Not a Done Deal: Coal Trains Through Bellingham

One of the more potent arguments advanced by supporters of the Gateway Pacific project at Cherry Point is that coal trains will inflict their presence on Bellingham whether or not the coal export terminal is built. We’ll get the burdens, but none of the benefits. (Kind of like Mt. Vernon and communities on south if the terminal IS built at Cherry Point, but never mind.)

The “train traffic is unavoidable” argument rests on the assumption that our neighbor to the north, Canada, will be able and willing to export at least as much additional American coal as would be exported through the Cherry Point terminal. This means that Canadian ports would have to handle an additional 48 million metric tons per year, or one and a half times as much coal as the largest export terminal currently operating in North America, to result in the same train traffic increase through Bellingham.

It has occurred to me that normal people, who have lives, may not know where Canadian coal export terminals are located.

• The second largest coal export terminal in North America is located just north of Whatcom County and south of Vancouver: the Westshore Terminal at Roberts Bank, with an export capacity of 29 million tons per year (discussed in greater detail in my last blog).
• Another coal export terminal, the Ridley Coal Terminal, is in Prince Rupert, B.C. That terminal currently has an export capacity of 12 million metric tons per year (website is here).

Prince Rupert is almost in Alaska – click here for a map. According to Google Maps, Prince Rupert is 664 miles north of my house, or a 17-hour drive. I’ve been there (by plane, not by car) – I went there for a conference celebrating the opening of its new container port in September 2007. It’s small, and isolated, and appeared to be very beautiful in the very rare moments when it’s not raining. In fact, I just remembered that I have a picture of my happy group touring the bulk terminal:

But back to Bellingham. What about it? Will coal trains carrying around 48 million metric tons of coal per year pass through Bellingham to Roberts Bank or Prince Rupert, whether the Cherry Point coal terminal is built or not?

Well, neither the coal companies nor the railroads have confided their deepest thoughts and secret plans to me. But what I’m seeing about coal in Canada, and coal export capacities in Canada, makes me . . . skeptical.

This is a long blog. Every word is fascinating, of course, but for those of you might have other things to do today, here’s the Cliff’s Notes version. The bottom line:

It’s not a “done deal” that large quantities of American coal will travel through Bellingham to Canada (see “Framing the Argument – ‘Done Deal’ or ‘Almost Nuts’?”, below).

• The Westshore terminal at Roberts Bank is shipping around 3 million tons of American coal right now. Those greedy Canadians are using it to export their own coal.So coal producers don’t view it as a realistic venue for substantially increased exports (see “Coal Through Roberts Bank?” below).

• As much as 2.5 million tons of American coal is slated for export per year from Prince Rupert between now and 2015 (See “What About Prince Rupert?” below).

• 3 million (Roberts Bank) + 2.5 million (Prince Rupert) = 5.5 million. That’s less than 48 million.

• If American coal were allocated all of Prince Rupert’s capacity, including a slated expansion, 24 million tons could be shipped from Prince Rupert by 2015. That’s still less than 48 million tons.

• Canadians have their own coal. A lot of it. And they export it. (See “Does Canada Have Any Coal Mines?”, below.) Those greedy Canadians have not welcomed American coal to Prince Rupert with open arms – or without attaching strings. So it’s not realistic to think that 24 million tons of American coal will be shipped through Prince Rupert anytime soon.

• American coal from the Powder River Basin travels 2,700 miles through Bellingham en route to Prince Rupert. This is the “longest coal haul in the world.” It uses track resources, fuel resources, and just doesn’t make sense on a long term basis to some commentators.

• Maybe Prince Rupert will expand even more than has currently been planned. Maybe the coal industry will find a way to make a 2,700 mile haul feasible – “solar coal train engine” has a nice, futuristic ring to it, with that strong aftertaste of irony that flavors so much of the coal export discussion. Maybe Thomas the Tank Engine himself will be conscripted to haul coal, along with his talking friends, thereby converting coal trains into a desirable tourist attraction. None of these conjectures or possibilities establishes that equivalent train traffic is inevitable, however, if there is no coal terminal at Cherry Point.

You should make up your own minds, of course, but the “inevitability” of coal trains through Bellingham doesn’t pencil for me.

Framing the Argument: “Done Deal” or “Almost Nuts”?

A typical discussion of the coal train issue took place on KBAI Radio’s “The Joe Show” about a month ago (click here for a link to the podcast) . Ken Oplinger, President and CEO of the Bellingham-Whatcom Chamber of Commerce, strongly supports the project. This is an edited paraphrase of radio host Joe Teehan’s interview with Ken Oplinger– my stenography skills aren’t what they could be – but it catches the drift:

Joe: Trains will come through Bellingham, and that’s a big non-starter for a lot of folks. Eighteen, nineteen trains a day, almost a train an hour through Bellingham is quite a lot.

Ken: . . . .You’ve got a number of trains, as you know, going to Roberts Bank and will start going through clear up to Prince Rupert in the near future. Trains for the terminal are a marginal increase. The trains will be there anyway.

Joe: Is that a done deal, that they will expand those facilities up there?

Ken: The brief answer to your question is yes. There isn’t enough room to increase that much at Robert’s Bank, but there will be an increase allowing a couple of other trains to go up. But where the real increase is going to be is at Prince Rupert.

Joe: Trains will really go through Bellingham to Prince Rupert?

Ken: What BNSF tells us is that they get more money per mile is for coal than any other commodity. They want it on their rails as long as possible. They want the trains here, not in Canada. If we don’t build this project, we’re going to have those trains.

Joe: . . .It sounds almost nuts.

Could Joe be right?

Coal Through Roberts Bank?

The coal that would be exported from Cherry Point, according to current contracts, would come from Peabody Coal’s Powder River Basin mines in Wyoming. Let’s start out by looking at current west coast exports of Powder River Basin coal.

This section and the next section of the blog, I might add, are based on this article in Coal Age, “the Magazine for Coal Mining and Processing Professionals.” Coal Age is a trade journal. It’s not written for the “Green Troops” of “enraged enviro-zealots.” And yes, it is the very same article that coined the timeless call to “gird [our] hemp-laced loins,” as discussed quite fully in my previous blog and the comments thereon.

Anyway –

Cloud Peak Energy is exporting coal to Asia from its Spring Creek Mine in Montana. (Cloud Peak, Spring Creek -- what beautiful names!)

In 2009, Cloud Peak exported 1.6 million metric tons through Roberts Bank. In 2010 it exported just over 3 million tons, “hampered only really by terminal capacity.” Here’s the situation:

Though constrained because of overall port capacity, Cloud Peak is the only PRB producer with an actual export footprint: it has leased space at Westshore. But with highly valuable Canadian coking coals crowding out all other room both at Westshore and across the way at Neptune Terminals, that little footprint allowed the company to really stay in the game and move forward. However, like all other producers, until a new high capacity terminal “is built, we are capacity constrained. Those who can, are feverishly working on building a port now,” Marshall said.

So, around 3 million tons, and probably not a whole lot more, of Powder River coal can be exported from the Westshore terminal at Roberts Bank.

What about Prince Rupert?

With Vancouver’s ports “already completely congested,” Arch Coal announced in January 2011 that it plans to export Powder River Basin coal through Prince Rupert. It has a five-year agreement allowing the export of up to 2 million tons of coal in 2011 and up to 2.5 million tons of coal for 2012 through 2015.

[Remember: Cherry Point would have a 48 million ton capacity.]

The Prince Rupert terminal can load up to 12 million tons of coal per year, with expansion plans that could increase the facility’s capacity to 24 million tons by 2015. Will Powder River Basin coal take up this capacity?

I don’t think so. Thanks to Coal Age. Which says:

Canadian coking coal producers, furious a ‘Crown’ or quasi-state owned company, would sell precious capacity space to a foreign producer were eventually assuaged because the deal mandates that part of Arch’s fees will be used to expand the overall facility.

So, what we KNOW is that as much as 2.5 million tons per year of coal can be shipped from Powder River Basin to Prince Rupert through 2015.

And after 2015, nothing is inevitable.

Why do I say that?

The train trip from Wyoming through Bellingham to Prince Rupert is 2,700 miles – the longest coal train haul in the world.

And so, as Coal Age says with nice understatement, “one of [Prince Rupert’s] major downsides” is its “extreme haulage distance.” The article observes, “While some have called Arch’s decision to send coal that far a ‘hail Mary move’ to ensure an Asian market presence, others see it as a prudent way to be seen as a player.”

Is a “hail Mary move” the same as a done deal? I didn’t play football in high school, but my father was a fan. I think they’re not the same.

Let’s look at another perspective: that of a rail consultant (click here for the article). First, we need to understand that the current route to Prince Rupert is not the most direct route from the Powder River Basin. The most direct route would go through the Canadian border at Sweetgrass, Montana, not at Blaine, Washington. As the article states,

The key fact here is that the alternate routing [through Montana] is approximately 800 miles shorter in distance, a significant difference of 30% for loaded coal trains. And not only is the route shorter, but there is less route congestion.

“Route congestion”? The “larger issue,” the article observes, “is the impact from navigating congested terminal areas including Vancouver WA, Tacoma, Seattle, and Vancouver BC.”

Yoo hoo! Don’t forget. . . Bellingham?

The article further observes:

Contribution of coal trains is critical to rail networks due to the tremendous amount of resources they consume. They consume many locomotives and significant amounts of fuel. They also devour a significant amount of line capacity while they are moving across the network (often at a pace slower than manifest rains), and they consume additional line and terminal capacity while stopped – when inevitably queuing to be loaded and unloaded.

Are these good things? It doesn’t sound like it. So why would anybody think that it’s a good idea to haul a heavy commodity like coal 2,700 miles before it even goes onto a tanker? These are the author’s words, not mine:

• “Could this coal be a test of a new supply chain by the Chinese customer? These sorts of test runs have precedent around the world . . ..”
• “Sometimes they are merely “loss leaders” – selling goods/services at a near loss on the promise of future gains. Perhaps the prospect of future China coal contracts is enough for both BNSF and CN to promote business on this (now) longest coal route in the world?”
• “Another theory: Was this a contract partially borne from coal production issues in Australia due to the floods – in other words, is this move triggered by a short-term supply disruption?”
• · “Has the coal market been impacted on the supply side, which compounds demand for coal due to ‘newer’ consumers such as China?
• · “Or, could this be the beginning of a structural shift toward North American coal being shipped to China?”

Only the last bullet might lead to a “done deal” for trains running through Bellingham.

Or would it?

A couple of days ago, on July 27, Canadian Pacific railway held a conference call where it answered questions from investors (transcript is here). One investor asked whether Canadian Pacific might have an “opportunity” to handle Powder River Basin coal through Westshore and other Canadian export facilities. A Canadian Pacific spokesperson replied:

I think the question really for us over the medium term is whether this is long-term sustainable market, given the sourcing alternatives for thermal coal in Asia and whether on a long-term basis, if there's an investment that would be required, you would want to have the right type of commitment to do it. So I think my message to you would be is that we're looking at it.

To the extent that railroads are expressing uncertainty about long-term market sustainability and returns on investment, that sounds like an undone deal.

Does Canada Have Any Coal Mines?

Finally, it might be worth noting that the Powder River Basin is not the only coal-producing area that might want to use Canadian ports for coal export.

Teck owns all the coal mines in southeastern B.C. Here’s a blurb from Teck’s web site:

We are the world’s second largest exporter of seaborne steelmaking coal, with five mines in British Columbia and one in Alberta. We wholly own the Coal Mountain, Cardinal River, Fording River and Line Creek mines, and have a 95% partnership interest in the Elkview mine and an 80% joint venture interest in the Greenhills mine.

The bulk of our coal production is high quality steelmaking coal, also known as metallurgical coal. The majority of our coal is exported for steel production, with approximately 90% transported west by rail to the coast of British Columbia and shipped from there to Asia, Europe and South America. Our largest markets in Asia have traditionally been Japan, Korea and Taiwan, and now China is emerging as a significant importer of steelmaking coal.

We foresee strong growth in demand for steelmaking coal in China, which is currently undergoing the biggest process of urbanization and industrialization in human history.

Just a guess, but maybe Teck might be planning expanded coal exports through Canadian ports.

And it’s not like Canada isn’t interested in increased resource extraction. Cruising around the internet, I ran into this report in the Canadian Mining Journal:

Fortune Minerals, based in London, ON, has formed an 80:20 joint venture with Posco Canada to develop the Mount Klappan metallurgical coal project 330 km northeast of the port of Prince Rupert. Posco is a subsidiary of one of the world's largest steel producers with headquarters in South Korea.

With 2.8 billion tonnes of coal, Mount Klappan is called one of the largest undeveloped deposits of metallurgical coal in the world.

Just a wild guess, but if and when this mine is on-line, it might be aiming for the export market, and the closest export terminal for this Canadian coal might be the Canadian port of Prince Rupert.

All in all--

Maybe “the world’s longest coal haul,” running Powder River Basin coal 2,700 miles through Bellingham, will make sense in the long run --

Despite the fact that it takes place in an increasingly crowded urban rail corridor.

Despite the fact that it requires the burning of additional fuel, and that fuel may someday cost more than it does today.

Despite the fact that there does not seem to be evidence –convincing, publicly-available evidence, anyway – that the export terminal at Prince Rupert has the capacity to accommodate that much more American coal.

“Done deal”? Sounds almost nuts.

Coal train photograph by Paul K. Anderson.

Crooked photograph of people standing in the rain, trying to look happy, by the author.

Sources:

Lee Buchsbaum, "West Coast Exports Materialize," Coal Age, March 24, 2011, http://www.coalage.com/index.php/features/992-west-coast-exports-materialize.html

David Lehlbach, "The Longest Coal Train Haul in the World? Feb. 23, 2011,
http://rail.railplanning.com/files/2011/03/The-Longest-Coal-Move-In-the-World-final.pdf

"Coal Development: Fortune takes Posco as partner for Mount Klappan project," Canadian Mining Journal, Jul 13, 2011, http://www.canadianminingjournal.com/news/coal-development-fortune-takes-posco-as-partner-for-mount-klappan-project/1000517723/