Lack of demand slows coal shipping
The familiar sound of the coal train whistle, followed by its screeching loads of heavily-laden coal cars, pushed and pulled along by a phalanx of diesel engines, will become less frequent in Seward this winter. Also less common will be the sight of the gigantic Asian-bound coal ships and heaping coal piles.
Aurora Energy Services (AES), which operates the terminal for the Alaska Railroad Corporation (ARRC), is reducing its workforce due to a slowdown in the international coal market, said Robert Brown, the vice president of South Central Operations for Usibelli Coal Mine, Inc, who oversees AES. “At this point in time, the next ship due in will be early December, followed by another one in February,” he said.
Brown would not say exactly how many AES workers were laid off, but said the workforce reduction was company-wide. Typically, Aurora Energy Services employs 16 people full-time in Seward, and there are 53 other jobs to related coal export activity, according to the ARRC website. Brown offered this explanation as to why the slowdown in coal exports is occurring: “We sell coal to Chile, Korea and Japan, and it’s across the whole Pacific Rim right now, an abundance of supply and a reduction in demand.”
The number of coal trains also will be cut back, said Alaska Railroad Manager of External Affairs, Tim Sullivan. “The number of trains to Seward will be reduced in December because of the holidays but, starting in January, we will reduce the number of coal trains to Seward from approximately four per week to two per week because of the reduced demand,” he said.
In 2011, ARRC shipped 1.091 million metric tons of coal to Seward. But by the end of this year, they estimate the shipping total will be down to 874,000 metric tons. A single coal ship is expected in December along with one in January contrasting with four coal ships docked in Seward during December of 2010, nine coal ships docked in January of 2010, and the same numbers in 2009.
The prospect of the poor coal market trend in Asia continuing is “not really worrisome at this point,” said Brown. “We think the market will return, and we’ll eventually be able to hire these employees back and hopefully hire even more. We see this as temporary.” However, the company couldn’t provide any specific bellwether to indicate a turnaround or a period when shipping would get back on track.
Export markets have grown for Alaska coal in recent years because of climbing oil prices and the growing reputation of Alaska’s low sulfur coal. Concomitantly, there’s been a drive to increase coal production and create additional coal and rail facilities in Alaska, Oregon and Washington to serve growing Asian markets. However, some coal industry market-watchers such as Eric de Place, Senior researcher at the Sightline Institute, an environmental think-tank, say that Asian coal markets are inherently unstable and fraught with uncertainty.
“We know that global coal prices were way up, and then came back down some in the last six months,” said de Place. He co-authored Sightline’s recent report on the subject, “US Coal Exports and Uncertainty in Asian Markets,” which can be found on their website at tinyurl.com/2012uncoal. United States’ coal exports could meet with stiff competition from other traditional coal-exporting nations located closer to Asian markets that can provide the needed coal for less, said de Place.
“Australia and Indonesia are reporting excess volumes of coal. They have a lot of cheap coal and in many cases they’re quite close to the market, Indonesia in particular, he said. “I wouldn’t be surprised if they’re moving in and supplying to traditional markets that Alaska has used.”
The Seward Coal Transfer Facility was originally built in 1984 as an economic development project by the State of Alaska with encouragement and political support by Usibelli Coal mine and the City of Seward, according to the ARRC website. Export coal contracts continued until the early 2000s, when the Korean market declined substantially, and nearly disappeared. Depressed coal prices were caused by cheap exports from other major coal-exporting countries such as Indonesia, Australia, China, South Africa and Canada.
At the urging of the Seward community and Senator Ted Stevens, the ARRC received a federal grant to purchase the facility in 2003. The move eliminated the facility’s loan burden and subsequent improvements enhanced its efficiency and drove down the cost of operations, thus making Alaska’s coal more competitive in the global coal market. Essentially this action preserved the export coal business in Alaska, according to the ARRC website.