After announcing a new financial partner in the proposed Gateway Pacific Terminal at Cherry Point, project applicant SSA Marine hosted a group of export terminal proponents to tour the site on Tuesday.
Cloud Peak Energy, a Wyoming-based mining company with three surface mines on public land in the Powder River Basin of Montana and Wyoming, bought a 49 percent stake in the terminal for $2 million. As part of the deal, they will also pay up to $30 million in future permitting costs, as well as 49 percent of construction costs, currently estimated at $750 million. Cloud Peak Energy representatives weren’t on the site tour.
SSA Marine will remain the primary owner with a 51 percent stake in the terminal. The company has spent $11 million on permitting during the two-and-a-half year process.
“The initial $2 million payment and ownership flexibility allows us to take part in this opportunity with very limited risk,” Cloud Peak Energy’s president and CEO Colin Marshall said in a prepared statement about the deal.
Tom Sanzillo, former New York comptroller and current director of finance for the Institute for Energy Economics and Financial Analysis, disagrees. He thinks Cloud Peak’s investment is risky due to changing coal markets.
“Cloud Peak appears to have paid very little to buy into what could be a sizable and risky cash outlay,” he said in an email.
If $2 million doesn’t seem like a small risk, consider this: Cloud Peak made 1.3 billion in revenue in 2014, according to its 2014 annual corporate report.
Cloud Peak Energy representatives could not be reached for comment.
Coal prices around the world have fallen in recent years and big coal companies including Peabody Energy and Alpha Natural Resources announced layoffs this summer.
Cloud Peak Energy has fared better than its peers in the Industry, but that’s not saying much, Sanzillo said. Shares of the company’s stock have gone from more than $17 at the beginning of the year to about $3 in August.
Cloud Peak Energy’s contract with SSA Marine would allow the company to ship 17.6 million tons of coal per year. How much of the terminal’s 59.5 million ton capacity has been promised to coal companies is confidential, SSA Marine vice president Bob Watters said. But the company has had contract discussions with other coal companies, including the world’s largest—Peabody Energy, he said in a meeting with reporters after the Tuesday tour.
Sanzillo said the overseas market for U.S. coal isn’t growing as fast as coal companies think. The U.S. Energy Information Administration estimates that by 2040 the U.S. will ship 24.5 million tons of coal to Asia. In 2014, the U.S. exported 8.3 million million tons of Coal to Asia, down from 8.8 million tons in 2013.
Most of the coal burned in Asia currently comes from Indonesia and Australia. In 2014, Indonesia exported 404.8 million tons of coal to Asia and Australia exported 183 million tons, while the United States shipped 51.6 million tons of coal to Asia, according to the Energy Information Administration.
Watters said coal shipped from his company’s proposed terminal would compare favorably in price with Australian and Indonesian coal because the Gateway Pacific Terminal could handle bigger ships than other ports, making shipping more efficient.
“This facility would get a 50 percent cost savings in transportation. What that does for all us commodities is make them much more price competitive,” Watters said.
But would the $750 million terminal ship enough coal to make it profitable?
“Between Canadian ports and the two still on the table in Washington, plus now thoughts of a port in Oakland, you are way over capacity,” Sanzillo said in an email about the terminal’s prospects.
A changing market for coal is not a big concern to Watters.
“What happens in the future?” Who knows,” he said. “We’re five years from being operational.”
China, once seen as the largest likely recipient of Powder River Basin coal, imported 28.6 percent less coal in May 2015 than in April 2015, and 38.2 less than in May 2014, according to a report by the news agency Reuters.
Now, terminal proponents think South Korea, Japan and Taiwan will buy the most Powder River Basin coal. But that could also change. South Korea’s coal consumption is increasing, but in July the country dropped plans to build four coal-fired power plants and announced a strategy to reduce its reliance on coal and other fossil fuels.
Despite one of the nation’s largest coal companies becoming a part-owner in the terminal, the facility wouldn’t just export coal, proponents said.
“Coal is the backbone,” Watters said. “But it will serve other important commodities that will overtime increase.”
The terminal could also ship wheat and other grain grown in Montana, Idaho and Eastern Washington, said Hans McPherson, vice president of the Montana Farm Bureau.
After touring the site with Glenn Oppel, government affairs director for the Montana Chamber of Commerce; Brad Owens, president of the Northwest Jobs Alliance and others, Montana Republican Rep. Ryan Zinke stressed the importance of the terminal for his state, which has the nation’s largest recoverable coal reserves. Coal is an $80 million a year business in Montana. The challenge to growing the industry, Zinke said, is getting that coal to market.
At full build out, the terminal would provide $11 million each year in tax revenue and 1,250 ongoing jobs (including direct, indirect, and induced jobs), according to Gateway Pacific Terminal documents.
As part of the recent deal with Cloud Peak Energy, the Crow Tribe of Southeastern Montana got an option to purchase 5 percent of Cloud Peak Energy’s stake in the export terminal. The Crow Reservation sits on billions of tons of coal, which some tribal leaders want to use to alleviate poverty. The unemployment rate on the Crow Reservation hovers around 50 percent. Montana’s unemployment rate is 3.9 percent and the national rate is 5.3 percent.
Upon seeing the controversial terminal site at Cherry Point, Zinke thought, “What’s the big deal,” he said.
The site is on industrial-zoned land between BP’s Cherry Point Refinery and Alcoa Intalco Works, two of the state’s biggest polluters, according to the Environmental Protection Agency.
“Show me where this facility will have an impact,” Zinke said.
Much of the opposition to the project focuses not on the site but on what the terminal will ship, as coal is one of the biggest contributors to the spike in global greenhouse gas.
On that issue, Zinke said “the science isn’t settled,” and it shouldn’t prohibit projects that may increase heat trapping gases in the atmosphere.
Also, Zinke said the U.S. has stricter environmental regulations and labor standards than other countries that could potentially ship coal to Asia.
“If coal is to be used, why not the highest grade produced under the highest standards?” he said.
Those arguments have proven more convincing to people who would profit from the terminal than those who may be harmed by it.
The Lummi Nation has requested that the U.S. Army Corps of Engineers reject the project due to its impact to treaty rights, which give them access to hunt and fish their native land at Cherry Point. Concern for their traditional livelihood led Lummi officials to refuse to negotiate with SSA Marine on the deal.
The environmental review of the Gateway Pacific Terminal will take until mid-2016, the state Department of Ecology said.
Oliver Lazenby, associate editor of The Bellingham Business Journal, can be reached at 360-647-8805, Ext. 5052, or email@example.com.