By Keith Norbury
North America’s busiest coal-export terminal, B.C.’s Westshore Terminals just South of Vancouver, had a record year for coal exports in 2011, shipping about 27.3 million tonnes, primarily to steel mills in Asia. Westshore was on pace to break that record in 2012 until December 7 when a Panama-registered freighter, Cape Apricot, slammed into a causeway leading to one of its two coal berths, knocking it out of service.
Westshore’s coal volume for 2012 dipped to 26.1 million tonnes because of the incident. Combined with high winds that shut the remaining berth, the Cape Apricot mishap resulted in a substantial drop in the coal handled at Westshore in December, said Denis Horgan, Vice-President and General Manager of Westshore Terminals Limited Partnership. Westshore was able to repair the causeway within eight weeks, thus enabling coal shipments to resume. Repairs to the roadway are expected to be completed by the end of March. In the meantime, though, the berth shutdown has resulted in an unusually long line of ships waiting to load coal. By mid January, eleven ships were at anchor, with some ships having waited for up to 36 days.
“The only slight silver lining is that the cost of vessels is very low right now because the market is so tough in the shipping business,” Mr. Horgan said.
In recent years, demand for metallurgical coal has slumped in tandem with reduced demand for steel because of the still reeling world economy. What bolstered Westshore’s tally were larger volumes of thermal coal for electricity production in the Asian market, the lion’s share of that coal originating in the U.S. Midwest. “Thermal coal historically had only been 10 per cent or 12 per cent of our throughput, but last year it was up around 40 per cent,” Mr. Horgan said.
Decommissioning coal plants dampens domestic demand
That increasing demand for thermal, or steam coal, in Asia is among the recent trends that have affected Canada’s coal shipping industries in recent years and that are expected to have even greater impacts in the years ahead. In Ontario, the decommissioning of coal-fired plants, which is scheduled to conclude in 2014, has already shrunk coal shipping on the Great Lakes. And new federal government emission regulations announced in the summer of 2011 will make it difficult, if not impossible, for new coal-fired plants to be built in Alberta and Saskatchewan once existing plants become obsolete, according to coal industry insiders. “The same circumstances are developing in the U.S. where the Environmental Protection Agency (EPA) is also proposing to bring in stringent environmental emissions standards on coal-fired power plants,” said Ann Marie Hann, President of the Coal Association of Canada (CAC).
Canada ranks highly in coking coal exports
Nevertheless, coal remains a huge part of the world’s energy mix, accounting for 42 per cent of the planet’s electricity generation, according to the World Coal Association (WCA). Canada’s 24 operating coal mines produced 67.1 million tonnes in 2011, less than one per cent of the globe’s annual total, estimated at 7.68 billion tonnes in 2011. Accordingly, as an international producer, Canada plays no more than a minor role. China leads the way in coal production, accounting for almost half the world’s total.
Canada is, however, among the leading coal-exporting nations, ranking seventh on WCA’s list in 2010. Canada’s 32.6 million tonnes of total coal exports in 2011 were about a 10th of the 309 million tonnes exported by Indonesia, which topped the list that year. Australia dropped to second place in 2011 with an estimated 284 million tonnes. In any case, about 80 per cent or more of Canada’s seaborne export coal departs through one of three terminals in B.C.: Westshore, Neptune Terminals in North Vancouver, and Ridley Terminals in Prince Rupert.
Where Canada shines in the coal trade is in the export of highly valued metallurgical, or coking coal, used in steel production. With 28.1 million tonnes of coking coal exports in 2011, Canada ranked third in the world behind Australia (140 million tonnes) and the U.S. (63 million tonnes). Exports of thermal coal in 2011 amounted to 4.5 million tonnes.
“Generally, we say in Canada that we have the lowest cost per tonne kilometre for transporting coking coal exports of any country in the world,” said Robert Stan, Past-Chairman of CAC. “The unfortunate thing is we’ve got probably some of the largest distances to move. And so, even though the per kilometre charge is pretty low, when you’ve got so many more kilometres, it makes a big difference.”
Transportation can account for as much as 70 per cent of the delivered cost of coal, according to WCA. For that reason, the security of the supply and the quality of the coal are what make Canada competitive in world markets, Ms. Hann noted.
Devastating floods in Australia in 2010, for example, disrupted coal exports Down Under, which presented opportunities for Canada, Ms. Hann said. And the damage from Japan’s 2011 tsunami to the Fukushima Daiichi nuclear power plant is causing that country to reconsider its reliance on nuclear energy, which might create other opportunities for coal exports.
“The current expectation is that the growth in China will continue,” Ms. Hann said. “The only qualification there would be in the medium to longer term. There was a little supply disruption in the last year because there was some contraction of the Chinese economy.”
Asian giant eyes Canadian coal resources
Even at a more modest growth rate of 7.5 per cent, China’s demand for Canadian coal remains insatiable as evidenced in recent years by Chinese companies developing coal mines in Canada and even buying Canadian coal companies. For example Calgary-based Grande Cache Coal announced in October 2011 that it would be sold for $1 billion to Winsway Coking Coal Holdings Limited of Hong Kong and Marubeni Corporation of Japan, a deal which has since been completed.
The Chinese presence hasn’t been without controversy. Canadian Dehua International Mines Group Inc. has come under fire for bringing in Chinese mine workers under the federal government’s Temporary Foreign Worker Program. The company argues that there aren’t enough skilled Canadian miners to do the work, a notion that union leaders reject, according to reports in the Vancouver Sun and The Tyee, an online news magazine. And in late January, HD Mining sent 16 Chinese foreign workers home from the company’s Murrary River project near Tumbler Ridge, B.C., citing the cost of the court battle with the unions, CTV News reported.
“The challenge with an aging workforce is to fill existing demand for labour, plus meet the demand that new projects impose,” Ms. Hann told Canadian Sailings. “So, to the extent that there is a gap or shortage, companies are going to have to look to workers from other countries.”
As it stands, Canada’s coal industry employed 25,471 people directly in 2011, according to a Pricewaterhouse Cooper’s report prepared for CAC in October 2012. Including indirect employment, the industry supported 42,030 jobs that paid total compensation of $2.6 billion. For those directly employed in the coal industry, average wages were $92,785, about double the national average of $43,700.
Activists oppose coal development on other fronts
Canadian coal projects have also run into opposition from First Nations and environmentalists. For example, the West Moberly First Nation has vigorously opposed Canadian Dehua’s Gething project near Hudson’s Hope, B.C. West Moberly Chief Roland Wilson told the Globe and Mail in September that the mine would encroach on his people’s traditional hunting and fishing grounds. Meanwhile, environmentalists protested outside Compliance Energy’s Vancouver headquarters in June 2012 over the company’s proposed Raven Mine on Vancouver Island. And in May 2012, 13 activists concerned about coal’s carbon dioxide emissions were arrested for blockading a Burlington Northern Santa Fe coal train in White Rock, B.C. The train was carrying coal from the Powder River Basin in the U.S. to Westshore Terminals for export.
Most coal stays close to home
From a transportation perspective, most coal never crosses international borders. About 84 per cent of the world’s coal is consumed in the countries where it is mined. To a lesser extent that is also true in Canada, where more than half of the country’s coal production is consumed by power plants, mainly in Alberta and Saskatchewan. Most of the output from Canada’s largest thermal coal producer, Sherritt International Corporation, goes straight from mines in Alberta and Saskatchewan to adjacent “mine-mouth” power plants. Sherritt also has mines that produce thermal coal for export. In total, Sherritt produced 34.9 million tonnes of coal in 2012. However, as a result of suspension of a mining contract in November 2012, 2013 production is expected to fall to 25.5 million tonnes.
Most of the coal produced in Alberta is lower-grade sub-bituminous coal, while the coal mined in Saskatchewan is an even lower grade called lignite, or brown coal. Sub-bituminous coal, which accounted for 24.55 million tonnes of Alberta’s 2009 coal production of 31.07 million tonnes, has more moisture and is softer than bituminous coal. Total production of Canadian lignite in 2009, all of it from Saskatchewan, was 10.55 million tonnes.
Bituminous coal, which can be used either for steel-making or power production, accounts for almost all of Canada’s coal exports and, as noted earlier, exports of metallurgical coal account for the vast majority of bituminous coal. It also commands a much higher price than sub-bituminous coal. In 2012, top-quality coking coal was trading at nearly $200 a tonne, while export-quality thermal coal was selling for well below $100 a tonne, Ms. Hann said. In comparison, domestic thermal coal commands only about one-fifth the price of export thermal coal, Ms. Hann said. The hardest, and rarest, of coals is anthracite, none of which is mined in Canada at present.
Canada’s mines mostly on the surface
The majority of Canada’s coal now comes from surface mines, either strip or open pit mines, according to CAC. The few remaining underground coal mines in Canada include Alberta’s Grande Cache, which also has surface mining operations, and Quinsam Coal near Campbell River on Vancouver Island.
Other underground mines are being proposed, including the reactivation of the Donkin Mine on Cape Breton Island, an expansion of the Carbon Creek coal project in B.C.’s Peace River district, and the Raven Underground Coal Mine Project near Comox on Vancouver Island. For the world as a whole, 60 per cent of coal production is from underground mines, according to WCA.
As of 2010, Canada had 24 operating coal mines, ten in B.C., nine in Alberta, three in Saskatchewan, and two in Nova Scotia, according to the 2012 PwC report. At present, thirteen Canadian mines extract thermal coal with eleven mining metallurgical coal. Ninety per cent of total Canadian coal production is in the three Western provinces. About 25 other coal mining projects are in the planning stages, says a fact sheet from CAC.
Coalspur, a company that trades on the ASX (Australia) and TSX (Canada) stock exchanges, is proposing a two-phased twelve-million-tonne-per-year thermal-coal mine near Hinton, Alta. And Teck Resources Ltd. has applied for the necessary permits to reopen its Quintette mine near Tumbler Ridge in Northeastern B.C., which would produce more than three million tonnes annually of coking coal, starting in 2014.
“Our main coking coal competition is Queensland, Australia,” said Mr. Horgan at Westshore Terminals. “They’re the main source of good quality, hard coking coal, which is not that plentiful. Thermal coal is much more plentiful around the world. And Indonesia is a huge exporter of that as well.”
Teck is Canada’s largest coal exporting company, and the world’s second largest exporter of seaborne metallurgical coal (after BHP Billiton-Mitsubishi Alliance, a joint venture between Australia’s BHP Billiton Ltd and Japan’s Mitsubishi Corp.),with five mines in the Rocky Mountains of Southeastern B.C. and another mine in the Alberta Rockies — all producing coking coal. Teck’s 2006 production of 8.7 million tonnes of metallurgical coal has steading increased over the years, reaching 24.7 million tonnes in 2012, worth $4.65 billion. The vast majority of Teck’s coal is transported by rail to coastal B.C. for export to Asia, South America, and Europe. “Our largest markets in Asia have traditionally been Japan, Korea and Taiwan, and now China is emerging as a significant importer of steelmaking coal,” said a posting on Teck’s website.
Teck isn’t the only Canadian mining firm aiming to capitalize on those Asian opportunities. Walter Energy Inc., with three mines, and Peace River Coal Inc. and Grande Cache Coal Corp., with one mine each, also produce coking coal for export, Natural Resources Canada reported. The Grande Cache mine, which is halfway between Hinton and Jasper, is 100-per-cent oriented toward coking coal, said Mr. Stan, who was chairman of Grande Cache until last June when its new owners took control.
Further complicating the coal mix is a grade called PCI coal, the PCI standing for pulverized coal injection, Mr. Stan noted. This coal is injected into the bottom of blast furnaces to provide carbonate fuel for the reaction, he explained.
“There are several deposits in Northeastern British Columbia that don’t have the best coking properties but they’re very, very appropriate for PCI use,” he said, adding that one B.C. producer of PCI coal is Walter Energy, which in 2011 merged with Western Coal Corp.
Cape Breton coal revival proposed
The proposed reactivation of the Donkin Mine on Cape Breton is also aimed at the international market for coking coal. Xstrata, a Swiss-based company, has a 75 per cent stake in the project while Nova Scotia-based Morien Resources Corp. owns the rest. Xstrata, though, is looking to sell its stake in Donkin. Morien has a 60-day right of first refusal on Xstrata’s sale of its share of Donkin, meaning it has the right to match an acceptable offer brought to Xstrata. The mine would extract 3.6 million tonnes of mostly metallurgical coal annually for 30 years. A 2010 news release from Xstrata pegged proposed annual production at 2.7 million tonnes. Production could commence in 2014, with coal being shipped to Sydney Harbour from where it would be loaded into ocean going vessels for export.
The Strait of Canso Superport at Port Hawkesbury, about 200 kilometres Southwest of the proposed mine, is planning an expansion that would be capable of handling that coal, said the port’s CEO Tim Gilfoy in January 2012.
“Obviously we are in the early stages of it, but coal exports to Asian countries have certainly increased significantly and there is some congestion in the West Coast ports,” Mr. Gilfoy said. “So we feel quite confident that some of the mining activities and coal deposits in close proximity to the Great Lakes are going to be looking for a way to tap into that Asian market. It would be logical for them to come through the St. Lawrence Seaway to an ice-free port on the Atlantic Coast.”
Mr. Gilfoy acknowledged that Port of Sydney, which currently handles coal imports for Nova Scotia Power (and which historically exported coal from Cape Breton) is also interested in that business.
John Baldwin, operations manager for Logistec Stevedoring Atlantic, which runs the Sydney International Coal Pier, confirmed in January 2012 that “there’s a lot of discussion” about Donkin, “but right now they’re still undergoing their environmental assessment so there’s no mining activity yet.” (Morien said in a November news release that it expected the joint federal-provincial assessment to conclude by mid 2013.)
Colombian coal powers Maritimes
Canada also imports metallurgical and thermal coal, the 2012 PwC report notes. “Over the past decade, imports of metallurgical coal have increased at a modest rate of 0.2 per cent per year, reaching a total of $875 million in 2011,” the report states. “Imports of thermal coal, on the other hand, have been declining at an annual rate of 6.5 per cent during the same period.”
Sydney currently imports about 1.4 million tonnes of coal annually, about two thirds from Colombia, for Nova Scotia Power. The rest comes from the Powder River Basin reserves that straddle the Montana-Wyoming border. Are those volumes likely to hold steady, given that Nova Scotia is investing in wind energy, hydro power from Labrador, and a demand-side management program?
“Probably not,” Mr. Baldwin said. “You’d have to ask somebody at Nova Scotia Power. We ask them that all the time.” Nova Scotia Power spokesperson Neera Ritcey said the utility has to meet robust provincial emission targets by 2025, but that Nova Scotia has not identified closure dates for its “solid-fuel generation units,” unlike Ontario. “A big part of the province’s targets on reducing greenhouse gas emissions is to shift to renewable energy sources,” Ms. Ritcey said. “The decision to retire units in future years will be made very carefully and in a way that best fits the needs of our customers, overall electrical system, and regulatory requirements.”
Nova Scotia is now consuming 2.5 million to 3.5 million tonnes of coal annually at four coal-fired power plants, Ms. Ritcey said. Along with a fifth thermal plant powered by natural gas and oil, they account for most of the province’s power output. Eighty to ninety per cent of that coal is imported, 35 to 45 per cent from the U.S. and 25 to 30 per cent from Colombia. Only 17 per cent of Nova Scotia’s power production was from renewable sources in 2011, but the new targets call for that to rise to 25 per cent by 2015 and 40 per cent by 2020.
Colombian coal has come under attack from human rights and environmental activists, who have labelled it “blood coal.” They say development of the massive Cerrejón open pit mine in the Northwest of the country has displaced indigenous farmers and devastated the surrounding environment. Ms. Ritcey, however, said she wasn’t aware of the controversy. Neither was Rayburn Doucett, President and CEO of Port of Belledune, when he spoke with Canadian Sailings in January 2012. Port of Belledune, on New Brunswick’s Chaleur Bay, handles about 1.2 million tonnes of coal each year for the adjacent generating plant owned by New Brunswick Power. About half the coal comes from Colombia with the remainder originating from Pennsylvania via the Great Lakes and St. Lawrence Seaway.
“It’s pretty steady. I think that’s mostly guaranteed,” Mr. Doucett said of the coal volumes. “It makes up about 50 per cent of our business. So it’s very important to us.” He sees no signs of that diminishing in the future at the coal terminal, which has been in operation since 1991. “It looks good,” Mr. Doucett said. “It’s a good plant. It’s still only 20 years old and it looks as if we’ll continue on for sure.”
At one time, the power plant burned coal mined underground in New Brunswick but that ended up costing 50 per cent more than the Colombian coal. “It was very expensive and that’s when they closed the mines,” Mr. Doucett said.
Alberta company aims for high-grade thermal coal exports
Meanwhile at Hinton, Alta., Coalspur Mines Ltd. is developing its Vista surface mine that will extract thermal coal for the Asia Pacific region and employ up to 900 people at full production. The mine is expected to begin operating in the second quarter of 2015 with approximately 500 employees. Production is expected to rise from 1.5 million tonnes in 2015 to 12 million tonnes by 2019. Coalspur has entered into a binding agreement with CN to transport up to 12 million tonnes of coal annually to Ridley Terminals in Prince Rupert, where it has secured port allocation up to 11.7 million tonnes of Vista coal annually. “These arrangements substantially fulfill the transportation requirements to export coal from Vista to Asia Pacific markets,” said Dave Montpetit, Vice-President External Affairs and Logistics. At present, Ridley Terminals can handle 12 million tonnes of coal annually. An ongoing expansion will double that.
Ridley Terminals also announced in October 2011 a long-term terminal services agreements with Peace River Coal Inc., a subsidiary of Anglo American plc, and with Hillsborough Resources Ltd., a Vancouver company that operates the Quinsam Coal Mine on Vancouver Island as well as coal reserves in Northwestern B.C. The deals carry through to the end of 2021 with options for extensions. Those announcements didn’t contain any details about coal volumes. However, Michelle Bryant, corporate affairs manager for Ridley Terminals, said the new agreements bring the facility close to reaching its 24 million tonnes of capacity. The $200 million expansion, scheduled for completion by the end of 2014, includes a recently installed dumper barrel “that will handle both steel cars and aluminum cars without having to uncouple the trains,” Ms. Bryant said. In 2013, the terminal will also refurbish two existing stacker-reclaimers so they work faster and have longer lifetimes. A third stacker-reclaimer was being installed in January. In 2014, Ridley Terminals plans to add a second tandem rotary dumper as well as a second thaw shed. The latter warms up coal cars to loosen frozen coal so it can be dumped out more easily. Plans for a fourth stacker-reclaimer have been cancelled. The terminal, which is owned by the federal government, is for sale. “The new capacity happens in stages,” Ms. Bryant said. “And it’s hard to say exactly how much capacity is available in each year. But as we add and refurbish equipment throughout the terminal, new capacity will be realized as we move through those stages.”
In 2012, Ridley Terminals handled 11.53 million tonnes of cargo, mostly coal, compared with 9.64 million tonnes of cargo in 2011, and just 2.4 million tonnes in 2006. In 2012, 6.9 million tonnes was metallurgical coal, a 9.6 per cent increase over 2011; and 3.2 million tonnes was thermal coal, 27.5 per cent more than the previous year. CN is the main rail carrier; however, it works in conjunction with Burlington Northern Santa Fe in the U.S. to bring in coal from the Powder River Basin, which straddles Wyoming and Montana and is well-known for its high quality, low-sulphur thermal coal.
Ridley Terminals’ 2011 annual report noted new or extended terminal service agreements with Walter Energy, Teck, and Peace River Coal. As well, Ridley formed a new five-year relationship with Arch Coal, one of the world’s largest producers, “to serve product” from the Powder River Basin. “Thermal coal volumes increased by 220 per cent over the last five years, with coking coal shipments increasing by 25 per cent over the same timeframe,” the report noted. “Demand from Asian markets combined with financially sound and reliable coal producers, as well as an impressive rail infrastructure within North America, has presented Ridley Terminals with rapid growth opportunities.”
Railway and mine ink transportation agreement
Coalspur and CN announced in December 2012 “an innovative seven year commercial contract that forms the foundation for a collaborative coal supply chain for Vista.” Coalspur now expects FOB costs to be about C$57/tonne in the first five years of production, and C$66.40/tonne for the life of the mine.
Under an earlier memorandum of understanding, the companies will together design and build a rail siding capable of loading 175-car unit trains with a capacity of 286,000 pounds per car. Mr. Montpetit said the mine’s proximity to the existing CN mainline will help Vista compete on the world market, including mines in Queensland, Australia. While older Queensland mines are much closer to tidewater, the new mines are 500 kilometres inland and far away from any infrastructure. In fact, Mr. Montpetit noted, Prince Rupert is closer to Japan and Korea than are the Australian ports. “And (we’re) about the same distance into China. So the Asia Pacific region is a key market for us.” In the last two decades, seaborne trade in thermal coal has risen about eight per cent annually, according to WCA. That compares with two per cent annual increases for the seaborne coking coal trade over that period.
U.S. coal giant also eyes Asian thermal coal prospects
The potential of the Asian market for thermal coal has also caught the attention of U.S.-based Peabody Energy Corporation, one the largest coal producers in the world. Peabody is looking for ways to move coal to Asia from the Powder River Basin. At present, the most direct route is through B.C.’s three coal terminals because there are no coal terminals on the U.S. West Coast. However, plans have recently been revived to build a massive cargo terminal at Cherry Point near Bellingham, Wash., just 25 kilometres from the Canadian border. No sooner had the environmental review process on the Gateway Pacific terminal begun in February 2011 than Peabody announced that it planned to export 24 million tonnes of coal through Cherry Point annually. Peabody head Fred Palmer told the Guardian newspaper that the Cherry Point port might handle up to 50 million tonnes a year of coal from its Wyoming mines.
Robert Stan, however, has seen this movie before. “I’ve been involved in the business for over 30 years and I heard first about Cherry Point in 1980,” said Mr. Stan, who now chairs Spruce Bluffs Resources Ltd, a resource investment fund. “And they told me then it was going to be 25-million-tonne-a-year terminal. It is now 2013 and they’re still talking about it being a 25-million-tonne-a-year facility.”
Still, he concedes that Washington state might be the last hope for a coal port on the U.S. West Coast, given that it would be even tougher to get such a port approved in environmentally conscious California or Oregon. Opposition to the Cherry Point coal terminal is high, with 40,000 people having signed a petition against the project, according to the Seattle Times.
B.C. coal ports expanding capacity
Meanwhile, though, B.C.’s two other coal terminals are also expanding their coal handling capacities, along with Prince Rupert’s. In 2009, Westshore Terminals “completed a three-phase $49 million equipment upgrade with the commissioning of a fourth stacker-reclaimer, which arrived on site in June for assembly and testing,” said a posting on its website. In total, about $100 million has been spent on improvements to the facilities in the last five years, said Westshore’s Denis Horgan. The last leg of the work was completed in November, just before that fateful freighter crash. “So, subject to getting our berth back in operation, we should be at 33 million tonnes capacity,” Mr. Horgan said.
North Vancouver’s Neptune Terminals, which is owned partially by Teck, also recently announced a major capital initiative. The company is investing $63.5 million in new equipment that will increase Neptune’s coal capacity to 12.5 million tonnes annually. The centrepiece is a $45 million stacker-reclaimer project, with $20 million of that going to Ramsay Machine Works of Sidney, B.C., to build the massive machine. It is expected to be ready for service in the spring of 2013.
Neptune has already installed a new $6.5-million rail car positioning system for train off-loading, along with a $12-million site power system upgrade. “All of the upgrades have taken place within our existing footprint, integrating in our other terminal buildings and equipment,” Neptune President Jim Belsheim said in an email message. Mr. Belsheim declined to reveal Neptune’s coal volumes, but said that the terminal set a record for all commodities of 12.85 million tonnes in 2011. That included “steelmaking coal, potash, canola oil and other agricultural products.” The vast majority of the coal is steelmaking metallurgical coal from Teck’s mines. “Neptune has also submitted a permit application for further improvements to its coal handling system,” Mr. Belsheim said. “These include: a second railcar dumper, new conveyors to unload steelmaking coal from trains, replacing one mobile shiploader at Berth One, and adding additional rail track. These changes will also be within Neptune’s existing footprint.”
The expanded coal capacity drew a rebuke from a B.C. environmental organization. “I think Port Metro Vancouver will come to regret their cavalier dismissal of people’s health, climate and transparency concerns,” Dogwood Initiative Executive Director Will Horter said in a news release. Mr. Belsheim responded to such criticism by saying that Neptune has operated for 40 years “in a way that respects our neighbours,” and spends an average of $20 million annually in the local community.
Railways credited with improving coal movements
Both Neptune and Westshore, which are within Port Metro Vancouver’s jurisdiction, “are some of the most efficient coal terminals that you’ll find anywhere,” Peter Xotta, Vice-President of Planning and Operations for Port Metro Vancouver, told Canadian Sailings in January 2012.
Coal remains the port’s biggest commodity, making up a quarter of its total volume. All coal from Vancouver is outbound, as is 75 to 80 per cent of the port’s total cargo. When Westshore opened in 1971, Vancouver ports handled about 27 million tonnes of total cargo. Forty years later, Westshore handles that much alone — and it’s all coal. Mr. Xotta credits the railways with improving supply chains to enable that expanded cargo capacity. Much of that has focused on the container trade but has nevertheless spilled over to the bulk sector, he said.
“A relatively recent phenomenon in the coal business, for example, is aluminum cars,” Mr. Xotta said. “These aluminum rail cars have gradually been phased in and because the aluminum is lighter, the overall capacity, the overall content or weight of the cargo, goes up.” Canadian Pacific, for example, has a fleet of high-capacity aluminum coal cars, said Tracy Robinson, the railway’s Vice-President of Marketing and Sales of energy, coal and merchandise. The company has increased the capacity and efficiency of its coal supply chain, she added. And CP is investing in the capability to move 152-car coal trains to meet anticipated growth in coal volumes. “CP has been a leader in development and testing of more efficient coal railcar and train designs and technology to enable the CP export coal supply chain and our shippers to remain competitive in the world market,” Ms. Robinson said in an email message.
The federal and provincial governments’ Pacific Gateway strategies are also improving infrastructure in the Vancouver region, including a new, if controversial, South Fraser Perimeter Road and associated overpasses. “Some of it is roads and bridges around the lower mainland that aren’t specifically for the port but they’ll improve fluidity of the road network in the lower mainland and there’ll be a spillover benefit to port activity,” Mr. Xotta said. “The Asia Pacific Gateway and corridor initiative piece was 17 projects intended to increase rail fluidity and capacity and those are all going to be completed by 2014.”
A third factor is collaboration agreements between the Port Authority and the railways that also involve service-level agreements with the major terminals.
CP handles about 25 million tonnes of coal a year in Canada, Ms. Robinson said. Teck is CP’s largest coal shipper. And while thermal coal volumes have increased, metallurgical coal accounts for the biggest share of CP’s coal shipments. “We expect volumes to continue to increase as world demand for metallurgical coal grows,” Ms. Robinson said. In addition to transporting coal for export to Asia, CP also carries Teck coal from the Rockies to steel mills in Ontario and in the Chicago area. And in conjunction with other railroads, CP is moving Powder River Basin coal to Prince Rupert. “Coal is a key market for Canadian Pacific,” Ms. Robinson said. “Our railway has positioned itself for long-term growth with our customers by enhancing our network capacity and efficiencies. Our game plan remains unchanged, to continue to provide safe, reliable service that meets our customer’s requirements.”
Environmental concerns affect domestic coal trade
No article about coal can overlook, however, the environmental impact of coal consumption. The World Coal Institute acknowledged this in its 2009 Coal Resource report: “Coal is one of many sources of greenhouse gas emissions generated by human activities and the industry is committed to minimizing its emissions.” The report goes on to explain various strategies for reducing those impacts,” including “supercritical” technology that increases efficiencies of coal-fired power plants, and the promising option of carbon capture and storage. “Carbon capture and storage offers the potential for the large-scale CO2 reductions needed to stabilize atmospheric concentrations of CO2,” the report said. Environment Canada announced new regulations in August 2011 that will require new coal-fired power plants to reduce CO2 emissions to 375 tonnes per megawatt hour. That would reduce CO2 emissions from a new coal-fired power plant equivalent to emissions from a natural gas-fired plant, and about 70 per cent less than the CO2 emissions from existing coal-fired plants, said Robert Stan. “There’s no economical technology today for sequestering CO2 from a coal-fired power plant,” Mr. Stan noted. To build such a plant would double its cost to over $3 billion, he added.
There are signs the federal government is backing away from the regulations and will allow the provinces to avoid them, the Globe and Mail reported in January 2012. Nevertheless, responses to the environmental concerns of coal are being felt in Canada by carriers of coal on the Great Lakes. Ontario Power Generation shut down four of the province’s coal-fired electrical generators in October 2010, and the province plans to stop using coal for electrical generation entirely by the end of 2014.
Twenty years ago, members of the Canadian Shipowners Association were hauling about 20 million tonnes of coal each year, said Bruce Bowie in January 2012 when he was still association President. In 2011, that had dropped to eight million tonnes. “Clearly a lot of the coal business in the past had been related to Ontario power generation and as they get off of coal our business drops off obviously,” Mr. Bowie said. Two carriers — Algoma Central Corporation, and Canadian Steamship Lines — carry most of the coal that traverses the Great Lakes.
Wayne Hennessy, Algoma’s Director of Vessel Traffic and customer service, said evaluating the value of coal shipments involves much more than straight tonnage. Transporting a shipment of Appalachian coal across Lake Erie is a day trip of only six or seven hours each direction. Moving coal from Superior-Duluth can involve a round trip of eight or nine days. “Suffice it say, three years ago we were probably moving close to eight million tonnes a year for Ontario Power Generation and generating, I’m going to say, close to 1,500 vessel days of business.” In 2012, that was effectively zero. “It’s about five to six ships full time that we’ve lost business for over the last three years.” For the time being, though, Algoma is still transporting thermal coal from Appalachia, as well as from Western Canada and the Powder River Basin. Much of that is for cement plants and probably doesn’t add up to 300,000 tonnes a year, Mr. Hennessy said. “And a lot of that is now being replaced by petroleum coke, so I would say probably less than that,” he added. Depending on the day, Algoma operates a fleet of about 30 dry bulk carriers, most of them conveyor-belt self-unloaders that Mr. Hennessy says are ideal for carrying coal. “The beauty of the self-unloader is you don’t need a lot of shoreside receiving capability,” Mr. Hennessy said. “We can just swing a boom out over your dock and put a big pile there for you.” And coal is an excellent cargo for these ships, he added. “It’s not overly abrasive; it’s not overly corrosive. And the dangerous properties are usually quite handily dealt with.” While Algoma is good at carrying coal, Mr. Hennessy said, the company is replacing it with other commodities, such as low-grade iron ore from Minnesota that has recently become valuable and capable of feeding China’s hungry steel mills. “We are resilient,” Mr. Hennessy said. “We find other things to put in them.”
Dan McCarthy, Vice-President of Marketing and Customer Service for CSL, declined to talk about his company’s coal volumes. He nevertheless confirmed that “CSL has been a significant carrier of coal within the Great Lakes for many years. However, our participation in the thermal coal market trade within the Great Lakes has diminished with the winding up of OPG’s coal program.”
On the other hand, Mr. McCarthy noted, “Depending on coal pricing and demand in foreign markets, the potential to export coal through the Great Lakes may increase in the years to come.” “We’ve been a significant player in the coal transportation business for decades,” he added. “And as the things currently stand I think we’ll continue to play an important role in that market.”
Thunder Bay has plenty of room for coal
Coal volumes have also plummeted at Port of Thunder Bay. Tim Heney, the port’s CEO, said they dropped to 755,969 tonnes in 2012 from 831,166 tonnes in 2011. That was down from 1.06 million tonnes in 2010, 1.68 million tonnes in 2008, and 3.8 million tonnes back in 1989. “Most of the coal through here is metallurgical coal,” Mr. Heney said, “So I think probably the biggest impact is the closing of one of the furnaces in Hamilton.”
Port of Hamilton imported about 2.5 million tonnes of coal in 2011, about the same as the previous year, said Ian Hamilton, the Port Authority’s Vice-President in charge of business development, marketing and real estate. Most that was coking coal for the city’s two steel plants. A lockout that shuttered the U.S. Steel plant until mid October 2011 didn’t affect coal volumes because its coking operation continued, with coke supplying another U.S. Steel mill at Nanticoke, Mr. Hamilton said. Coal accounts for about 20 per cent of Hamilton’s overall cargo volumes. The recent firing up of another blast furnace at ArcelorMittal Dofasco as well as the return to work at U.S. Steel has Mr. Hamilton optimistic about continued demand for coal “as long as the economy doesn’t tank on us.”
“We haven’t seen a strong economy to give us any hope that U.S. Steel will fire up its blast furnace,” Mr. Hamilton said. “But ArcelorMittal is running, even with their new blast furnace, at pretty much full capacity. So this story is very similar this year as it was last year.”
While some Canadian thermal coal from the West moves along the Great Lakes for power production, most of that is shipped through Duluth, Minn., or nearby Superior, Wis., Mr. Heney noted. Superior and Duluth are also handling some Powder River Basin coal destined for Europe. And last year Thunder Bay even shipped out some coal that eventually found its way to Europe. Nevertheless, he noted, “there is an upheaval in where coal is going to and coming from” in the world and that the terminals in B.C. are approaching their capacities. So he is optimistic that Thunder Bay, which has a rated coal capacity of 11 million tonnes annually, can capture more of that trade. “It’s only doing one (million tonnes), so it has lots of capacity,” Mr. Heney said. “But that’s only the theoretical rated capacity. It could be a lot higher than that.”
Canada has what the world needs
As the expansions of B.C. coal ports indicate, the outlook for trade in Canadian coal, particularly metallurgical grades, appears strong. How the world balances environmental concerns about coal against its capacity to meet the population’s energy demands will determine the future of thermal coal. Yet as the executive summary of the International Energy Agency’s 2012 World Energy Outlook report notes, the competition in global markets among different types of fuels is becoming increasingly intense. “A current example is how low-priced natural gas is reducing coal use in the United States, freeing up coal for export to Europe (where, in turn, it has displaced higher-priced natural gas),” the report noted. Coal now produces 37 per cent of U.S. electricity, compared with 51 per cent a decade ago, the Wall Street Journal reported in January. Natural gas’ share has risen to 30 per cent from 18 per cent in that same period.
In its 2011 World Energy Outlook report, the International Energy Agency outlined three scenarios for coal. Maintaining current world policies would result in coal use rising another 65 per cent by 2035. A “new policies” scenario would have coal rise for another decade, then level off at 25 per cent higher than 2009 levels. And a “450 scenario,” which would keep atmospheric CO2 levels below 450 parts per million, would mean a peak in coal consumption well before 2020 followed by a decline.
At present rates of consumption, thermal coal reserves will last a century or more. (WCA reports in 2013 that estimates of the world’s proven reserves range from 861 billion tonnes to 1,004 billion tonnes, lasting between 112 to 130 years at current production rates.) Barring a collapse of the global economic system, the prospects for metallurgical coal are much clearer. Demand for that coal, which carries less environmental baggage than thermal does, is expected to remain high, particularly in China. “Worldwide demand for coking coal continues to grow and coking coal is in much shorter supply than thermal coal,” said Robert Stan. “Everybody’s got thermal coal. Not everybody’s got coking coal.”