“Restricting international trade in fossil fuels is not an effective policy to reduce global greenhouse gas emissions or to advance domestic economic interests, and we recommend against any such restrictions,” — Byron Dorgan, former U.S. Senator, testifying on behalf of the Bipartisan Policy Center
Somewhere today, in Seoul, South Korea, and a mother switches on a light, flooding her family kitchen with a warm morning glow. A plant operator checks a boiler, ensuring the facility has the power it needs to continue chugging along. A young entrepreneur boots up a computer, eager to start his day.
The thread that connects these individuals, and millions more across the Korean peninsula, may surprise you. Daily Korean life is powered heavily by coal, and due to limited domestic reserves, Korea is the world’s sixth largest importer of coal. In 2012, the United States exported approximately eight million metric tons of coal to South Korea, nearly half of that coming directly from Montana’s Spring Creek Mine outside of Decker.
“South Korea is actively building coal-fired generation, using the latest technology available. They are doing so based upon the fact that they believe coal will be a primary source of electricity for them into the foreseeable future,” said Todd O’Hair, senior manager of government affairs for Cloud Peak Energy, owner of the Spring Creek Mine.
Asia is the destination for approximately 26 percent of all U.S. coal exports, with Korea being the fifth-largest recipient in the world of U.S. coal. The Asian region is dominated by coal exports from Australia and Indonesia, but interest in U.S. coal is growing. Montana coal is particularly compelling for export markets, based on geographic proximity to West Coast export facilities and the fact that Montana has low sulfur, low ash coal with a competitive heat value. In other words, coal produced in Montana has a lower emissions profile than some global competitors, and a facility can burn less Montana coal to get the same amount of energy.
“The good news story for Montana, in all of this, is that there is a tremendous amount of interest globally in Montana coal,” said O’Hair.
That is good news for Montana. Each year, coal mines send more than $1 billion in taxes to the state, in addition to the millions in private sector impact through jobs and purchases of goods and services. But coal demand in the U.S. is declining, and without access to global customers, the 42 million tons of coal produced in Montana each year would have no place to go.
“They [coal exports] are extremely critical. We don’t have anything on the drawing board for power plants in Montana. If they keep shutting down power plants, our number one natural resource has to go somewhere,” said Greg Kohn, a spokesperson for Count on Coal Montana, an industry group that promotes coal production.
U.S. Senator Jon Tester (D-Mont.) agrees.
“From a coal mining perspective, exports are critically important,” he said, noting the importance of access to transportation for coal. “If it doesn’t happen, that will certainly diminish the market opportunity.”
Nationwide, the impact of coal exports is substantial. According to an Ernst & Young study published in May 2013, every million short tons of coal exported results in approximately 1,320 jobs in the U.S. On average, the U.S. exports about 10 percent of its total annual coal production. Domestic market projections for coal are gloomy, with the percent of electric generation from coal expected to decline from 51 percent in 2003 to approximately 42 percent today to about 35 percent by 2040, according to the Energy Information Administration. At the same time, U.S. coal exports hit a record-high 125 million short tons in 2012.
“The demand is there for coal, globally. The supply is here in the U.S., specifically in Montana. We have the supply and the quality of coal they are interested in, for a variety of reasons,” said O’Hair.
Getting to Market
Cloud Peak Energy sells substantial portions of its Montana-mined coal into the domestic market, primarily to Detroit Edison, which supplies power to the Big 3 automakers. But development of additional coal resources, expansion of production, and growth of the company’s role in Montana’s economy depends largely on the ability to access hungry global markets.
The only thing standing between more Montana coal serving overseas demand? Ports.
“We are limited, almost entirely and exclusively, by export terminals,” said O’Hair.
Montana has a geographic advantage for coal export markets, because it is located closer to West Coast export terminals than, for example, Wyoming, which products nearly 10 times as much coal as Montana on an annual basis. Because transportation is such a large part of the delivered cost of coal, Montana’s portion of the Powder River Basin is more competitive, as it eliminates nearly 200 miles of rail transportation costs.
“Because we are closer to states like Washington, Oregon and the western seaboard of Canada, that gives us a leg up over Wyoming,” said O’Hair.
Current export terminals are operating at full capacity for coal exports, meaning new markets can only be accessed by the construction of new export terminals. Currently, three export terminals are under discussion in Washington and Oregon, and all three are facing heavy opposition.
Environmental and community organizations allege that increased coal exports would cause significant damage, including increased risk of climate change, a risk of coal dust in communities and waterways, and expanded rail traffic through cities and towns. Originally, six new export terminals were proposed for the West Coast; three have been scuttled. Opponents of the export terminals suggest that the proposals are simply not economically sustainable, regardless of the environmental concerns.
“You have to look at the global situation to understand where Montana stands. We are competing in a world market for Chinese demand that is declining,” said Anne Hedges, program director for the Montana Environmental Information Center. “The world is changing, and it is rapidly leaving coal behind.”
The largest of the three proposals remaining is the Gateway Pacific, in Cherry Point, Wash. The facility is proposed as a multi-commodity terminal, meaning that in addition to coal, it would also ship other bulk commodities, such as Montana wheat, to overseas markets. The project would provide 4,400 construction jobs, 1,250 permanent jobs and $11 million a year in taxes to Washington State. Cloud Peak Energy has an agreement to ship up to 16 million tons of Montana coal through the terminal, if constructed.
Ambre Energy, an Australian coal company, is currently negotiating to purchase outright the Decker Mine, located near the Spring Creek Mine in Montana. The company currently owns a 50 percent stake in the mine, but is seeking to control all operations, with an eye toward serving Asian markets.
Hedges asserts that the projections of global demand for coal are faulty and that the proponents of coal exports are simply trying to convince investors to back projects that won’t likely succeed.
“This ‘build it and they will come’ is a very juvenile perspective on a very complex issue,” said Hedges.
Understanding the Controversy
All three of the proposed West Coast export terminals require federal and state approval. The U.S. Army Corps of Engineers has jurisdiction, under the Clean Water Act, of any discharge into federal navigable waters, including the deepwater ports on the West Coast. The port proposals are thus subject to environmental review under the National Environmental Policy Act, as well as a “public interest review” – a process somewhat similar to the approval needed for the Keystone XL pipeline. In addition, the export terminals are subject to state and local regulations.
“The big holdup [on terminal development] is the environmental impact studies to be done,” said Kohn.
Environmental opposition largely centers on the potential global carbon emissions associated with extraction and combustion of coal, and many groups are demanding that federal environmental reviews include a global analysis of the climate change impacts that could be attributed to more coal exports.
Hedges says that a comprehensive review of climate change impacts is “absolutely doable. That is not a Herculean task.”
According to O’Hair, the constantly changing nature of business decisions, the variety of mixes of coal in power plants, and emerging technology all mean that analyzing carbon impacts of a single action is actually a massive undertaking, and not likely one that agencies would be able to reasonably manage.
“Every coal-fired generating unit emits different CO2 based upon construction of the plant, the technology of facility, the quality of coal and the output of the plant. Take South Korea for example. They’re not just burning Montana coal,” said O’Hair, noting that power plants in Asian markets may be blending with coal globally and that those blends change daily.
“Trying to determine what global CO2 impacts would be just from shipping into global markets is incredibly complex. We would argue that environmental community knows that. They will argue that the analysis is flawed and then they will litigate on that.”
On June 18, 2013, Jennifer Moyer, the acting regulatory chief of the Army Corps, testified before the U.S. House Energy and Commerce subcommittee on Energy and Power, stating that there is “no compelling justification” to conduct a programmatic, broad environmental review for the three pending export terminals. Moyer stated expressly that the climate impacts of burning coal in Asia would not be considered, and that the projects will be evaluated independently.
In addition to climate change, opponents of new export terminals suggest that coal exports can emit coal dust into the air, could potentially pollute waterways and will create nuisances for cities and towns with increased rail traffic.
Kohn pushes back on those concerns, stating that Montana coal can access export markets with existing rail infrastructure, and that the rail lines can only support about 15 coal trains per day, not the 60-90 new trains that some export opponents have suggested. O’Hair concurs that rail expansion is not a necessary component of getting Montana coal to export terminals.
“We are not concerned, at this point, that rail transportation would be a limiting factor,” O’Hair said.
Kohn also asserts that coal dust is not a problem for cities along the route. Coal dust generally settles within a mile of the mine site, and a recent study by the City of Missoula listed coal dust as the fifth most common air pollutant, well behind rubber particles from ordinary vehicle tires. Kohn suggests that cooperation can resolve any concerns that communities may have.
“If we all work together, we can achieve the same outcome – more money for schools, more money for roads, more money for infrastructure and good paying jobs,” he said.
Sen. Tester echoes that sentiment.
“I hope they talk to actual people about environmental issues,” he said. “They need to talk to folks along the route to find out how to mitigate impacts.”
Exports: More Than Just Coal
While coal export debates have dominated the headlines, they represent only a portion of the potential global market for energy-related products. As coal companies push for more access to exports, so too are natural gas producers looking to expand into world markets for liquefied natural gas (LNG).
Increased U.S. exports of natural gas have the potential to significantly alter global market power. The International Energy Agency predicts that the U.S. will soon pass Russia as the world’s largest producer of natural gas. If the U.S. increases its natural gas exports, the impact on Russia’s near monopoly over European markets could be substantial.
U.S. exports are limited by regulation – all LNG exports must receive approval from the Department of Energy (DOE) and the Federal Energy Regulatory Commission (FERC). Currently, DOE has 16 export applications pending, and the agency has suggested it will proceed on a case-by-case basis in evaluating each, in the order in which companies filed a FERC permit. Some in the industry have suggested this is unlawful and are considering legal challenge.
Earlier this year, former U.S. Senator Byron Dorgan (D-N.Dak.) testified before a House Committee on behalf of the D.C.-based Bipartisan Policy Center, in favor of increased LNG exports.
“Restricting international trade in fossil fuels is not an effective policy to reduce global greenhouse gas emissions or to advance domestic economic interests, and we recommend against any such restrictions,” he said in his May 7, 2013 testimony to the House Subcommittee on Energy & Power.
Montana produced about 75 million cubic feet of natural gas in 2011, ranking it 21st in U.S. production. Texas leads the nation, with Louisiana and Wyoming following behind. North Dakota gas production is increasing along with oil production in the Bakken, although large volumes of Bakken natural gas are being flared off, rather than gathered and sold.
“With the Bakken coming on, things have changed. There is a significant amount of gas available in Eastern Montana and Western North Dakota,” said Dennis Haider, executive vice president, Business Development and Gas Supply, MDU Resources. MDU Resources is the largest producer of natural gas in Montana, through its subsidiary Fidelity Exploration and Production.
Haider suggests that while LNG exports are drawing significant attention, the impact for Montana is likely minimal as the total U.S. exports likely wouldn’t exceed 10 percent of U.S. production in the near-term. The benefits to Montana may be more indirect.
“If it incentivizes producers to produce more gas, that could be beneficial to Montana,” said Haider.
Ralph Spence, an independent natural gas producer with holdings in Montana and throughout the West, argues that expanding natural gas exports is not nearly as important as accessing the massive transportation market in the U.S., through the deployment of natural gas-powered vehicles.
“We’ve got to get natural gas into our transportation markets,” said Spence. “The best thing for consumers is natural gas in transportation.”
Spence says that increasing the use of natural gas in transportation would do more to stimulate infrastructure investment and exploration for natural gas than would allowing LNG to be exported. Spence believes that the long-term consumer benefit lays in using clean natural gas in vehicles, rather than shifting to renewable energy.
“If you look at how to get energy to the working man the cheapest way possible, it’s not wind, it’s not solar, it’s not even electricity. It’s oil and gas,” he said, noting that shifting U.S. transportation to more reliance on domestic natural gas could have a global impact.
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