SEATTLE, WA.///October 22, 2013///The steep drop in Pacific Rim coal prices over the past two years has put Powder River Basin coal miner Peabody Energy at risk of massive losses if it tried to ship coal through the proposed Gateway Pacific terminal outside of Bellingham, Washington, according to a new report by the nonprofit Sightline Institute.
Sightline’s analysis shows that, in today’s market, Peabody Energy would lose roughly $10 per ton if it tried to ship its coal to Asia through the proposed Gateway Pacific terminal. And if Peabody tried to utilize the full 24 million metric tons of annual capacity the company has reserved at Gateway Pacific, the company would lose about a quarter of a billion dollars per year in cash—while racking up additional losses for capital expenses, depreciation, and mine depletion.
“In today’s market, there is simply no way for Peabody to make money exporting Powder River Basin coal to Asia,” said Clark Williams-Derry, research director for Sightline Institute and author of the study. “Peabody’s only strategy is to hope that the Asian coal bubble re-inflates—an increasingly risky prospect, given the oversupply of coal in Pacific Rim markets.”
Peabody Energy’s Powder River Basin coal mines face three key vulnerabilities in today’s market:
- Low quality coal. Compared with better-positioned domestic and international competitors, Peabody’s Powder River Basin (PRB) coal mines produce coal with relatively meager energy content, which reduces the price that the company’s coal can command in international markets.
- High transportation and handling costs. The cost of a 1,600-mile rail trip to the Gateway Pacific terminal, plus coal handling and ocean shipping fees, undermines the competitiveness of Peabody’s PRB coal.
- Low-cost competitors. To succeed in international coal markets, Peabody must compete with well-established international rivals, many of whom produce higher quality coal with lower overall costs for mining and transportation.
The rapidly collapsing financial case for Peabody Energy’s export plans demonstrates the inherent risks of coal terminal development in the Pacific Northwest—and suggests that the Gateway Pacific coal terminal is a high-stakes bet with speculative returns and a significant chance of economic failure. If the Gateway Pacific development moves forward and the economics of coal exports don’t improve dramatically, local communities may never see the hoped-for jobs, leaving them with worthless stranded assets on valuable and culturally significant waterfront property.
About Sightline Institute
Founded in 1993, Sightline Institute provides leading original analysis of energy, environmental, and economic policy in the Pacific Northwest. For more information, see http://www.sightline.org.