Coal heaps

PAUL K ANDERSON

Look out below! Financial prospects for NW coal export continue to worsen

When coal export proposals were first launched in the Northwest, coal company CEOs were heralding a global coal “supercycle,” and predicted growing demand and escalating prices for decades to come.

That's a rosy scenario (if you are a coal executive). But then reality intervened. Since 2011, global demand has cooled while coal mining and export projects continue to come on line, sending prices plummeting. In 2011, the benchmark price for coal sold on the Asia Pacific market reached a peak of $134 a ton, making exports from the NW look very attractive. Today, coal prices are at less than half that level, at $63 a ton, far lower than the level that exporters have been telling investors they need to make a profit.

Moreover, neither futures markets nor major Wall Street analysts such as Goldman Sachs, Citibank and Bernstein are predicting a return to the high prices from earlier this decade. This means that the coal export promoters aren’t just fighting community leaders, tribes, local businesses and environmental activists concerned about the huge impacts from their proposals – they're also squared off against the simple economic laws of supply and demand.

This week, Climate Solutions had the opportunity to host several meetings and a press briefing featuring one of the nation’s top experts on these issues – a person who can make a spreadsheet sing and make boring financial topics fascinating. Tom Sanzillo, from the Institute for Energy Economics and Financial Analysis, has years of experience in financial markets; he used to manage the pension funds for the State of New York and has handled billions of dollars in investments.

Yesterday Tom announced a new report on the need – or lack thereof – for new coal export capacity in the United States. The simple conclusion is contained in the title of the report: "No Need for New US Coal Ports: Data Shows Oversupply in Capacity." This conclusion is based on the simple facts that exports have been declining, and that there is more than enough capacity. Tom fleshed out the conclusions in this report with a fascinating overview of the major trends driving coal markets, and undermining the economic case for new coal export facilities. In Tom’s words, if you're "looking for a growth partner for your state or local economy, look somewhere else than coal." Tom's presentation slides are here.

Tom was joined by Clark Williams-Derry with the Sightline Institute, who has been doing fabulous work helping Northwest leaders understand coal markets and the increasingly shaky economics for exports. I strongly recommend Clark’s slides, too.

Both Tom and Clark emphasized that major institutional players such as Goldman Sachs (who used to own 49% of the company working on the proposed Gateway Pacific terminal north of Bellingham) are getting out of these markets, replaced by players who are actively seeking high risk projects, such as hedge funds and individual gamblers. To highlight that point, Clark noted the breaking news that Ambre Energy, the Australian start up backing the Millenium (Longview) and Morrow Pacific projects on the Columbia river, is being sold to its biggest investor, a Denver-based hedge fund called Resource Capital Funds.

Clark is still mining the details, but it seems clear that the deal involves a fire sale price (basically giving Ambre money to repay its loans to Korean Utilities) and the original investors will likely see nothing. Coincidentally, Clark did a story just last week noting RCF’s penchant for high risk investments that it can flip to other investors just before the bottom drops out. 

Watch this space – meanwhile, look out below!

Ross Macfarlane's picture
, Climate Solutions

Ross managed Climate Solutions’ Business Partnership Program until spring 2016, helping to build support in the region’s corporate community for strong climate and energy policy and private investment in solutions. He is active in promoting strong climate and energy policy on a state and federal level.  He also led Climate Solutions’ Sustainable Advanced Fuels Program, which is accelerating the adoption of low-carbon alternatives to petroleum fuels in transportation. Ross also led Sustainable Aviation Fuels Northwest, the first stakeholder roadmap for cleaner fuels to power the next generation of flight. Ross was selected by business and community leaders as a "Pivotal Leader," which recognizes a few individuals who have the skills and experience to drive the region’s clean energy economy.

Ross brings more than 30 years of experience working on public policy and environmental issues. He was a partner at Preston Gates & Ellis (now K&L Gates) where he managed the environmental law practice and represented a wide range of public and private clients. He was recognized as a “Superlawyer” in the areas of Environmental, Transportation and Public law. He also served on the management team for an agency working to build urban mass transit. A Northwest native, Ross is a graduate of Pomona College and University of Washington School of Law. He is passionate about climbing, hiking, skiing, and anything outdoors.