Tuesday, December 17, 2013

Falling coal prices nix, threaten port projects

The continuing drop in coal prices is hurting U.S. export business on which the industry had been banking. Three proposed coal terminals in Washington and Oregon have already been abandoned, and three more are in jeopardy, Rob Davis reports for The Oregonian. And he doesn't even mention local opposition to the terminals. Last week, the Port of Corpus Christi announced it was canceling plans for a terminal, the second such instance this year, Emily Atkin reports for Climate Progress. (Oregonian graphic: Abandoned and proposed terminals in Oregon and Washington)
Richard Morse, managing director at SuperCritical Capital, an energy-finance consulting firm, told Davis, “Certainly, higher prices globally are supportive of these investments. To the extent we don’t have higher prices, it’s harder to make these work. U.S. exporters will have a harder time competing with lower-cost international competitors.”

With coal prices dropping, "U.S. companies face strong competition from suppliers like Australia and Indonesia that are closer to big buyers like China," Davis writes. "The United States has historically been a swing exporter. When prices were high, U.S. producers profitably exported because buyers were willing to cover the costs of extracting and shipping coal. But when prices drop, the U.S. supply becomes less attractive, and buyers turn elsewhere." Kristoffer Inton, a Morningstar analyst who follows the coal industry, told Davis, “The international price matters. There are a lot of other places that can supply coal.” (Oregonian graphic: Proposed ports in Washington and Oregon)

So as U.S. coal exporters play the wait-and-see game with China while looking for other buyers such as South Korea, the three proposed ports in Washington and Oregon remain in limbo. Jonny Sultoon, a coal markets analyst for Wood Mackenzie, told Davis, “The difficulty if you’re looking at a 25-million to 30-million ton project, who are you going to sign those contracts with? To get that kind of volume upside, you need participation from Chinese buyers. It’s going to be quite hard to get those kinds of agreements set up.” (Read more)

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