In a week of disappointing news from coal firms, Cloud Peak Energy, the only pure Powder River Basin coal company in Wyoming, had one highlight to catch the attention of Wyoming. Despite a $7 million loss starting out 2018, the company was pleased by its export prospects, carrying Powder River Basin coal to Asia.
Wyoming has gazed longingly toward countries like Japan for years. The subject comes and goes, a potential savior for Wyoming coal that never pans out. As the state settles into the new normal of diminished coal demand, talk of exports has resurfaced, from bars in Gillette to the state buildings of Cheyenne.
Many conversations revolve around a coal port on the Washington coast that’s struggled to come to fruition in the six years since it was proposed. The company proposing the Millennium Bulk Terminals is still pushing to get the environmental approvals needed to take an industrial site on the bank of the Columbia River and turn it into a gateway to the Asian coal market.
Companies, miners and Wyoming politicians are all for it. But whether Wyoming coal will ever feed Japanese or South Korean power plants is no clearer today than in previous years with or without a Washington port. As coal economics become more difficult, and hopes increase for a solution, some argue the dream will never come true.
In an earnings call Thursday, Colin Marshall, the CEO of Cloud Peak turned the conversation to Japan.
“The overall outlook for Asian demand remains strong,” he said.
Cloud Peak has contracts to sell coal to two Japanese coal plants, announced last year. It has a number of coal test burns at plants in the country and a number of talks for more tests from other utilities, Marshall said.
Indeed, Asian coal is the one bright spot in the company’s earnings of late. Though only planning to send 5.5 million tons overseas of up to 56 million tons of planned production in 2018, exports are a consistent part of Cloud Peak’s sales pitch.
It’s the one aspect of the business not trounced by market upheaval in the U.S.
“The whole business has changed, and we are having to adapt to that,” Marshall said of reduced coal demand domestically.
A spate of coal plant closures following the coal downturn that hit hard in 2015 has troubled even the strongest firms. And though those closures may have abated for the time being, the long-term likelihood of contained retirements is a reality, Marshall said.
Asian demand, however, is not falling.
Cloud Peak is not the only one selling the value of Asian markets.
Millennium Bulk argues that the opportunity in Asia is unquestionable.
“The market is robust and it’s long-term,” said Wendy Hutchinson, vice president of public affairs for Millennium.
The big draw is Japan, but also South Korea, she said. Those countries are the closest to the U.S. and have to import most of their energy needs. Though members of the Paris Climate Accord, a multi-country promise to reduce carbon dioxide emissions, both countries continue to use significant amounts of coal. Japan in particular has built a number of new coal fired plants and it’s collaborating with Wyoming on research and development in carbon capture.
Cloud Peak was once more closely affiliated with the Millennium Bulk Terminals, and had to write off a significant amount of investment dollars in contracts that didn’t pan out. For now it ships coal north to Canada in order to breach the Pacific divide. The added distance costs money and cuts into the slim margin of profitability Asia provides.
The hitch for Wyoming watchers, is that the Powder River Basin coal headed up to Canada isn’t from Wyoming. It’s from Montana.
All of Cloud Peak’s coal for Asian markets is coming out of its Spring Creek mine, across the border.
Lighthouse Resources, which operates the Decker mine in Montana and is part owner of the Black Butte mine in Wyoming, is also sending coal across seas. But not from Black Butte.
West from Millennium has an answer for this. She said the coal port has applied for permits for up to 44 million tons of exports.
“When you look at who can supply that, obviously Montana coal is coming first,” she said.
It’s closer to coastal ports and Western Montana is connected to the Canadian port by the Burlington Northern rail line. Millennium would be served by BNSF as well.
If the port in Washington were to open, some of the challenges in getting Wyoming coal to Canada would dissipate and Montana alone isn’t going to supply all that coal, she said.
“That kind of volume is going to have come out of Wyoming,” she said.
Others are skeptical of the newest rush of export fervor. The economics are just not there for Wyoming coal, said Clark Williams-Derry, a coal market analyst for Sightline Institute of Seattle, a think tank advocating for a transition to clean fuels.
“I always felt it was a little bit strange about Wyoming’s excitement about ports,” he said.
Lately, people are likely looking for a reason to hope, he said.
“When everything is going south or sour, you look for a savior. (Or,) you look for a scapegoat,” he said.
Millennium has suffered from bad economics, but for many the denial of permits for environmental reasons is an easy way to blame the state of Washington or regulators, he said.
Lighthouse Resources, parent company for Millennium Bulk, is suing Washington over permitting for the port, with local politicians and BNSF joining the protest as well. They take issue with a number of assumptions made by regulators that have held up the permits. Some in Wyoming would like to add the state’s voice to the opposition.
Sen. Chuck Gray, R-Casper, proposed a bill this legislative session that would set aside money to sue Washington state for holding up the coal port. The bill would have asked a lawyer to argue that Wyoming is economically disadvantaged by Washington’s choices. The bill failed, but the frustration with Washington remained.
Whether coal exports are a vain hope or an opportunity, Wyoming politicians from Gov. Matt Mead to Sen. John Barrasso are on board.
Barrasso made a point to talk about exports earlier this year at a coal meeting in Gillette and in later interviews with the Star-Tribune.
The Trump administration and Congress are working to remove the restrictions that have blocked coal export terminals in the past, he said in an email.
The senator did not respond to a question regarding the likelihood of Wyoming coal making it to Asian markets given economic constraints.
“Exporting more coal means more jobs in Wyoming and more money for state, local and federal governments,” he said. “I will continue to pursue every legislative option available that expands trade opportunities and reduces regulatory barriers on exporting Wyoming coal to overseas markets.”
Williams-Derry said it’s just not likely to happen, because there’s not enough to save Wyoming coal from the pressures happening domestically.
“PRB coal only prices into Asia when seaborne coal prices are on the high end,” he said. “The PRB is often described as a ‘swing’ or ‘marginal’ producer, slipping into and out of profitability.”
When a storm hits Indonesia or supply is disrupted in Australia, Powder River Basin coal has a shot. But it’s a long way to send coal, which means the coal needs to be valuable enough to carry the cost of all that distance, he said.
Right now, the Wyoming mines are barely breaking even, he said.
Thursday, Arch Coal announced that it was reducing production for 2018 by 10 million tons at the Black Thunder mine outside Wright. It’s one of the largest surface mines in the country, but Arch has opted to keep the coal in the ground until the return is higher, executives said Thursday.
Cloud Peak reported the same day a disappointing cash margin of $1.26 per ton.
Across the Wyoming coal industry companies are adapting to a new, more tumultuous, reality for coal. Coal production depends on a hot July or a supply disruption that spikes the price of natural gas or beating out a neighboring mine for diminished demand.
The market has changed, Marshall said Thursday.
What hasn’t changed is Wyoming’s hope for exports. As the market pressures increase, a few million tons of coal traveling overseas is enough to keep the fires burning.
- On April 29, 2018