Despite large expansion projects, there’s just not room for all
By Lee Buchsbaum, Associate Editor and Photographer
As coal operators nationwide continue to face declining markets domestically, they continue to look overseas to whatever export options might beckon. And, frustratingly, those options have been screaming out like sirens these past few years. The continued problem: port capacity, particularly off the West Coast. Though limited amounts of western bituminous from Utah and Colorado are being shipped from California, the numbers are fractional compared to what’s going out of Canada. Other ports along the Columbia River on the Oregon/Washington border are being proposed, discussed, studied, and later challenged by environmentalists. A large ocean port at Cherry Point, Wash., has also been proposed and is going through this same cycle. Because of the duration of the permitting process and the inevitable challenges, it will be some time before this and the other ports come to fruition. And it’s really only a matter of conjecture and speculation as to if, let alone when, any may actually open. In the meantime, what’s happening up in Canada, is real.
Over the last few years, even though the coal industry has heard the chatter about new terminals opening up somewhere, the options haven’t really changed much. Now several years into a sustained Asian export market, the only real routing options are at the end of a long rail haul to one of three British Columbia-based operations: Neptune Terminal in North Vancouver, Westshore Terminal in Tsawwassen, south of Vancouver, and Ridley Terminals, Inc. (RTI) , located near the Alaskan coast in Prince Rupert.
And of the three, at the moment, only the one furthest away from U.S. producers, RTI, has any real capacity left to squeeze out from what’s scheduled in 2012. Ironically, since it’s so far away by rail, it’s also one sailing day closer to Asian ports. As a way to attract new business and handle what’s already committed from U.S. and Canadian producers, Ridley is rapidly expanding and upgrading the facility as capacity ramps up from 6 million to more than 12 million this year, to 24 million tons of capacity through 2014.
Further to the south, Westshore Terminal, still the heavy hitter at 29 million tons of throughput, recently completed another round of expansion. Across the harbor, even though the Teck Resources controlled Neptune Terminal is nearly doubling its capacity from 6.5 million tpy to 12 million tpy, it appears closed to outside traffic. Whatever capacity might be there, Teck, which owns 48% of the terminal along with 50% owner Canoptex, apparently isn’t selling any.
But the frustration remains that even with the expansion projects under way, there’s still a lot more demand out there. “Between us, Neptune and Ridley right now, let’s say we’re close to 50 million tons capacity. All of us combined. With all of these projects going on in a couple years time we’ll be at 70 million. But even then it still isn’t enough,” said Denis Horgan, vice president and general manager, Westshore Terminal.
“Sometimes I feel like it’s déjà vu all over again,” said Horgan, quoting Yankee catching legend Yogi Berra. Worldwide, in the late 1970s and early 1980s the coal industry brought all this new capacity on. But the recession that hit took down coal prices, specifically coking coal prices, for more than 20 years. “The reason there’s no coal terminal on the U.S. West Coast is because there’s never been an economic cycle that’s sustained it. In 2005, prices exceeded $100/ton for the first time ever. It took a long time to recover. These are not predictable cycles. But what’s different this time is China, India and Brazil,” said Horgan.
After being a part of the export coal sector for decades, for Horgan, it’s difficult to trust the sage wisdom of most coal analysts. But “when you’re in our business, you think long term. I don’t see any reason why this long-term growth cycle should change. The requirement for infrastructure in the developing world surely won’t change and you definitely are going to need steel. You’re not going to replace coal-fired power generation overnight. It’s going to take quite a while. And the overseas markets are not abating. Going forward, there’s going to be a lot of business for all of us,” said Horgan.
Back in 2008, Horgan and the Westshore management knew the terminal was running out of space and capacity. Anticipating steadily rising demand, Westshore approved a C$47 million expansion and upgrade scheme. “At the time, much of our equipment was getting older. No one in the world pushed their terminal more than we did in terms of equipment optimization. So adding new equipment made a lot of sense,” said Horgan. By the end of 2010, Westshore had set a record: more than 24 million metric tons (mt) shipped by year’s end—over 5.6 million mt had come from the U.S.—also a record.
Westshore completed that expansion in April 2010 with the installation and commissioning of Stacker-Reclaimer 44. That upgrade also saw a new rotary dumper added and new conveyors and auxiliary equipment. But the upgrade still wasn’t enough to keep up with demand.
Debottlenecking studies found several serious chokepoints and problems with the coal transfer chutes throughout the facility. The result was to immediately commence another three-year expansion and upgrade project. The $53 million allocation has allowed Westshore to add a new Metso-built twin rotary dumper set, three new train indexers, redesign or replace four of seven transfer stations, and make upgrades to two of the older stacker/reclaimers. The plan is that by 2013, the facility will be able to have a throughput capacity of 33 million mt, up from 29 million mt following the just completed expansion plan.
With the first expansion plan, “we thought that should get us 29 million mt of capacity, and we think we’re close to 29 million mt as of January 2012,” said Horgan. Throughout 2011, the facility set record after record for monthly throughput. From March through December, they shipped more than 2 million mt per month. July they broke the 2.5 million mt mark. By year’s end they had shipped well over 27 million mt, another record. But Westshore discovered that as they pushed the site further, they’ve pushed against the boundaries of what they “were physically capable of doing,” said Horgan.
During the 2008-2010 upgrade, Westshore discovered that four of the existing conveyor transfer points needed to be rebuilt. In 2011, Flexco won the contract to redesign and install the rebuilt transfers, with the last ones due to come online in March 2012. The newly rebuilt transfers are actually smaller than the older ones, but they offer a more focused flow, rounded rather than square corners, and all ceramic interior linings. Westshore also automated all four stackers last year. Now they are training crews for the new layout.
Westshore is also reconfiguring the facility’s train indexer because of the amount of distributed locomotive power now cycling through the terminal. “Currently, the indexer brings the train in from the entry end of the dumper. You’ll get into some challenges when you’ve got locomotives in the middle and at the end. So we’re putting in two exit end indexers as well. We think that can take 15 to 20 minutes out of the train dump process, adding further to our efficiencies,” said Horgan.
“These steps will definitely get us beyond 29 million mt of capacity. Then later on in 2012, we will be changing out the single rotary car dumper for a double car dumper as well as adding some new indexers for pulling the trains. We think by the end of this year, we’ll get up to 33 million mt of capacity,” said Horgan.
American Thermal Exports Drive the Expansion
For years, conventional wisdom was that metallurgical coal would and should dominate the export scene, but that is no longer the case. U.S. thermal producers are almost desperately trying to find avenues for their coal to leave the continent. Much of that pressure is fueling the expansions at both Ridley and Westshore. Currently, 41% of Westshore’s volume is thermal, mostly subbituminous coal for the Powder River Basin (PRB)—though some of it is Montana bituminous as well. In 2011, Westshore handled more than 8 million mt of U.S. coal, up from 5.6 million mt the year before. “Thermal coal was roughly 10% of our volume. Then just in the last few years it has steadily crept up from 18% to 26%, 33%, and now 41%,” said Horgan.
Historically, a lot of thermal coal, including U.S. thermal coal has gone to Japan. China has really captured market imaginations as well. But in recent years the big thermal story has become Korea. “Korea is now more than 40% of our volume,” said Horgan.
With its propensity toward spontaneous combustion, PRB coal handles quite differently than other coals. Westshore had a bit of a learning curve as they had handled more of it every year. “You want to turn it over in a very short period. Signal Peak is not as prone to spon-com. It’s a bituminous coal. Cloud Peak’s Spring Creek coal would have highest calorific value of the sub-bituminous coals we handled. We’ve gotten used to handling all of it though. And currently the subbituminous mines now have an oxidation inhibitor, which was developed by GE a few years ago. We just put in a plant here about a year ago. In 2011, we only had one major heating incident. The GE inhibitor has been pretty successful,” said Horgan.
Dealing with New Business and Letting Some Go
All throughout this recent export boom, Horgan has been forced to do something he’s consistently hated: saying no to potential customers. “I hate doing it and over the last two years I’ve spent a lot of time turning away business. Even in the last two weeks!” he said.
Back in 2007 and 2008, though Westshore took many calls from legitimate coal companies looking for space, a lot of the people on the other end of the line had only their desks and their phones and nothing behind them. Far too often that included a lack of knowledge of the coal industry itself. But then again, some of the requests continue to be made by legitimate customers. “Of course Peabody and almost ever other American company who doesn’t have space here would like to do a lot of business through this terminal. We signed 10-year contracts with two of our existing U.S. customers through 2022. It seemed like a good time to do it and they wanted to lock in capacity. The problem is we can’t even handle our existing customers’ needs, let alone others who wish to contract with us,” said Horgan.
Westshore partially determines how to parcel out the terminal’s capacity by seniority. “We have our traditional Canadian customers and then the U.S. guys came knocking on the door. Cloud Peak Energy and the Spring Creek mine are the ones in the U.S. that have shipped here on and off for the last decade. We don’t stand and do an auction and sell to the biggest bidder. We’re in it for the long term,” said Horgan.
Ironically, much of the basis for the current expansion is for coal that probably won’t materialize. For years, Westshore has had tonnage under contract that just didn’t come to fruition. Like an airline that overbooks and hopes both passengers don’t show up, the terminal ensured that maximum value was created for each ton of capacity. “For years, we never hit our full potential by operating below capacity. When we decided upon the $50 million expansion, it was based on a forecast from Fording Coal, now Teck. After Fording and the Canadian Pacific Railway came to an agreement about how to best use the rail network west of Calgary, they came to Westshore and gave us a coal forecast. This was based only on the potential for Canadian coal, not U.S. coal at all. We saw that we were shortly going to push beyond our capacity, which at that time was about 25-26 million tpy. Simulations actually told us it was more like 23.5 million mtpy. But even though that study was the impetus for the expansion, we undertook it for the wrong reasons. That Fording tonnage still hasn’t shown up. Luckily, the recently contracted U.S. tonnage has filled that gap,” said Horgan.
The next major expansion steps are going to be expensive and difficult to permit. “We probably have gone from 23.5 to 33 million mt for roughly $100 million, that’s very cheap.” Rebuilding or expanding the island terminal, which is really the only way forward, will entail careful planning, much compromise, and a long timeline. By then it’s likely other new terminals elsewhere will come on-line.
However, no matter what or how much additional capacity Westshore brings on, it’s questionable in this current market, if they’ll have enough. “We’re no sooner finished with one expansion and it wasn’t enough already. And now this one isn’t enough. Nothing would be enough. Even if we did 50 million mt tomorrow, we still couldn’t satisfy the current need,” said a frustrated Horgan.
But for producers who continue to call desperately wanting Westshore to find some sort of way to get their coal out, Horgan has to be honest. “I just say ‘Sorry, I can’t really help you. Try Ridley,” said Horgan.
Ridley: Canada’s Emerging Coal Export Leader
Ridley Terminals is a Canadian Federal Crown Corp. located in Prince Rupert, B.C. It is the most northern deep-water port in North America and has the capacity to handle capesize vessels up to 250,000 deadweight tonnage (dwt). The terminal’s current capacity is 12 million mt, but they are undergoing a massive expansion to allow them to handle up to 24 million mt—and potentially much more. The facility is serviced by the Canadian National Railway and, through interchange with the Canadian Pacific and other railways, is well-positioned to handle coals from a variety of North American origins, in particular coal coming from both new and growing operations in northeastern B.C., and several U.S. producers. Though a long rail haul from just about anywhere in North America, particularly from the U.S., its only 4,642 nautical miles (nm) to Shanghai from Prince Rupert, versus 5,092 nm from Vancouver. And, interestingly enough, it’s only 3,838 nm to Tokyo versus 4,284 nm to Tokyo from Newcastle, South Wales.
Though Ridley is a Crown Corp., meaning a government owned business, it is now being run by an American company. “That’s not a common thread,” said George Dorsey, president, Ridley Terminals Inc. “In the past, we had some experience with owners and investors of terminals, primarily in North America. Today though I’m president of Ridley, I’m also a shareholder in a company that owns terminals,” he said, during his presentation at the February Coaltrans USA conference held in Miami. When Dorsey took over the reins at Ridley, it employed 62 people and was really capable of only 4 million mt of throughput. “And we had no cash. The business model that had been practiced for 25-30 years had been the victim of the ups and downs of the metallurgical coal market, primarily in Canada,” said Dorsey.
As coal prices pushed up, Ridley had the opportunity to service customers who were more active and capable in being both creative and opportunistic. “Our overall victory has been to stabilize the business, build it out, and create throughput contracts that have guaranteed minimum volumes. Though our higher rates may not be appreciated by all our customers, what’s happening is an opportunity for the facility to continue to serve a growth industry,” said Dorsey.
Last year, Ridley Terminals set a record tonnage throughput at more than 9.6 million mt of coal and petcoke. That was up 16% from 2010’s tonnage of 8.3 million mt. Of the tonnage that Ridley handled, fully 6.3 million mt was metallurgical, up 40% from 2010. Thermal coal was only up 3% to just over 2.5 million mt.
Not slowing down a second, Ridley has been going through a series of capacity improvements that took it first to 12 million mt of capacity and now Dorsey claims to have additional throughput space available this year, 2012, as the facility ramps up toward a throughput rate of 24 million mt and beyond. “Right now we have doubled capacity. We have a project under way that in about a year and a half will double capacity again from 12 million mt to about 24 million mt,” said Dorsey.
A second tandem rotary dumper, allowing Ridley to be able to dump four cars from two trains simultaneously, is also being constructed. As of February, the pit had been excavated and the tunnel poured. The site is designed and will be built to accommodate double conveyance. The new dumper should come on line by or before 2015. Once online, Ridley will be able to unload its trains at a rate of under two-hours per train.
A third stacker reclaimer is due to be operational by the end of 2012. Once it’s online, it will add millions of tons of capacity as well. A fourth has been ordered and is on the way. The upgrades to the existing stacker/reclaimer system will result in reclaiming rates that are up to 45% faster. These active projects at RTI are fully funded and scheduled for completion by the end of 2012. All together, they will add up to 6 million mt of capacity to the terminal. “Installation of the fourth stacker/reclaimer should take us up to 29 million mtpy capacity,” said Dorsey.
Though bolstered by Arch Coal’s large throughput agreement, when the terminal gets to the 29 million mtpy mark, that will end the current expansion plan until Ridley has further long-term investors. Dorsey notes that as of February, all this capacity “is already sold. The current and future expansion capacity has been spoken for,” he said.
However, Dorsey believes RTI can be expanded by 24 to 30 million mtpy capacity in 36 to 60 months beyond what is already in the pipeline. Adjacent to Ridley’s existing footprint is a 110-acre wooded tract called “Area A” that could be used by the terminal for further expansion. This could include a 35-acre stockyard extension and a second berth. All that’s needed are the capital investments necessary. “Area A gives us the capacity to double the facility, from 24 million mt to 50 million mt and beyond. There’s so much space, its infinitely expandable,” said Dorsey.
One of the continuing challenges, however, is expensive rail rates to Ridley. “We are working very hard to get the rail rates down below $30/mt from the U.S. Yes, it’s a long distance to get there by rail, but in addition to a shorter water route to Asia, by shipping out of Prince Rupert, one avoids the railroad congestion into and around Vancouver,” said Dorsey.
Served only by the Canadian National Railroad, for many shippers, particularly Illinois Basin (ILB) producers hungry for further outlets, Ridley is a one railroad haul all the way through. The railroad may be willing to offer incentivized rates as they and Ridley work to grow the port’s business. “If you’re an ILB producer, you have a one railroad haul to this facility. Going south, your rate may be a little higher to the Gulf in combination with ocean rates, throughput rates, and rail rates. It may prove more competitive to ship through Ridley,” said Dorsey.
He has been encouraging PRB and ILB producers to take a look at what Ridley could do for them, though he admits there are challenges. “There are limitations to system-wide rail capacity. But we believe in the next four to five years we’ll have more options. However, by then we’ll also have more coal coming on-line from Canadian met producers in northeastern B.C. too,” said Dorsey.
According to Dorsey, Ridley’s logistics are quite attractive in terms of risk. “Remember when you contract with us, you’re contracting with the government of Canada which still enjoys AAA credit-rating,” said Dorsey, in a poke at America’s sputtering economy.
New B.C. Production Will Compete with U.S. Business
While many of us were focused elsewhere, one of the big stories in the coal sphere from Horgan and Dorsey’s perspectives were sweeping changes taking place in British Columbia’s two main coalfields. Currently, most of B.C.’s coking coal comes from the southeastern coalfields, but new mines from the northeastern coalfields are coming on line. And, it’s possible that though coal quality differs, there may be a larger reserve base in the northeast. As new mines start producing, shipping patterns will change and the new capacity being developed at Ridley will start getting used. The question is by which producers?
“Until last year all the miners in the northeast were kind of smaller players,” said Horgan. Other than Teck, which had largely wound down operations near Tumbler Ridge, all the producers in the northeast were juniors. But then Walter Energy stepped in and bought Western Coal. At almost the same time, Anglo American, two years after deciding to go back to non-core assets and putting its Trend mine up for sale, did a quick 180° turn and bought out its partners in the mine. In fact, the company announced it was doing a study to raise output there from 1 million mt of coking coal to 3.5 million mt yearly by 2015. Trend produces a PCI coal currently.
Coalspur Mines of Australia is also scheduled to start production at its Alberta Vista thermal mine near Edmonton by 2014. As they ramp up, total output is projected to be 9 million mt. That Vista coal will ship to both Ridley and Westshore. Meanwhile, steel producer POSCO of South Korea signed a joint venture agreement with Fortune Minerals Ltd. to advance the Mt. Klappan metallurgical coal mine in northwest B.C. That coal, when it comes on-line, is expected to go through Ridley. POSCO is also a joint venture partner in Teck’s Greenhills mine in southeastern B.C.
Not to be out done, diversified Swiss major Xstrata initially purchased junior producer First Coal and then picked up, for C$40-million, the Lossan metallurgical coal deposit from Cline Mining. (Cline has its hands busy putting together yet another new met coal mine in southern Colorado).
“I have no idea what Xstrata’s plans are. I’ve talked to them numerous times. They’d like to do some trials through us,” said Horgan. Either way, Canadian producers will be looking to move their coal off-shore as they compete with American producers trying to muscle in. “The Northeast isn’t that much further from us than Ridley—just a few hundred kilometers,” said Horgan. Because all Northeastern tonnage has to head into the rail crossroads town of Prince George, traffic can either go west to Ridley or southeast to Westshore.
Add to the mix another new player. In mid-December 2011, Maxim Power Corp. announced its wholly-owned subsidiary, Summit Coal Inc. and Ridley Terminals Inc. executed a long-term terminal services agreement for the shipment of coal through Ridley’s Prince Rupert terminal for a 10-year term commencing January 1, 2015, with an option to renew for an additional two year period. Summit is the general partner for Summit Coal LP.
The agreement provides Summit with firm terminal capacity and terminal processing services to enable the majority of Summit's proposed coal production to access the valuable seaborne coking coal market. Signing this agreement reduces the development risk of its new coal mine as Summit advances to the construction phase of its Mine 14 project. The new agreement contemplates Summit shipping up to 750,000 mt of metallurgical coal from its newly developed mine in 2015 and thereafter 900,000 mtpy through to 2024. Summit Coal is a coal exploration and development company and is part of the MAXIM group of companies. Its principal asset is M14, located near Grande Cache, Alberta, Canada.
Bottom line is that while Ridley and Westshore are rapidly expanding, a good portion of what throughput space is being created actually won’t be available on the open market. Much of the new capacity is already owned. While producers may offer to sell their capacity or broker coal, if the met markets hold over the next few years and as U.S. producers struggle to find new overseas homes for their coal, both terminals are going to have to fight to keep up. And despite whatever hopes are raised by the prospects of new capacity, most U.S. producers are going to have keep hoping new West Coast ports can finally figure out a way to open up.