Politics Blog

Goldman Sachs: Coal hits ‘retirement age;’ IEA disagrees

If Vegas bookmakers were taking bets on whether Gateway Pacific Terminal would be built, the odds would have been getting longer in the past few months.

Earlier this month came the ostensible bombshell that opponents of SSA Marine’s proposed coal terminal at Cherry Point have been waiting for: A clear request from Lummi Nation to the U.S. Army Corps of Engineers to deny a federal permit for the terminal. Case history has been favorable to Indian tribes, and Lummi Nation in particular, when it comes to protecting the traditional fishing grounds granted by treaty.

In November, a financial expert from an organization that seeks to wean the world off coal told a Bellingham audience the end was near for the fossil fuel.

Analyzing international markets is complicated, but the argument seems to boil down to whether coal is in a permanent downward spiral or on the low end of a cycle, such that the price of coal will rise again.

The price of a metric ton of Australian thermal coal was $142 in January 2011. Since that peak, it has dropped below $67 a metric ton as of December 2014. That’s a five-year low.

“Markets turn around, but we’re seeing a structural change, is what we’re thinking,” said Tom Sanzillo of the Institute for Energy Economics and Financial Analysis in November.

Not everyone agrees with the Sanzillo camp. Wood Mackenzie, a financial analysis firm for energy companies, projected that coal imports would triple by 2035.

Gateway Pacific Terminal spokesman Craig Cole dismissed Sanzillo, calling his work “advocacy research” not worthy of serious consideration. In response to Sanzillo’s message, Cole said if anyone should be aware of the future prospects for coal, SSA Marine should.

“No one is more focused on forecasting market demand than the private investor putting up the money, in this case over $600 million,” Cole said in November.

Another voice has weighed in once again on the future of coal, and this one does indeed carry some weight — at least with the financial press.

When Goldman Sachs talks, people listen.

Goldman said in a “research note,” the specifics of which were shared today — Monday, Jan. 26 — by Thomson Reuters, that coal was hitting “retirement age.”

This from Reuters’ newsletter “Inside Dry Freight,” dated today:

“Just as a worker celebrating their 65th birthday can settle into a more sedate lifestyle while they look back on past achievements, we argue that thermal coal has reached its retirement age,” analysts at Goldman Sachs said.

More to the point:

The use of coal for power generation is nearing its peak as the world turns to cleaner burning fuels and demand in top consumer China slows, analysts at Goldman Sachs said in a research note.

Coal prices have fallen over the last four years and 2015 may make it five, with many now asking whether the fuel is in a cyclical slump or permanent decline.


Coal still accounts for nearly two-thirds of China’s total energy mix, Morgan Stanley said this week in a note, well ahead of other major fuels like oil and natural gas. China’s top suppliers are Australia and Indonesia.

Coal’s advantage is that it is abundant and cheaper to use than more sophisticated technologies such as nuclear power and natural gas.

“But its role in meeting the world’s future needs and addressing energy poverty will become less prominent,” Goldman Sachs analysts said.

The Reuters newsletter quotes a conflicting analysis by the International Energy Agency:

The International Energy Agency (IEA), however, said it believes coal is nowhere near peaking.

“Coal is still in the game in the global energy system, and is on track to catch oil as the number one energy source,” said Laszlo Varro, head of the IEA’s gas, coal and power division.

Readers who have followed the Gateway Pacific Terminal story will certainly recall that Goldman Sachs sold its stake in SSA Marine’s parent company one year ago, although there’s no clear evidence the investment house was thinking much about Gateway Pacific Terminal when it made the decision.

Also well publicized in local circles was a July 2013 report from Goldman Sachs that was already warning about the downsides of investing in coal: “ The Window for Thermal Coal Investment is Closing.

It’s interesting to put a little hindsight on that 18-month-old report. At the time, Goldman Sachs announced it was downgrading its price forecast for coal, for 2014-17, to $85 a metric ton from $95. Goldman Sachs was referring to the same benchmark linked above, which as stated above shows coal at $67 now.

Without seeing the Goldman Sachs report firsthand, it’s fair to wonder if the firm’s view on coal is even dimmer now, given how overly optimistic its price outlook was in 2013.