In the transition towards a post-carbon future, infrastructure built today for fossil fuels could easily become stranded assets which burden investors and taxpayers with sunk costs. The proposal to build coal shipment facilities at Fraser Surrey Docks and Texada Island for U.S.-mined thermal coal is at risk of becoming B.C.’s version of Mirabel Airport in Quebec — underused infrastructure built for a future which never arrived.
Proposals for new coal export facilities on the west coast of North America are facing strong political opposition based on climate science and environmental ethics. It’s hard to imagine a sustainable future where a great deal more coal gets burned releasing unsustainable amounts of local and global air pollution. If coal has peaked as part of the world’s energy future, then building new infrastructure to ship more of this resource across the Pacific would be a risky and ill-advised investment.
U.S. president Barack Obama’s recent policy to limit coal-fired power plant emissions only accelerates the reduction in domestic demand for American coal mined in Montana and Wyoming. This trend has pushed mining companies to seek export markets in Asia.
While coal port proposals in Washington state are just beginning what looks to be a two-year-long process to produce publicly reviewed environmental impact assessments, the coal handling facility at Fraser Surrey Docks would have been up and running with no environmental review in less than a year had it not been for an outpouring of public concern. In future, a community protest could be seen to have saved our port from having made a losing bet on the future of U.S. coal exports.
Markets are volatile. U.S. suppliers face competition from Australia and Indonesia, also looking to export to East Asia. Two of these markets may be declining as the North Korean government announced new taxes on foreign coal and the Chinese government is now managing its economic growth to reduce deathly levels of urban air pollution and curb greenhouse gas emissions.
Perhaps this helps explain why international coal prices have fallen steadily since early 2011, and are now so low that Powder River Basin coal companies can’t make a profit selling coal to Asia.
These companies are in dire straights after several years of losses. The most “successful,” Cloud Peak Energy, has only been able to avoid the worst by buying up mining leases from the U.S. government at a fraction of their real value, and then shorting its own output in the futures market.
The world’s carbon bubble looks most likely to burst in coal. Coal is equivalent to the subprime mortgage market when it comes to financial risk, and we’re being asked to build infrastructure that can only prop up this declining resource for a while.
Whether it declines because of economic or environmental challenges, coal’s days as a global energy source are numbered.
Coal companies and export projects are increasingly attracting speculative investors as mainstream financial institutions retreat. Goldman Sachs pulled its investment in SSA Marine, the company pushing to build a massive coal export terminal at Cherry Point, Washington, and was replaced by Mexican billionaire Chico Pardo. Ambre Energy, the company behind two proposals in Washington and Oregon, has been saved from collapse with a buyout from private equity firm Resource Capital Fund.
And then there’s the Gunvor Group, a partner in the Signal Peak coal mine in Montana that exports through Westshore terminals. Until recently, Gunvor was partly owned by Russian speculator Gennady Timchenko. Timchenko has close ties to Vladimir Putin and sold his share of Gunvor in order to avoid U.S. sanctions imposed after Russia invaded Crimea.
These speculators seek an early profit, even as the long-term return on the Fraser Surrey Docks-Texada investment looks questionable at best. We thus run the risk that Port Metro Vancouver will be stuck with stranded assets that will outlast the Powder River Basin thermal coal production.
The port authority should undertake a life-cycle cost and risk analysis of this expanded coal infrastructure, including the decommissioning and site decontamination costs when the coal exports stop.
Exporting U.S. coal may seem like a good deal for speculators looking for a quick buck, but B.C. taxpayers need to be protected from the risks of a quick collapse of coal exports in future. The best protection is to avoid expanding coal export infrastructure before the carbon bubble bursts.