US considering coal exports through military bases

A proposal by US interior secretary Ryan Zinke to use retired military bases in the US as transit points for coal and natural gas exports could enhance opportunities for western energy resources, industry members said today.

"Globally, the coal markets are still growing," said Lucas Pipes, an analyst with investment bank B Riley FBR. He pegged expected growth for seaborne markets at 1pc to 1.5pc/yr over the next 10 years. "And with little supply coming on line, the US is viewed more as a strategic supplier. New port capacity could play a longer-term role" in keeping US coal present in the global market.

The plan, confirmed by the Interior Department today, would potentially allow President Donald Trump's administration to circumvent efforts by environmental groups to halt development of private terminals on the west coast, namely Millennium's Longview terminal in Washington or the Oakland Bulk and Oversized Terminal in California.

"The president and secretary are committed to the men and women of coal country, and it should come as no surprise that secretary Zinke has put a number of options on the table to revitalize these communities and achieve ‘American energy dominance,'" the Interior Department said. It would not elaborate further on the plan.

What affect opening military bases to exporting would have on the coal industry will depend on the locations, among other things, Pipes said.

"What was mentioned was one base in Alaska, and that would have a small implication for coal," he said. "The rail costs to get there are substantial."

To benefit coal production in states such as Wyoming, Montana or Utah, the bases would have to be located in Washington, Oregon or California, Pipes said. He has not studied if any bases would have the required access to rail and the deep water port necessary to export coal.

"I think (the administration proposal) shows how important it is that the US has access to the Asian energy markets," said Wendy Hutchinson, a senior vice president with Millennium Bulk Terminals-Longview, which is attempting to build a coal export facility in Washington. "My preference, of course, would be for the coal to go through our terminal."

US coal producers have become increasingly reliant on exports as the US power sector has turned away from coal-fired generation in favor of renewables and natural gas-fired units.

US exports have climbed over the last two years and are on track to reach a five-year high this year. But the benefit of the increase has largely been limited to Appalachian and Illinois basin producers.

Just 7.8mn short tons (7.07mn metric tonnes) of coal was shipped out of terminals in California, Washington and Alaska from January to August, according to US Census Bureau data. While that was up from 5.63mn st in the same period of 2017, it represented just 3.6pc of what PRB and western bituminous coal producers are estimated to have produced during that time.

More coal was shipped through Westshore Terminals in Vancouver, Canada, but it is unclear how much of the 20mn t of loadings the terminal reported were from US producers.

Meanwhile, exports from eastern US terminals and the Gulf of Mexico totaled 63.3mn st and represented 36pc of Appalachian and Illinois basin coal production.

At the same time, all major US coal basins have been delivering less coal to domestic customers this year, government fuel receipts data show.

Cloud Peak Energy, which operates three coal mines in Wyoming, said it welcomes the effort to increase exports out of the Western United States.

"The development of an export terminal in the Pacific Northwest of the United States would significantly enhance US allies' access to secure, high-quality, low-sulfur coal and should be welcomed on both sides of the Pacific," a spokesman for the company said.

Like a proposal earlier this year to deem coal-fired generation necessary to baseload energy, this plan also cites national security interest because it allows the nation's allies better access to US-produced energy.

Cloud Peak already provides coal to customers in Japan, Korea, Taiwan and Hong Kong through Westshore Terminals.