Financial expert says coal port near Bellingham not needed, but opinions differ

A coal-export terminal proposed for Cherry Point still has a lot of regulatory hurdles to overcome before it can be built. A financial analyst told an anti-coal audience on Thursday, Nov. 20, that Gateway Pacific Terminal has another, perhaps more daunting, obstacle.

“U.S. coal ... is effectively in a state of market collapse,” said Tom Sanzillo, director of finance at the Institute for Energy Economics and Financial Analysis, a group working to reduce the world’s dependence on coal and other fossil fuels.

“If you want a partner for economic growth in your counties and your cities, try something other than coal,” Sanzillo told the invitation-only audience, which included Bellingham’s mayor and most of the City Council.

Major proposals such as Gateway Pacific Terminal were hatched when exported U.S. coal was selling for more than $100 a ton. Its price has since fallen to $64. U.S. coal exports have declined from a 2012 peak of 126 million tons to possibly 80 million tons this year.

In the peak year of 2012, Pacific Northwest ports — all in British Columbia — exported 7.4 million tons of coal. There was room to move 54 million tons of coal out of the three B.C. ports, according to a report written by Sanzillo, meaning 86 percent of the capacity went unused.

Sanzillo argues in his six-page report, released Wednesday, Nov. 19, that the coal markets don’t need another 48 million tons of capacity at Cherry Point.

“New coal-export ports are boondoggles — a waste of money, both public and private, and an unfair burden on the communities being asked not only to host these facilities but to believe in them as well,” Sanzillo wrote in an article accompanying the report. “The economic fundamentals say they should not be built.”

Craig Cole, spokesman for terminal builder SSA Marine, said Sanzillo’s information about capacity in B.C. was misleading. Much of that supposedly available capacity is tied up in other commodities, he said. Cloud Peak Energy, which mines coal out of the Powder River Basin in Montana and Wyoming, announced in August that it paid $37 million for more capacity at one of the three Canadian ports.

Piecing together all the moving parts of the global coal trade, and then projecting what it will do five or 15 years from now, is extraordinarily complex if not impossible. Not surprisingly, Sanzillo’s isn’t the only forecast out there, and it may not be the most commonly held opinion.

Wood Mackenzie, a “commercial intelligence” firm for energy companies, with offices on six continents, is optimistic about coal exports.

“Our view is that the PRB coal in the long term does have a market in the Asia Pacific arena,” said Joe Aldina, a commodities research analyst at Wood Mackenzie’s New York office. Aldina used the acronym for the Powder River Basin. The region would be the source of coal shipped from Gateway Pacific Terminal.

“Right now it already has strong demand, primarily from Korea, Taiwan — and there will certainly be more demand from Japan,” Aldina said.

China may not figure much in PRB exports, according to analysts. Little, if any, PRB coal heads there now, Aldina said, even though the country receives about 30 percent of all the world’s coal exports.

China has announced policies that would curtail future imports, including a tariff, a policy to combat air pollution, and a cap on coal use to go into effect in 2020.

Aldina said U.S. companies are in a bad position currently. Their coal is more expensive than coal exported to Asian markets from Indonesia, and the U.S. is a marginal player in the world market. However, his firm subscribes to a “rising tide lifts all boats” theory when it comes to coal.

A chart produced by Wood Mackenzie projects coal imports increasing threefold between now and 2035.

“It’s challenging to grow volumes materially from here, but should global demand grow, there’s a home for PRB,” Aldina said. “Indonesian coal may not be able to supply what the global market demands in the long term.”

Multiple analyses in the media say the downturn in the coal market will reverse in a couple years, after the glut in coal supply is burned off.

Sanzillo doesn’t agree. He points out that while the stock market as a whole has been gaining value since 2011, an index of coal stocks has dropped precipitously. Something never seen before is happening to the U.S. coal economy, Sanzillo said. It doesn’t appear capable of recovering.

“Markets turn around, but we’re seeing a structural change, is what we’re thinking,” he said.

SSA Marine says it is forging ahead with Gateway Pacific Terminal, unruffled by the latest among many studies on the coal industry. Coal companies have reserved more than 75 percent of Gateway Pacific Terminal’s capacity, SSA Marine officials confirmed on Thursday, Nov. 20.

Cole, the SSA Marine spokesman, said Sanzillo’s “advocacy research” can’t be relied upon. Wood Mackenzie, on the other hand, makes its money by being objective, Cole said. SSA Marine is not a client of Wood Mackenzie.

“Let’s be real here,” Cole said in a written statement in response to the Sanzillo report. “Although based in Washington, SSA Marine is a sophisticated investor with worldwide experience. No one is more focused on forecasting market demand than the private investor putting up the money, in this case over $600 million.”

RE Sources for Sustainable Communities, the Bellingham environmental group that hosted Sanzillo, does not believe the fight against the coal terminal is over, even as the organization and its audience were impressed by the dire outlook for coal presented in Sanzillo’s talk.

“It’s the last effort by a very desperate industry,” RE Sources Director Crina Hoyer told the audience after Sanzillo was finished. “We know how people and animals behave when they’re desperate, and I imagine businesses are just the same.

“The fight has just begun.”