Montana’s largest coal producer expects to reduce shipments to Asia next year through a West Coast port, which should reduce coal-train traffic through Bellingham and other Whatcom County cities.
Exports of the fuel from the United States continue to slide and coal producers face mounting pressure because of new pollution regulations and cheap natural gas.
Cloud Peak Energy Inc. announced Wednesday, Oct. 28, that it had renegotiated its long-term agreement to ship coal through British Columbia’s Westshore Terminals. The Gillette, Wyoming-based company said production volumes at its Spring Creek Mine near Decker, Montana, would be reduced accordingly.
“Their tonnage obligation for ’16, ’17 and ’18 is zero,” said Glenn Dudar, vice president and general manager at Westshore Terminals.
“It could mean as few as zero (Cloud Peak) trains” running through Bellingham to Westshore, Dudar said. Currently, Cloud Peak delivers “close to a train a day” of coal to the terminal, he said.
Cloud Peak does not deliver coal to any other British Columbia ports, a company spokesman said. In August, Cloud Peak bought a 49 percent stake in Gateway Pacific Terminal, which would ship up to 48 million metric tons of coal from Cherry Point as early as 2020.
Communitywise Bellingham, a watchdog group concerned about the local impacts of coal-train traffic, estimates that four coal trains — two loaded and two empties — go through Bellingham every day.
BNSF Railway does not disclose how many coal trains travel through Bellingham in a day. But BNSF spokeswoman Courtney Wallace said on Wednesday that about four coal trains move through the state per day.
Cloud Peak’s decision could cut coal-train traffic in Bellingham by about half.
“Reducing coal traffic through Whatcom County by half is pure upside for our communities,” said Shannon Wright, Communitywise Bellingham’s executive director. “This will mean half the coal train air pollution and safety risks, half the coal train sleep disturbances, and half the impact on waterfront businesses and parks.”
The lost shipments could reduce state tax revenue by up to $15 million in 2016, Montana Coal Council executive director Bud Clinch said.
U.S. coal exports peaked in 2012. The most recent federal data shows they have since fallen by almost 50 percent on a monthly basis. The domestic market for the fuel contracted since peaking late last decade as power plants across the nation have been shuttered by companies that did not want to install expensive pollution controls or could not compete with low natural gas prices.
“My God, what else can come our way?” Clinch said. “It’s got to be an environmentalist’s dream. It’s everything they could ask for to make it as difficult for the industry as possible.”
Spring Creek also is subject to a lawsuit from environmentalists that threatens to have a more drastic impact on mining.
A federal magistrate judge last week said U.S. Interior Department officials approved an expansion of the mine in 2012 without conducting thorough environmental analysis. Judge Carolyn Ostby said in a recommendation to the U.S. District Court in Montana that the agency should re-do its analysis in 180 days, or else the mine’s permit could be vacated.
Cloud Peak exported more than 4 million tons of coal last year from Spring Creek.
The 260-worker mine’s total production topped 17 million tons. It’s located in the Powder River Basin, which spans the Montana-Wyoming border and boasts some of the largest coal reserves in the world.
Under Cloud Peak’s contract with Westshore, the company was obligated to ship a steady volume of the fuel through the port. Under the re-negotiated terms of that deal, the volume obligations were eliminated beginning next year through 2018, in exchange for a series of payments from Cloud Peak to the port.
Company representatives declined to disclose the amount of those payments. They said the contract between Westshore and Cloud Peak remained unchanged for the years 2019 through 2024.
Company Vice President Jim Orchard said the new terms will give the coal company flexibility over the next several years for when the market picks up again, something he said will happen when the current supply glut gives way to growing demand.
That should happen before Gateway Pacific Terminal opens for business, Cloud Peak officials said. The terminal project by SSA Marine is undergoing an environmental review.
“We certainly see long-term growing demand in the Asian Pacific region,” said Rick Curtsinger, director of public affairs for Cloud Peak Energy. “We very much believe in being able to serve those customers long term, once this current oversupply works itself out.”
Cloud Peak President Colin Marshall said in a prepared statement that the company also was in discussions with BNSF Railway over its contract to transport fuel by train from the mine to Westshore Terminals. He said the company was hoping to “reach a mutually acceptable agreement” with the railway.
Cloud Peak on Tuesday reported third-quarter earnings of $8.9 million on revenue of $302 million, exceeding analysts’ expectations.
The company’s stock price rose more than 10 percent to $3 a share Wednesday on the New York Stock Exchange. It remains down sharply from last year’s peak of almost $22 a share.