpassed Japan as the second largest thermal coal importer.”

She said the question is who would benefit from the demand – the United States or other countries such as Indonesia.

SSA Marine, the company that seeks to build the Gateway Pacific terminal near Bellingham, said the U.S. coal exports would not just go to China. SSA senior vice president Bob Watters cited a forecast from energy consulting firm Wood Mackenzie of a rising demand throughout Asia.

Goldman Sachs owns a large share of Carrix, the parent company of SSA. The recent Goldman Sachs report forecasts growing seaborne coal demand in India and other emerging markets in Asia, but not at the pace driven by China in recent years. China burns almost as much coal as the rest of the world combined and last year became the world’s leading importer.

China’s own coal production grew rapidly at the same time, though, and when its electricity demand slowed down sharply in 2012, the domestic market became oversupplied and coal prices tumbled, said Christian Lelong, an Australia-based Goldman Sachs analyst.

Falling coal prices have increased pressure on producers, he said, and new projects must compete in a market “that is going to be more subdued than the bullish run of the past five years.”

American exports to China would need to compete with coal from Indonesia and Australia, which are closer to the market and so less exposed to freight costs, Lelong said.

But American coal does have some advantages, said Michael Hsueh, a London-based analyst for Deutsche Bank. The shipped price of Rocky Mountain coal sent from the Pacific Northwest is competitive into south China with South African coal and cheaper than Australian and Russian coal when adjusted for energy content, Hsueh said.

“There is some potential for U.S. coal to create a market for itself by displacing other sources of coal,” he said.

 

Email: scockerham@mcclatchydc.com; Twitter: @seancockerham

Anchorage Daily News is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service