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United States’ coal exports jump, for now at least

During his campaign for the presidency, Donald Trump made some big promises to the US coal sector, but can he deliver?

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Baltimore’s CNX Marine Terminal is expecting to break its annual throughput record this year.
Baltimore’s CNX Marine Terminal is expecting to break its annual throughput record this year.
One of US President Donald Trump’s biggest election pledges was to “bring the coal industry back 100%”. This year’s spike in US coal exports might suggest that his policies are beginning to feed through. Yet higher exports have little to do with any support given by Washington, while domestic demand, which accounts for about 90% of production, remains under threat. At the same time, plans for new coal export capacity are struggling to clear environmental hurdles.

Trump’s support for coal includes withdrawing from the Paris Climate Agreement, ending the ban on new coal concessions on federal land, dumping the Clean Power Plan, which is designed to reduce power sector carbon emissions, and easing restrictions on the disposal of coal waste in waterways. In short, he is seeking to reverse many of his predecessor Barack Obama’s environmental policies.

Under Trump’s guidance, Washington has tried to directly support coal export deals, notably with Poland and Ukraine. However, the volumes involved are relatively small. The Ukrainian deal, brokered in July, involved the sale of 700,000t of XCoal Energy’s thermal coal. Energy Secretary Rick Perry and the chairman of the Federal Energy Regulatory Commission, Neil Chatterjee, are now trying to introduce subsidies for coal-fired power plants that store at least 90 days worth of feedstock, with the aim of supporting mining production.

At this early stage, it is difficult to assess what impact Trump’s support and any regulatory changes will have on US coal output and exports. It takes some time for any changes to work their way through into actual production. Moreover, the influence of Trump, or even the federal government as a whole, is limited. A huge proportion of energy and environmental policy and regulation is controlled by state governments, while investors have to be confident that any new coal-fired power plants, for instance, will operate commercially for at least 20 years, before sanctioning development.

There is a great deal of doubt over this because of stiff competition in the power sector. Gas prices remain low, while solar and wind power costs are falling. A spokesperson for the National Mining Association commented: “The government is no longer against us. We now only have market forces to contend with.”

Higher exports

The US exported just 61M short tons last year, the fourth successive annual decline. That was less than a quarter of its total export capacity and below even the 84M short tons a year handling capacity of the Port of Norfolk alone. However, the US Energy Information Administration (EIA) expects exports to reach 82.4M short tons this year, up 36.7% on 2017, although it forecasts that this figure will fall back to 72.7M short tons next year.

The country’s coal export terminals have certainly benefitted from the increase in overseas demand for US coal. The CNX Marine Terminal in Baltimore has handled about 1 Mt of coal per month this year. General manager Jim Latham said: “The terminal’s on a very, very good pace. We ought to surpass our best annual mark ever. In the fourth quarter alone, we’re projected to do about 4 Mt out of this terminal.” CNX Marine Terminals expects to export 30 Mtpa from four US ports, with a 28% rise in coking coal and 70% increase in thermal coal on last year.

Hampton Roads (Virginia) shipped 29.1 Mt in the first 10 months of this year, up 64.9% on the same period last year. The port’s three terminals primarily handle coking coal, with an average price this year of US$172.22/t, a big increase on the average of US$105.22/t for the whole of last year. According to energy analysts Platts, the near-term Northern Appalachia coal market is “extremely tight” because of export demand. Some traders who did not wish to be named have been unable to secure sufficient shipments to satisfy export customers.

Millennium

Plans to build what would be the biggest coal export terminal in the United States have proceeded slowly because of environmental concerns. Millennium Bulk Terminals hopes to develop a US$680M coal export terminal on the Columbia River in Washington State, on the site of a former aluminium smelter.

The company wants to ship up to 44 Mtpa of coal, particularly from the Powder River Basin in Montana and Wyoming, to Asian customers. The project would greatly increase US coal export capacity. The main existing option for coal exports from the area is via Westshore Terminals in Vancouver.

In September, Washington State ecology director Maia Bellon said: “There are simply too many unavoidable and negative environmental impacts for the project to move forward.”

Millennium president William Chapman retorted: “Ecology appears to have intentionally disregarded decades of law defining the Clean Water Act to reject the water quality certification requested for Millennium’s project.”

Regulators have been examining the project for more than five years, and some permits have already been secured.

However, in mid-November, a county hearing examiner rejected applications for two shoreline permits for the terminal, contrary to a recommendation from Cowlitz County that he approve them with conditions. He argued that the company had failed to demonstrate that it could mitigate the impact of nine adverse factors: air quality, vehicle traffic, vessel traffic, rail capacity, rail safety, noise pollution, social and community resources, cultural resources, and tribal resources.

The principal concerns relate to global warming, coal dust pollution and potential damage to fisheries on the river. Coal would be railed to the terminal by eight trains a day, stored in open stockpiles, and exported via an estimated 840 shipments a year. Chapman said that his company would appeal, and he added that “the decision is based primarily on issues outside the shoreline area applicable to any new terminal or transportation project in the state of Washington”.

Other planned coal export projects in the northwest have foundered for similar reasons. If constructed, Millennium Bulk Terminals would be the country’s second biggest coal export port, behind the Port of Norfolk but ahead of Baltimore’s 29 Mtpa handling capacity.

US power demand

The EIA predicts that national coal production will reach 789.9M short tons this year, up 8.5% on last year, with output holding steady next year. However, the trend is clearly downwards, given developments in the power sector. A total of 13 GW of coal generating capacity was shut down in 2016, almost 8 GW is due this year, and 13.6 GW next year. About 265 coal-fired power plants have been closed since 2010. US coal production peaked at 1.171B short tons in 2008 but fell year-on-year to 743 M short tons last year, the lowest level since 1978.

Coal’s role in the US generation mix has been under pressure in recent years, partly from renewables but also from unconventional gas. Its contribution has fallen from 51% in 2003 to 30.4% last year. However, it is currently maintaining its market share. According to the EIA, coal-fired generation capacity should account for 30.8% of US power generation this year and next.

The EIA forecasts that Trump’s policies will have no impact on the pace of closure of US coal-fired plants, and there is plenty to support this view. In November, a spokesperson for American Electric Power commented: “We’re not planning to build any additional coal facilities. The future for coal is dictated by economics. And you can’t make those kinds of investments based on one administration’s politics.” The company plans to reduce coal’s share of its generating stock from 47% at present to 33% by 2030.

One of the country’s biggest power utilities, Duke Energy, plans to invest US$11B in new renewable energy projects and gas-fired plants by 2027, while closing 7.4 GW between 2011 and 2024, and opening no new coal-fired plants. A report published by the Federal Reserve Bank of St Louis in early November stated that coal-fired power plants “may eventually become obsolete”. However, any further fall in domestic demand should free up additional volumes for export.

Indian interest

India’s position is particularly interesting. Sources speaking to Platts reported that Indian demand was already prompting Northern Appalachian operators to increase production in the first half of this year. US thermal coal exports to India to the end of September stood at 3.9 Mt, up 155% on the same period in 2016.

However, the Indian government’s position is difficult to pin down. It has pledged to oversee a big switch to renewables, and to end all coal imports, but at the same time has backed investment by Indian state-owned companies in overseas coal mines.

Demand for US coal could be affected by the planned ban on petroleum coke (petcoke) in India. US exports of petcoke to India have increased sharply in recent years, reaching 8 Mt last year. Research by Associated Press found that petcoke used in India had 1,700% more sulphur than allowed for coal under Indian legislation. However, India’s Minister for Petroleum and Natural Gas, Dharmendra Pradhan, said: “We are planning to implement a system to stop imports, and use home-produced petcoke for non-polluting sectors, such as cement production.”

Poland has emerged as a new market for US coal following a pledge by Trump to supply the country. The first shipment arrived in November, destined for the power sector. Most Polish coal imports come from Russia, but Warsaw has banned the use of Russian coal by state-owned power plants, because of its low quality. Polish domestic production by the country’s biggest miner PGG has been lower than expected, on the back of reduced expenditure following its rescue from bankruptcy last year. In addition, trader Weglokoks wants to honour its own export contracts by importing coal.

Outlook

The US has traditionally been a swing coal exporter, ramping up its shipments to compensate for problems elsewhere in the world. Problems with the quality of Indonesian coal have boosted the popularity of US coal in overseas markets this year.

Similarly, there have been production problems in Australia, while parts of Ukraine have had to secure alternative suppliers to replace suspended Russian deliveries, and the closure of 14 French nuclear power plants has seen French coal consumption increase.

Mohammed Hamdaoui, product director at energy research firm Wood Mackenzie, said: “The risk around how much of the US coal is going to make it into the international market is that there are going to be a lot of uncertainties.”

Rob Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming, said: “My perspective is that a lot of different factors internationally have created this demand for US coal, but a lot of those factors are probably temporary. If there was a war on coal, it was declared in 2008 when the fracking boom started.” New technology has greatly increased the production of unconventional gas reserves, making gas a cheaper feedstock than coal in much of the US.

On balance, it would seem wrong to read too much into the jump in coal exports this year. Projected volumes are not high, even by the standards of recent years, and will have to be sustained well into next year before suggestions of a recovery carry any weight.

The rise to date has benefitted a small number of mines, while the increase in exports is relatively limited in relation to the size of global coal markets and total US coal production.

Moreover, it can be difficult for US coal to compete with producers in other countries because of the sheer distances involved in shipping US coal to customers, particularly in Asia.

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