UPDATE ON COAL PORTS I

NOTE: Just in the nick of time Fred Thompson is back with a two-part long-form blog piece on coal ports in the Northwest.  Today (Wednesday) is part one and part two will post tomorrow (Thursday) 

UPDATE ON COAL PORTS I

Although proposals to build and operate coal-export terminals at Grey’s Harbor, Washington and Coos Bay, Oregon have been withdrawn, the Morrow Pacific project (Boardman – Port Westward) is well under way and projects on the lower Columbia River and Puget Sound remain under serious consideration.

Ambre Energy, an Australian company, has contracts to supply Powder River Basin coal to South Korea. Its Morrow Pacific project is designed to fulfill those contracts. It will haul coal from Montana and Wyoming by BNSF trains to Spokane, Washington and, then, by Union Pacific trains to a transfer and loading facility at the Port of Morrow, near Boardman, Oregon, about 200 miles east of Port St. Helens. Morrow Pacific will then move the coal by its own “energy-efficient, covered barges” down the Columbia River to Port St. Helens’ Port Westward Industrial Park, where it will transfer the coal directly from the barges to ships bound for Asia.

The Morrow Pacific project is smaller (5-10 million metric tons per annum), than are its potential rivals, but more capital and labor intensive (its planned investment in plant and equipment is 30 percent greater than Kinder Morgan’s and its output per employee approximately one-third Kinder Morgan’s). This is because it was explicitly designed to minimize infrastructural development and regulatory uncertainties, which put its Korean contracts at risk. Using barges, for example, meant building and operating two transfer and loading facilities instead of one, not to mention transporting coal from the Port of Morrow to Port Westward; eliminating coal piles and dust meant building storage barns with pollution scrubbers, sealed conveyer belts and enclosed loading equipment. But these choices also minimized train-related problems of all sorts and other environmental impacts.

Consequently, the Morrow Pacific project is tantalizingly close to realization. Construction at both ports has begun and the barges that will carry coal to the Port of St. Helens are being built at Gunderson Marine and Vigor Industrial in Portland. Nevertheless, completion of the project depends upon securing an operating permit from the US Army Corps of Engineers, an air-quality permit from Oregon's Department of Environmental Quality, and authorization from the Department of State Lands to dredge the riverbed, which is leased from the State of Oregon, from the approach channel to the dock. The Corps of Engineers must assess the effect of the project on river and lock congestion, recreation, fish populations and safety in the gorge. This process appears to be proceeding smoothly and it seems likely that the Corps will issue a permit in a timely fashion. That is not the case with respect to Oregon’s Department of Environmental Quality and the Department of State Lands. Both have been unaccountably delayed.

Ambre Energy is also keeping open the option of building a train-fed coal terminal nearby in Longview, Washington, the Millennium Bulk Terminal, at the former site of a Reynolds Aluminum smelter. Striking that option will depend largely upon the regulatory precedents set in deciding the other two main coal-terminal project proposals – Kinder Morgan and Gateway Pacific –, market prospects, and the likelihood of prerequisite public infrastructure investments.

Kinder-Morgan’s train-fed terminal project at Port Westward Industrial Park proposes to export up to four times as much coal as Morrow-Pacific (i.e., 15-30 million metric tons per annum), which will entail substantial increases in train traffic. If it goes forward, up to 12 round-trip coal trains a day will proceed down the Columbia Gorge to Vancouver, across the Columbia Bridge, through Portland to the Willamette River rail bridge and then up U.S. 30 on Portland & Western's one-track line, through Northwest Portland, Scappoose, and Columbia City, to Port St. Helens and back again. Substantial infrastructure investments will be required to relieve rail congestion in and around Vancouver, Washington and to bring the Portland & Western Railroad, owned by short-line operator Genesee & Wyoming, up to the standard needed to serve the Kinder Morgan Terminal adequately, both in terms of grade crossings and additional sidings to handle the coal trains. Ports on the lower Columbia from Portland to Astoria are eager to see these investments made, but they are by no means certain.

The Gateway Pacific Terminal project in Cherry Point, Washington, on Puget Sound near Bellingham, is even more massive. Starting in 2015, its developer, SSA Marine, plans to export approximately 24 million metric tons of coal per year through the Gateway Pacific Terminal and hopes to export even more. BNSF trains will bring Powder River coal to Cherry Point via Vancouver, Washington and Seattle.

Viewed purely as commercial propositions, the comparative advantages of the Kinder Morgan project vis-à-vis the Gateway Pacific Terminal project are relatively few. Port Westward is a lot closer to Vancouver, Washington than is Cherry Point. However, this advantage is largely offset by two considerations: first, empty coal trains from Cherry Point can save considerable distance on the return trip to the Powder River Basin by cutting straight back across the Cascades, avoiding entirely the rail congestion in and around Vancouver, Washington; second, Kinder Morgan does not control the infrastructure investments required to bring the Portland & Western Railroad up to the standard needed to serve its terminal adequately.

In contrast, Gateway Pacific Terminal features several strengths. Its site is large enough to allow efficient turnaround of trains and to handle more than one commodity at a time and still preserve a majority of the site as natural buffer. It is 1-2 days closer to East Asian destinations and its deep water (80 feet near-shore) can accommodate Capesize-class bulk carriers (in the range of 175,000 deadweight tons (DWT)). Port Westward’s 43 foot channel and 6,000-foot turning basin limits it to handling Panamax-class colliers (60,000 to 80,000 DWT). It is claimed that use of Capesize-class carriers reduces shipping costs 25-25 percent.

Both projects must make similar investments to ensure that air and water quality are protected:

•       Coal must be stored away from the shoreline, either in enclosed barns or surrounded by natural buffers and protected by berms, sprayers and foggers.

•       Rail cars must be unloaded in a closed buildings equipped with a negative air pressure ventilation system to filter the air. Special chutes must be used to transfer coal directly to the ships’ holds.

•       Coal must be moved in covered conveyer systems over land and enclosed conveyer systems over water.

Both projects face arduous permitting processes and well-organized opponents, although it seems that the political climate is somewhat friendlier to coal exports in Oregon than in Washington. Overall opposition to these projects seems directed less at the terminals themselves than at the commodity they will handle and the rail traffic they will generate. Because the relevant regulatory agencies lack statutory authority to address these issues directly (indeed, coal trains have been traveling these same routes on their way to power plants in Washington and Oregon and export terminals in Canada for decades), their attention will likely focus on the effect of coal dust from incoming trains on air and water quality, issues that do fall under their supervision. For example in suit brought by Riverkeeper and other public interest groups against BNSF, it is alleged that: “…each rail car loses between 250-700 pounds of coal and coal dust on each trip for an average loss of 500 pounds of coal lost from each car per trip.” … “For trains with 120 cars – the typical length of a coal train – over 30 tons of coal is lost each trip. In other studies, again according to BNSF, as much as three percent of the coal in each car (around 3,600 pounds per car) can be lost in the form of dust.” In this instance, whether or not measures such as proper coal sizing, low profile loading procedures and coal sealants (water-based products that create a glue-like crust over the cargo) represent best-available control technologies or meet the standards to be issued permits under the Clean Air and Clean Water Acts are matters that could potentially be tied up in administrative procedure and/the courts for years, perhaps decades. (The US Administrative Procedures Act is heavily biased in favor of the status quo. It is nearly as hard to make someone stop doing something they are doing already, as it is to do something new). Moreover, the Corps of Engineers, which does have a broad regulatory portfolio, has opted to pursue the full Environmental Impact Statement review process for the Gateway Pacific Terminal and the Kinder Morgan projects and will probably do so with respect to the Millennium Terminal project as well.