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Potential Cherry Point coal terminal customer files for bankruptcy

5 things to know: The proposed Gateway Pacific Terminal

At a time when coal industry is struggling, the U.S. Army Corps of Engineers will make a decision about a permit application for a coal terminal at Cherry Point. Discover who is backing the project, who is opposing the project, and the kind of imp
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At a time when coal industry is struggling, the U.S. Army Corps of Engineers will make a decision about a permit application for a coal terminal at Cherry Point. Discover who is backing the project, who is opposing the project, and the kind of imp

Peabody Energy, a major supporter and potential customer of the proposed Gateway Pacific Terminal, filed for bankruptcy protection Wednesday, April 13.

Coal opponents including Climate Solutions’ Ross Macfarlane lauded the Chapter 11 bankruptcy filing as a “final nail in the coffin for the troubled Gateway Pacific Terminal proposal.”

Peabody, which is the world’s largest private-sector coal company, announced an agreement with SSA Marine in February 2011 to export up to 24 million metric tons of Powder River Basin coal per year through the planned GPT coal terminal at Cherry Point, northwest of Bellingham in Whatcom County.

That would have been about half of the expected 48 million metric ton capacity for coal shipments proposed by GPT majority owner SSA Marine. About 6 million metric tons of other commodities also could flow through the terminal, if permitted.

Bob Watters, senior vice president for SSA Marine, said that Peabody never actually committed to shipping the 24 million metric tons per year.

“That was being negotiated over time and was not consummated,” Watters said in an email Wednesday. “They still have interest as a customer. When permitting is closer to a reality is the best time to gauge greater project interest.”

Peabody and SSA Marine had a memorandum of understanding anticipating that a definitive agreement would be developed later, Watters said.

It’s not clear whether Wednesday’s filing means Peabody will change its plans to ship coal from the terminal should it ever be built. The company did not immediately return a call seeking comment.

There are a lot of reasons to believe the Gateway Pacific Terminal is on its last legs here.

Matt Petryni, clean energy program manager at RE Sources for Sustainable Communities

“It certainly casts a certain amount of uncertainty on the terminal’s abilities to move forward,” said Matt Petryni, clean energy program manager at RE Sources for Sustainable Communities.

Before the Peabody bankruptcy, SSA Marine’s subsidiary Pacific International Terminals announced April 1 it was suspending an environmental study of the proposed terminals impacts. The 45-day suspension, allowed under its contract with Whatcom County and the Washington state Department of Ecology, could delay the study’s completion, which was expected later this year.

Adding to that, it is widely expected that in coming weeks the U.S. Army Corps of Engineers could issue a determination that the project would impact Lummi Nation treaty-protected fishing rights, and therefore not permit the project. Whichever decision the Corps makes will likely end in the issue going to court.

“There are a lot of reasons to believe the Gateway Pacific Terminal is on its last legs here,” Petryni said.

Future of coal

In its announcement Wednesday, Peabody said “the factors affecting the global coal industry in recent years have been unprecedented.”

“Industry pressures in recent years include a dramatic drop in the price of metallurgical coal, weakness in the Chinese economy, overproduction of domestic shale gas and ongoing regulatory challenges,” a Peabody news release states. “Still, multiple third-party estimates project that both the U.S. and global coal demand will stabilize.”

With commodities, pricing is cyclical, Watters said, and “at the current time all commodity pricing are at lows.”

“We don’t know what the international coal market will look like in five years,” Watters said. “What we do know is that energy demand continues to grow and coal is a major player. We also know there are a large number of new coal plants being built in Korea, Japan and China.”

Members of the Power Past Coal coalition said Peabody’s announcement was just the latest setback for the global coal industry, with signs pointing to coal going the way of the typewriter and film camera, potentially spelling the end for GPT and a coal terminal proposed for Longview, Wash.

“The coalition and the communities, the tribes, the elected officials and others, can and should take credit that these coal terminals weren’t built on the schedules they were proposed,” Macfarlane said. “If folks hadn’t taken action, these would have been built years ago and now would have been white elephants in the economy.”

Macfarlane said he felt confident the terminals wouldn’t be built, as global markets are moving away from coal in as massive a way as when the economy shifted toward petroleum in the 20th century.

$34 billion Value of top four U.S. coal producers in 2011

Before Peabody’s announcement, two of the other largest coal companies in America filed for bankruptcy: Arch Coal, which filed in January, and Alpha Natural Resources, which filed in August 2015.

Those three companies plus Cloud Peak Energy, which bought a 49 percent stake in GPT in August 2015, make up the four largest coal mining companies by output.

GPT was originally proposed by Pacific International Terminals in 1992, then put on hold in 2002. When PIT restarted its efforts to build the terminal in 2011, the four major coal companies had a combined value of $34 billion, according to a report by the Rhodium Group.

But on Wednesday, all stock trading on Peabody was frozen and the company’s market cap from Tuesday was listed as $38.4 million, Cloud Peak Energy’s closing market cap was $144.9 million, Arch Coal’s closing market cap was $7.4 million, and Alpha Natural Resources’ closing market cap was $4.12 million, for a combined total of roughly $195 million.

“The biggest problem for US coal giants has been metallurgical coal – the kind used to make steel. Met coal is a lot more expensive than the lower-grade coal that’s used in power plants,” Clark Williams-Derry, director of energy finance at the Sightline Institute, said in an email.

“The big 3 US coal producers – Alpha, Arch, and Peabody – all made huge bets on China’s demand for steelmaking coal, by buying export-oriented metallurgical coal mines,” Williams-Derry continued. “When China’s demand for met coal cooled, prices collapsed...and all of those huge bets on the met coal market wound up on the losing side.”

In its announcement Wednesday, Peabody said, “Globally, thermal coal is expected to continue to fuel hundreds of existing coal generating plants as well as scores more that are under construction.

The bankruptcies have re-enforced that coal is not the right choice for Whatcom County, Petryni said.

“What we’ve been working to do is support clean energy alternatives that are creating job opportunities in our community and are likely to continue to do so, and not continue to put all our eggs into a basket that is crumbling,” Petryni said.

However, Peabody’s announcement was not necessarily cause for celebration, Petryni noted.

“We have concerns for the people who work for Peabody and the environmental cleanups they’re committed to, and we want to see how that is resolved in the bankruptcy,” Petryni said.

Peabody’s filing leaves uncertainties about the company’s $1.47 billion in environmental liabilities, Bloomberg reports.

The company announced it “sees its land restoration as an essential part of the mining process, takes great pride in the work it does and has been consistently recognized for these programs. In addition, Peabody intends to continue to work with the applicable state governments and federal agencies to meet its reclamation obligations.”

Samantha Wohlfeil: 360-715-2274, @SAWohlfeil

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