China’s push to cut coal use could be bad news for proposed Cherry Point terminal

As its national legislature adjourns this week, China has signaled it intends to further lower coal consumption, reducing pollution but also rocking coal-export industries from Australia to the Pacific Northwest.

China is the world’s largest energy user, with an economy heavily dependent on cheap, coal-generated power. Just three years ago, Australia and the United States were shipping record amounts of coal overseas to feed China’s voracious appetite.

Since then, China’s demand for coal has dropped, and it’s expected drop further, based on announcements of the last week in Beijing.

Premier Li Keqiang said China wanted to reduce energy intensity — the amount of energy used per unit of gross domestic product — by 3.1 percent this yer. That translates to an annual reduction in coal usage of 176 million tons.

“Environmental pollution is a blight on people’s quality of life and trouble that weighs on their hearts,” Li said last Thursday, speaking to the National People’s Congress. “We must fight it with all our might.”

China’s moves might have big implications for the Western United States, particularly Oregon, Washington, Wyoming and Montana. Export industries have proposed at least five terminals in Oregon and Washington to ship coal to China from Wyoming and Montana, including the Gateway Pacific Terminal at Cherry Point. Boosters say the terminals will create thousands of jobs, but they all face organized opposition.

Lummi Nation has protested a proposed coal terminal at Cherry Point west of Ferndale, saying it could damage the tribe’s traditional fishing grounds. The tribe has asked the U.S. Army Corps of Engineers to reject the project for those reasons. Last year, Oregon regulators cited fishery impacts in rejecting an Australian company’s bid to build a coal terminal on the Columbia River. Wyoming and Montana are appealing that decision.

All the terminals were proposed during the boom era for coal exports, and now their utility is being called into question.

In a report this week, a leading analyst warned that China’s demand for imported coal is likely to wane, at least for the next few years.

“The outlook for the Chinese coal industry remains considerably downbeat with persistent oversupply and weaker demand prospects going forward,” wrote Stephen Duck, a senior consultant with CRU, an international mining consulting company.

Multiple factors driving down demand

Pollution is one factor driving China’s reduced demand for coal. Coal combustion is a major cause of the smog that blankets eastern China for most days of the year. Coal is also China’s major source of carbon dioxide, a greenhouse gas that Beijing has pledged to reduce under an agreement last year with President Barack Obama.

But there other reasons China is souring on coal imports. As analysts note, China has excess capacity in its steel-building industry, a major user of coal. China’s Communist Party wants to shrink that excess as part of a wider plan to shift its economy away from heavy industry toward more domestic consumption and technological innovation.

There are signs that China wants to limit imports of foreign coal to shore up its debt-ridden domestic coal industries.

“The Chinese government has implemented a number of trade policies in order to protect the country’s coal producers from foreign competition,” Duck said in his report Tuesday. These include new tax policies on imported coal and tougher testing of trace elements in the shipments, he said.

For all these reasons, China’s use of coal dropped 2.9 percent last year and is expected to fall again this year. That will, in turn, affect imports of foreign coal. Since the third quarter of 2012 to the same period in 2014, U.S. exports of coal worldwide — largely to China — dropped from 31.6 million tons per quarter to 22.7 million, according to the U.S. Energy Information Administration.

The proposed Gateway Pacific Terminal would be capable of shipping 53 million tons of coal per year, or on average 13 million tons per quarter.

Within the international energy sector, there’s wide debate on whether China has reached “peak coal” in terms of demand. Although its economy is still growing faster than 7 percent a year, it’s investing heavily in wind, solar, natural gas, nuclear and other energies to reduce its reliance on the black stuff.

Even so, international mining companies insist that China’s demand for coal will stay strong. China’s domestic coal tends to be of the “dirty” variety, relatively high in sulfur and other pollutants. In addition, China has limited supplies of what’s known as “metallurgical coal,” a mineral high in carbon that’s used in the production of coke for steel making.

In Wyoming, lawmakers are so confident about coal exports that they recently granted a state agency the authority to issue up to $1 billion in bonds to finance the construction of coal ports in the Northwest.

Mining interests in Australia, which exports about 54 million tons of coal to China annually and is one of China’s largest suppliers, are also hopeful.

“Coal currently accounts for 80 percent of China’s electricity output,” the Mineral Council of Australia said in a recent statement to Australian media. “All leading energy-forecasting agencies’ analysts agree that ongoing industrialization and urbanization will drive robust coal demand for decades to come.”

McClatchy special correspondent Tiantian Zhang contributed to this report.