“Forever West,” is Wyoming’s state slogan, but with the state’s economy more reliant on the energy industry than the cattle industry, “Forever Coal,” may be more fitting. Wyoming has had as much of a romance with coal as with ranching. However, a new dynamic is emerging in coal markets that may change Wyoming’s relationship with the rest of the world.
Powder River Basin coal, once limited to domestic consumption, is becoming an international commodity. This shift may prove lucrative for coal companies that expect higher prices in foreign markets. And with declining domestic coal consumption in the U.S., it’s a move that Wyoming officials view as necessary to sustain its mining industry and the $1 billion it generates in state and local revenue annually.
So far, the scale of proposed Powder River Basin coal exports is relatively small, but the implications are big for communities outside the Cowboy State, too; along a beefed-up Wyoming-to-Washington railroad corridor, and near proposed shipping terminals on the West Coast. Coal dusting and the potential for spills at ports have fostered passionate opposition. In the Pacific Northwest, climate change has been a paramount concern for many years, not surprisingly helping to motivate many community-based organizations. They want to head-off what they fear will become a growing flow of sea-bound Powder River Basin coal, and they are getting help from larger groups that have long opposed the use of coal.
“We’re getting increased scrutiny from NGOs (non-governmental organizations). WildEarth Guardians is appealing everything we do in Wyoming,” Greg Schaefer, Arch Coal West’s vice president of external affairs, said at the Wyoming Infrastructure Authority meeting in Cheyenne this month.
Schaefer lamented the Bloomberg Foundation’s recent $50 million donation to the Sierra Club’s “Beyond Coal” campaign, and he told the mostly pro-fossil fuel crowd in Cheyenne there will soon be a Beyond Natural Gas campaign. “So once they’re done with coal they’re going to go after everyone else who tries to make a living in Wyoming.”
All sides agree that the stakes are high — not just in Wyoming or for West Coast port communities. The implications are global. Many groups concerned with climate change worry that if burgeoning Asian economies get a taste for Powder River Basin coal — produced by the most efficient mining complex in the world — Wyoming mines will oblige and only help worsen the world’s reliance on coal-burning for electrical generation.
According to an economic analysis by University of Montana professor Thomas M. Power, “[T]he proposed coal export facilities in the Northwest will result in more coal consumption in Asia and undermine China’s progress toward more efficient power generation and usage.”
In this regard, the export of Powder River Basin coal is seen by many as a huge step backward in international efforts to address climate change. The same argument was made in opposition to the Keystone XL pipeline; although the pipeline itself would result in a relatively small increase in world oil supplies, it represented a huge step backward for international efforts to address climate change because it would only serve to extend reliance on oil.
Both the coal industry and the environmental community believe they are in a battle for survival.
Coal is on the move
While coal may be losing favor among U.S. utilities, it has been the fastest growing fuel source in the world for the past 10 years or more — and that’s not about to change.
While speaking at the Howard Weil Energy Conference in New Orleans in March, Peabody Energy chairman and CEO Gregory H. Boyce alluded to a bright future for coal. “Coal has been the fastest-growing major global fuel and is expected to become the world’s largest energy source,” Boyce told attendees.
Boyce’s comments may seem a sharp contrast to recent U.S. headlines about coal. His message of strong growth in global coal demand came the same week the U.S. Environmental Protection Agency (EPA) issued a new ruling limiting the volume of carbon dioxide (CO2) emissions from new fossil fuel-fired power plants here in the United States. The rule, if instituted, all but guarantees utilities will stop building new coal-fired power plants until carbon capture and sequestration technologies reach commercialization — a prospect that remains 10 years or more away, according to experts.
But while the EPA’s ruling impacts coal consumption domestically, Boyce and his coal mining colleagues are focused on the bigger picture.
“The seaborne coal market has exceeded 1 billion tons for the first time, and the cost of coal is just a fraction of global oil and liquefied natural gas,” Boyce said in his New Orleans address.
In a press release earlier this year, Arch Coal’s president and CEO, John W. Eaves, expressed similar confidence in the growth of overseas coal markets. He said part of Arch’s long-term strategy is to grow coal exports fourfold in the next decade, consistent with the view that global coal demand will persist.
From the Powder River Basin coal industry’s perspective, the new world market opportunity for their coal couldn’t come at a better time.
The U.S. Energy Information Administration (EIA) projects that coal consumption in the United States this year will fall below 900 million short tons for the first time since 1996. Additionally, a 2010 report by international investment broker Credit Suisse predicts domestic coal demand could drop by 15 percent to 30 percent over the next decade.
Domestic demand for coal is on the decline — approximately 19.5 percent since 2005 — because utilities are switching to cheaper natural gas, and because of pressure to curb a laundry list of pollutants related to coal-burning. Coal releases higher levels of carbon dioxide (CO2) and conventional air pollutants (nitrogen and sulfur oxides, particulate matter) per unit of energy than either oil or natural gas. Regardless of where consumed, coal-derived electricity accounts for 30 percent of worldwide CO2 emissions contributing to global climate change. Mines in the Powder River Basin produced 451.7 million tons of coal in 2008, according to EIA. An estimated 749.6 million metric tons of CO2 will be released from the combustion of all this coal. This is equivalent to 35 percent of total CO2 emissions from domestic coal combustion in 2008, according to the U.S. Energy Information Administration.
In the next couple of years, Powder River Basin coal exports may not make up for expected losses in the U.S. market, but mining companies here intend to eventually meet all the Asian demand they can. Demand for coal in Asia is on the rise, and for a long time to come, according to experts.
In 2009 China overtook the U.S. as the world’s largest energy consumer. Coal accounts for about 70 percent of China’s energy needs, and China’s demand for coal increased at a rate of 9.7 percent from 2010 to 2011. India also has a growing demand, and since it has a much smaller domestic coal supply than China, India is heavily reliant on coal imports.
Mexico, Canada, and Europe have been consistent importers of U.S. coal, but the United States, historically, has exported only small volumes of coal to Asia. The U.S. has predominately exported bituminous coal from eastern mines because of higher Btu-heating value and lower transportation cost. The Powder River Basin’s 8,400-8,800 Btu coal won favor among U.S. utilities over higher Btu coals from the eastern U.S. only because of its low sulfur content — a characteristic made valuable by the EPA’s Acid Rain Program initiated in 1990. While prized among U.S. utilities, Powder River Basin coal was regarded as uncompetitive in the export market. But Btu content has become less of an obstacle to reach international markets, according to Jim Orchard, senior vice president of marketing and government affairs for Cloud Peak Energy, a Powder River Basin coal producer.
At the Wyoming Infrastructure Authority meeting in Cheyenne earlier this month, Orchard said the Pacific seaborne coal market includes coals as low as 5,000 Btus.
“And their average Btu is shifting down,” Orchard said. “And as time goes on I think we’ll be more of a higher Btu compared to Indonesia.”
Today, 99 percent of sub-bituminous coal from Powder River Basin mines is still consumed domestically. Total U.S. coal exports to Asia grew 22.6 million short tons, or 176 percent, from 2009 to 2010. Coal companies are increasingly looking to western mines to satisfy this demand.
“Powder River Basin coal is the cheapest energy on the planet,” University of Wyoming economics professor Timothy Considine told WyoFile. “A billion people in the world who do not have access to electricity or potable water are going to need inexpensive power,” Considine explained.
With Asian demand increasing, existing northwest ports have become attractive targets for expansions, and the coal industry is gunning for new coal ports. Railroads are also gearing up to boost coal transportation capacity from the Powder River Basin to western seaports.
The Gateway Pacific Terminal at Cherry Point is a proposed deepwater port on Puget Sound eight miles from Bellingham, Washington. Peabody Energy has already committed to supply 24 million tons of Powder River Basin coal per year through that planned terminal. Arch Coal and the Australian mining company Ambre Energy are co-developing the Millennium Bulk Terminals on the Columbia River in Longview, Washington. A recent report by Sightline Institute, estimates these two proposed facilities in Washington could easily increase U.S. coal exports to Asia tenfold. Proposed projects in Oregon include construction in Port Westward, Port of Morrow, and Coos Bay.
And if opposition to new and expanded coal ports in the northwest prove troublesome, Orchard said Canada seems open to the idea, although rail service could be a challenge there.
The current exports of Powder River Basin coal to Asia are small. Marion Loomis, executive director of the Wyoming Mining Association, estimates that since 2010 some 60 million tons of Powder River Basin coal has reached the international market, the majority of which went to Europe. Loomis notes, however, that a fraction did go to Asia.
The legal route for Powder River Basin exports
Along with the shifting market dynamic comes a whole new set of legal challenges — from the local impacts of increased rail traffic and coal dusting to the broader issue of climate change.
A patchwork of local, state, and federal regulatory regimes govern large infrastructure projects such as expanding rail capacity out of Wyoming and building new port terminals on the West Coast. The primary legal mechanism employed by organizations and available to citizens for input on these projects is provided by the National Environmental Policy Act (NEPA) at the federal level, and “little NEPAs” at the state level in some jurisdictions.
Congress passed NEPA in 1969 with four stated purposes: (1) to declare a national environmental policy; (2) to promote efforts to prevent damage to the environment, while also protecting the health and welfare of citizens; (3) to enrich the understanding of national resources and ecological systems throughout the country; and (4) to establish the Council on Environmental Quality (CEQ).
Many community-based organizations between Wyoming and the West Coast are looking to NEPA — and other legal avenues — to block or limit additional rail traffic and coal dusting, while other groups are searching for legal arguments against leasing and mining of federal coal in Wyoming and Montana.
At the coal leasing stage, a Wyoming-based landowner advocacy group has pointed to language by the Bureau of Land Management (BLM) that the federal coal leasing program is meant to encourage domestic energy production in order to reduce dependence on foreign energy. Exporting Powder River Basin coal would undermine the purpose of the Federal Coal Program, according to the Powder River Basin Resource Council (PRBRC), which filed an appeal to a Powder River Basin coal lease in December 2011.
In its December 2011 appeal to the U.S. Department of Interior regarding a Peabody Energy coal lease in Wyoming, PRBRC pointed to one of the stated purposes of the Federal Coal Program; “The Federal Coal Program encourages the development of domestic coal reserves and the reduction of the United States’ dependence on foreign sources of energy …” The PRBRC argues that the Bureau of Land Management neglected to consider Peabody’s stated intentions to ship more Powder River Basin coal to overseas markets thus undermining the stated purpose of the Federal Coal Program.
If the BLM were to properly address the issues of international demand for Powder River Basin coal, it might not issue this and other federal coal leases, or the agency might include additional stipulations, according to the group. The regional BLM office, however, does not view this shifting dynamic with the same urgency.
“If demand for Powder River Basin coal and the ability for it to go overseas would increase significantly, or if the domestic demand would drop significantly, then we would have to start looking at that more closely,” said Steve Hageman a mineral appraiser at the BLM Wyoming State Office.
Hageman says the potential of Powder River Basin coal exports growing substantially is taken into consideration, but as of now, it is such a small percentage of the coal produced in the region it doesn’t rise to the level of necessitating modifications in its leasing program.
Speaking with WyoFile, Hageman said, “We do look at demand, and there is a small amount of demand that comes from exports. But when that translates into an actual price of the coal being sold, it really makes little difference.” The BLM is aware of the potential for this demand to change, and they will address that when it happens, according to Hageman.
In a separate lawsuit filed just this month, WildEarth Guardians along with the Sierra Club, objected to a set federal coal leases in the Powder River Basin, reportedly the largest coal plans ever approved by the U.S. Interior Department. The groups contend that the leasing action by BLM will result in a serious acceleration of man-made greenhouse gas emissions and contribute to global climate change.
“The Sierra Club is deeply disappointed in the Department of Interior’s decision,” Connie Wilbert of the Wyoming Chapter of the Sierra Club said in a prepared statement. “It’s time we invest in clean, responsible energies like wind and solar. With our economy at risk and our climate in crisis doubling down on coal is simply the wrong choice.”
In similar legal challenges, however, the BLM has successfully argued that while the broader implications of Powder River Basin coal leasing — from mining, transportation and the burning of coal — must be disclosed under NEPA, the law doesn’t require that those impacts be fully mitigated due to the federal leasing action.
In other words, administrative and legal challenges to various industrial projects related to Powder River Basin coal exports may force the federal government, in the NEPA process, to analyze and disclose impacts to climate change. But so far, the climate change analysis under NEPA has not compelled the government to modify or stop a project from moving forward.
As for the coal industry, company officials note that for more than a decade the Powder River Basin has dispatched some 75 coal trains per day, which make their way to utilities in approximately 33 states. While coal dusting was a major factor in the Mayo Clinic’s opposition to the proposed Dakota, Minnesota & Eastern Railway proposal, it hasn’t been a legally insurmountable challenge anywhere in the U.S. to-date.
To win support in communities along the rail route to the West Coast and in the port cities, industry officials are touting added jobs and revenue, and promising minimal environmental and health risks.
At the Wyoming Infrastructure Authority meeting in Cheyenne this month, Arch Coal’s Greg Schaefer said the coal industry is concerned about opposition to plans related to Powder River Basin coal exports. He said the most critical battle to win is public support.
“What we can all do together as citizens of Wyoming is to be active and support the industry,” said Schaefer. Then referring to the coal industry’s political efforts, he urged the audience to “mine the vote.”
One direct effort by the Wyoming Legislature to support coal exports is a recent $100,000 appropriation set aside for Wyoming’s governor to use for travel and other expenses involved in campaigning for additional seaport capacity. Gov. Matt Mead’s office has told WyoFile it doesn’t have any immediate plans to use the appropriation.
— Dustin Bleizeffer contributed to this story.
— Felicia Resor is a recent graduate of University of Wyoming College of Law. She received her B.A. from Yale University. Born and raised in Wilson, WY, Resor has been an active volunteer in local, state, and national politics. She is an environmental artist, collaborating with both Wyoming and national artists to build large-scale environmental installation sculptures.
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