SURREY/DELTA – An oversupply in thermal coal in the Pacific Northwest makes expansion plans for B.C. coal ports unnecessary, according to a report from a U.S. energy think tank.
"The global market, in short, is in a state of oversupply," wrote Tom Sanzillo, director of finance for the Institute for Energy Economics and Financial Analysis and author of the report.
The current market price for thermal coal (energy-making coal) has fallen in value by 50 per cent to roughly $60 a tonne from a peak of $132 a tonne in mid-2011. Sanzillo said this creates "severe headwinds" for coal port proposals in Washington State and B.C. In 2012, the peak year for U.S. coal exports, ports in B.C. handled coal primarily from Canadian mines in addition to some from U.S. exporters.
Since then, B.C. ports have pressed forward with ambitious port expansion plans, including a $255-million, multi-year expansion effort by federally owned Ridley Terminals in Prince Rupert to export 25 million tonnes of thermal coal a year by the end of 2015.
But on Sunday, the terminal operator announced plans to put that expansion on hold for up to five years due to an export target of just 18 million tonnes by the end of this year. In northeastern B.C., coal mining firms have either closed or suspended operations over the past 20 months due to depressed commodity prices.
"The Ridley terminal has seen a 37 per cent year-over-year decrease in throughput through September 2014, with losses accelerating over the past several months, as some of the port’s chief customers have shuttered their mines due to collapsing international coal prices," said Sanzillo, adding similar plans in Surrey could be postponed.
Fraser Surrey Docks received approval from Port Metro Vancouver in August to build a $15-million coal transfer facility that would export four million tonnes of U.S. thermal coal to Asia annually. Sanzillo noted that in addition to market uncertainty about the ability of U.S. coal producers to supply throughput, the terminal has encountered stiff opposition from residents over health and environmental concerns.
Denis Horgan, vice president and general manager of Westshore Terminals in Delta, said the global economy is in a state of a "commodities super cycle," where a demand from emerging energy markets a few years ago has created an oversupply problem.
"All commodities are down right now but there’s been cycles before and there will be cycles again," he said.
Westshore Terminals on Roberts Bank shipped a record 31.2 million tonnes of coal last year and is on pace to ship 32 million tonnes this year. Roughly 60 per cent of their export is metallurgical (steelmaking) coal, while thermal coal makes up the balance.
Horgan noted the global oversupply is being affected by low-cost exporters in Australia. There are currently three terminal operators in Newcastle exporting up to 200 million tonnes of thermal coal annually, with a fourth terminal being contemplated that could increase capacity by another 120 million tonnes.
But Horgan said despite the low prices, demand for thermal coal in Asian markets continues.
"There’s three and a half billion people in the world with little or no electricity and their best shot in the near term is coal-fired generation. In the longer term, of course, there’ll probably be a more of a move away from coal to renewables or to nuclear."
Horgan said that shift probably won’t happen for 30 or 40 years.
"I think coal has been pronounced dead a number of times before and it has defied expectations, in fact it’s been expanding dramatically the last few years."
Horgan said Peabody Energy, the world’s largest private coal shipper, is still shipping record volumes and is lobbying to develop a new terminal through Cherry Point in Washington State.
Fraser Surrey Docks did not respond to requests for comment.
[Editor’s note â€“ The newspaper version of this story indicated Peabody Energy is shipping record volumes of coal through Cherry Point. In fact, they are shipping through Pacific Terminal in Bellingham, but does not yet have a terminal in Cherry Point. As well, Westshore Terminals have revised their numbers of exported coal in 2013 down to 30.1 million tonnes (from 31.2 million) and expect to export in excess of 31 million tonnes (not 32 million tonnes) this year.]