WASHINGTON — Reduced Chinese demand for imported coal could undercut the economic rationale for construction of coal export terminals in the Pacific Northwest.
The American coal industry, stung by a drop in U.S. demand, hopes to revive its fortunes by sending Rocky Mountain coal to Asia from proposed terminals at Whatcom Countys Cherry Point and at Longview.
But a recent report by an analyst at Wall Street colossus Goldman Sachs says this will be a transformational year for China. Chinas seaborne coal imports are predicted to drop for the first time since the global financial crisis of 2007 and 2008 and may continue to decline in the coming years.
Chinas own coal production has spiked, the Goldman Sachs analyst said, along with investment in Chinese railroads to move its coal.
China, with its cities shrouded in smog, also is trying to improve energy efficiency and diversify its fuel mix, including investments in nuclear energy and wind power, according to Goldman Sachs. A Deutsche Bank report released this month agreed that there are increasing signs of softer Chinese coal demand growth going forward.
The global German banking firm pointed to protests in China against coal-fired power plants and associated pollution. It also said urbanization of Chinas interior means much of the future demand for coal will come closer to areas where China has its own mines and further from the coastal ports where Americas coal would be shipped.
The effort to develop coal export terminals in the Northwest has become one of the regions biggest environmental battles in decades.
Opponents site numerous risks, including traffic delays and hazards at rail crossings, health impacts from coal dust and diesel fumes, and increased greenhouse gas emissions from increases in Chinese coal burning.
Plans for three export terminals already have been dropped by would-be developers.
The major remaining projects are the Gateway Pacific Terminal at Cherry Point, which seeks to ship up to 48 million tons of coal a year, and the Millennium Bulk Terminal in Longview at up to 48.5 million tons. Theres also a smaller project in Boardman, Ore., of up to 8.8 million tons.
Peabody Energy, which hopes to ship coal to Asia from Gateway Pacific Terminal, expressed confidence in the market. Peabody spokeswoman Beth Sutton said the Asian coal demand will rise with accelerating industrialization and urbanization.
We see imports from China and India growing by more than 50 percent over the next five years, representing some of the fastest-growing imports in the world, Sutton said in response to questions. Chinas coal imports are expected to rise more than 10 percent this year, and India has now surpassed Japan as the second largest thermal coal importer.
She said the question is who would benefit from the demand the United States or other countries such as Indonesia.
SSA Marine, the company that seeks to build Gateway Pacific, said the U.S. coal exports would not just go to China. SSA senior vice president Bob Watters cited a forecast from energy consulting firm Wood Mackenzie of a rising demand throughout Asia.
Goldman Sachs owns a large share of Carrix, the parent company of SSA. The recent Goldman Sachs report forecasts growing seaborne coal demand in India and other emerging markets in Asia, but not at the pace driven by China in recent years. China burns almost as much coal as the rest of the world combined and last year became the worlds leading importer.
Chinas own coal production grew rapidly at the same time, though, and when its electricity demand slowed sharply in 2012, the domestic market became oversupplied and coal prices tumbled, said Christian Lelong, an Australia-based Goldman Sachs analyst.
Falling coal prices have increased pressure on producers, he said, and new projects must compete in a market that is going to be more subdued than the bullish run of the past five years.
American exports to China would need to compete with coal from Indonesia and Australia, which are closer to the market and so less exposed to freight costs, Lelong said.
But American coal does have some advantages, said Michael Hsueh, a London-based analyst for Deutsche Bank. The shipped price of Rocky Mountain coal sent from the Pacific Northwest is competitive into south China with South African coal and cheaper than Australian and Russian coal when adjusted for energy content, Hsueh said.
There is some potential for U.S. coal to create a market for itself by displacing other sources of coal, he said.
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