Category Archives: Shipping

Plans falter for West Coast coal terminals

Coal companies look to Asia, but face port challenges.

Sarah Tory

Rev. Ken Chambers has lived in West Oakland for all of his 50 years and grappled with air pollution the entire time. The neighborhood, on the eastern shore of San Francisco Bay, is surrounded by three major highways, an active railroad, and the fifth-busiest port in the country. Chambers’ four children showed symptoms of asthma, he says, a common condition among their neighbors. And although air quality has improved since then — thanks to new laws regulating emissions — the neighborhood’s mostly black, low-income residents still suffer from asthma rates up to three times higher than other parts of Oakland.

Last April, Chambers and his neighbors caught wind of a plan to redevelop the old Oakland Army Base, located along the waterfront in West Oakland, including a major new terminal for shipping coal to Asia. Proponents said that it would bolster the neighborhood’s struggling economy, and that coal exports were a necessary component, because they would provide revenue to operate the terminal. Critics, however, including Chambers, argued that fugitive coal dust blowing from trains headed for the port would further deteriorate West Oakland’s air quality, and that burning the coal overseas would exacerbate climate change.

And then, in late July, opponents scored a major victory when the Oakland City Council voted to ban shipments of coal from the city, citing the “false choice” between jobs and the environment — and halting the multimillion-dollar coal export proposal in its tracks.

The decision, which came after more than a year of feisty debate, placed Oakland at the center of a growing battle over the fate of the coal industry. Domestic demand for coal has collapsed in recent years, displaced by cheap natural gas, along with wind and solar power. As U.S. coal companies look to overseas markets for salvation, plans for the necessary West Coast export terminals have been blocked by local communities and environmental groups worried about climate change and human health and safety. Taken together, says Sierra Club attorney Jessica Loarie, the long-term market forces and growing public opposition “do not bode well for the coal industry.”

None of this bodes well, either, for places like Carbon County, Utah, which got its name from its vast seams of coal. This rugged landscape southeast of Salt Lake City was already heavily mined by the late 1880s. It entered Old West history in 1897, when legendary bank robber Butch Cassidy and his partner, William Ellsworth “Elzy” Lay, stole the Pleasant Valley Coal Company’s $8,000 payroll. Later, nearly 400 miners died in two underground explosions, in 1900 and 1924.

Despite that early tumult, Carbon County grew to depend on coal. For most of the last century, coal supplied the vast majority of Utah’s energy needs and attracted the attention of other states as well. In the early 1980s, a Southern California electrical utility cooperative helped persuade the state to build a massive power plant, the Intermountain Power Project, in western Utah, promising to buy its coal-generated electricity.

But things changed as utilities increasingly switched to cheaper natural gas and renewables. In 2013, Los Angeles, which had a contract with IPP, voted to end its reliance on coal-fired electricity by 2025, in favor of natural gas. The decision stunned Carbon County, 75 to 80 percent of whose jobs depend on coal mining and power generation. Hundreds of locals have lost their jobs as coal-fired power plants have closed and mines have shuttered. “It put us into a tailspin,” says County Commissioner Jae Potter. “What do you do?”

That trend has rippled across the Interior West, from Colorado to Montana, amid plummeting U.S. demand for coal. After declaring bankruptcy, major firms like Arch Coal and Peabody Energy are downsizing — cutting jobs, closing unprofitable mines, and taking on less debt.

In the early days of coal’s decline, however, the industry still looked profitable to the private equity industry, which buys up troubled businesses, restructures them and sells them at a profit. Although the U.S. market was collapsing, Asia’s demand for coal appeared insatiable. Private equity firms, such as Salt Lake City-based Lighthouse Resources, bought mines in Montana and Wyoming and began pushing export projects in Washington and Oregon. And in 2013, Galena Asset Management invested over $104 million in Bowie Resources, a Kentucky-based coal company, to create Bowie Resource Partners. Backed by more than $800 million in private equity money, Bowie went on a spending spree, buying three Utah mines owned by Arch Coal. The company later bought three more mines — two in New Mexico and one in Colorado from Peabody Energy, another coal giant on the verge of bankruptcy. In a press release, Galena CEO Jeremy Weir heralded the Bowie partnership’s opportunity to “reshape the Western U.S. coal paradigm.”

In its financial documents, Bowie outlined plans to export its landlocked coal through West Coast ports. But it glossed over a major problem: The existing marine terminals in California and other West Coast states were too small to export the millions of tons of coal that its Utah mines could produce. A new larger terminal planned for West Oakland, however, could provide the opportunity Bowie needed.

When the marine terminal proposal for West Oakland first surfaced in 2013, coal was not mentioned. Instead, the developer said the terminal would ship bulk goods like iron ore, corn, wind turbines and auto parts. Chambers, like many of his neighbors, supported the project, which would help replace some of the 7,000 blue-collar jobs lost when Oakland Army Base closed in 1999.

Then, last April, a local Utah paper, the Richfield Reaper, broke a story that the developer had tried to keep under wraps: Four counties in Utah, where Bowie’s coal mines were located, intended to invest in the proposed Oakland terminal, with the intent of shipping their coal out of it.

The city’s vote against coal stalled the plan, and other blows soon followed, including new legislation banning state funding for bulk-coal terminals. In the signing letter, Gov. Jerry Brown highlighted California’s recent moves to replace coal with cleaner energy sources. “That’s a positive trend we need to build on,” he said, calling Oakland’s ban an important step that other localities — and the state — should follow.

By the end of August, things were looking even worse for the terminal: The four Utah counties where Bowie owns mines withdrew their application for the $53 million state loan to invest in the project, and Bowie canceled its IPO, citing poor market conditions.

In early November, construction began on the first phase of the Army base redevelopment, but whether or not the bulk terminal will still be part of the project remains uncertain. The developer, California Capital & Investment Group, and its terminal operator, Terminal Logistics Solutions, declined to be interviewed for this story.

One thing, however, is certain: The long-term economics of big export projects no longer appear as promising as they once did. Transporting coal by rail 1,500 miles from Utah to the West Coast is expensive, says Anna Zubets-Anderson, a senior analyst at Moody’s Investor Service. Add the cost of shipping it to Asia, and it’s tough for U.S. producers to compete with countries like India and Indonesia, which have much lower labor and transportation costs.

International coal prices have spiked recently, but Zubets-Anderson says the uptick is temporary, largely due to the Chinese government’s attempt to cut its own coal production and consumption. Heavy rain and flooding in other parts of Asia have also disrupted coal supplies. “When those issues are resolved, prices will go back down — likely by the middle of 2017.”

Elsewhere in the West, other export projects are facing a similar fate. Since 2007, the six coal terminal proposals slated for the Pacific Coast have dwindled to just one — the Millennium Bulk Terminal in Longview, Washington — after Lighthouse announced it was no longer supporting the Morrow Pacific Project in Oregon. In November, the project was terminated.

The proposed Millennium terminal in Washington is on similarly unsteady ground. After declaring bankruptcy last January, Arch Coal, a major investor in Millennium, sold its $57 million stake in the project, leaving Lighthouse as the sole backer. Meanwhile, hundreds of residents from across the Pacific Northwest testified against the project during the last round of public hearings in October, echoing the concerns expressed by other West Coast communities and Indigenous groups, such as Washington’s Cowlitz Tribe, who argue that coal export projects threaten cultural and economic resources like salmon, violating their treaty rights.

Other West Coast cities are also following Oakland’s lead. On Nov. 16, the Portland City Council voted 3-0 in favor of a resolution that would halt new fossil fuel infrastructure, such as export terminals, and expansions to existing facilities. A final vote is scheduled for Dec. 8.

For the industry, this combination of grassroots resistance and political opposition is creating financial risks — like a “one-two punch,” says Clark Williams-Derry, an energy expert at the Sightline Institute, an environmental think tank. And the uncertainty makes big projects harder and harder to justify.

Even President-elect Donald Trump’s campaign pledge to revive the ailing U.S. coal industry and put miners back to work is unlikely to turn things around. Increasing anti-coal activism and cheaper natural gas are discouraging utilities from investing in coal, says Zubets-Anderson — not just in the U.S., but around the world. “I don’t foresee the new administration being able to change that,” she says.

Though Chambers applauded Oakland’s decision to ban coal exports, he feels badly for places like Carbon County that hitched themselves to a single commodity. “They’re struggling, too,” he says. West Oakland can empathize. Like Carbon County, it needs jobs — but not, Chambers believes, at the expense of human health.

Correspondent Sarah Tory writes from Paonia, Colorado, covering Utah, environmental justice and water issues.

http://www.hcn.org/issues/48.21/plans-falter-for-west-coast-coal-terminals

Dry-Bulk Shipping Firms Face Unprecedented Crisis

By
Costas Paris

The Wall Street Journal

http://www.wsj.com/articles/dry-bulk-shipping-firms-face-unprecedented-crisis-1453293892

LONDON—Falling demand from China is wreaking havoc among the world’s biggest shipping companies, forcing some to offload vessels at a discount to survive one of the industry’s deepest crisis.

“Things have just stopped in China,” said George Logothetis, chairman and chief executive of the Libra Group, an international shipping firm, speaking at The Wall Street Journal’s CEO Council luncheon at the World Economic Forum in Davos, Switzerland. He described the situation as “Armageddon level.”

The shipping industry’s pain has been worse for dry-bulk shipping companies—whose vessels carry much of the raw materials of global trade, from grain to iron ore. The Baltic Dry Bulk Index, sometimes viewed as a proxy for global trade, peaked out just before the 2008 financial crisis at 11000 points. On Wednesday, it closed at 358. The index has hit fresh record lows every day since the beginning of the year.

That is forcing some shipping companies to offload vessels at bargain-basement prices. Many of those same firms were bulking up just a few years ago, confident the global economic crisis was behind them.

“We’ve never seen anything like this,” said Emanuele Lauro, chief executive of New York-listed shipping major Scorpio Bulkers Inc. “We never thought we would find ourselves in this situation when we were buying ships in 2013 and 2014 at historically low levels. But, in the past few months, the priority has been to create a liquidity runway [by selling ships] and keep zero value off the table.”

Scorpio Bulkers—part of Mr. Lauro’s Scorpio Group, which also includes a fleet of tankers and ship-management services—spent $1.5 billion for 28 “capesize” vessels, the biggest general-cargo ships in the water, between November 2013 and March 2014. As the prices of commodities that Scorpio ships have tumbled, it has sold all of them, at a loss of $400 million.

Shares in Scorpio Bulkers have lost 85% of their value in the past year, and were at $3.75 in New York at midday Wednesday.

“It’s a bloodbath, which calls into question the survival of many dry-bulk shipping companies,” said Basil Karatzas, a New York-based maritime adviser. He said the number of capesize vessels in the water exceeds demand by more than 50%.

Daily general-cargo freight rates for newly built capes are currently around $3,000. Owners need rates of $6,000, or as much as $12,000 for vessels with financing costs, just to break even. For older vessels, the daily operating cost, including financing, can be up to $23,000.

Mr. Karatzas said big players such as Scorpio and fellow major Star Bulk CarriersCorp. can withstand the difficult market conditions as long as they have access to capital markets. Nasdaq -listed Star Bulk, which is majority-owned by U.S. private investor Oaktree Capital Management LP, recently sold four capes still under construction, raising $148 million. Its shares were trading midday Wednesday at 39 cents, compared with a high above $228 in October 2007.

Nasdaq notified Star Bulk this month that it has six months for its stock to reach a minimum bid of $1 for 30 consecutive trading sessions, or it will face delisting. Other big bulk carriers in breach of the minimum-bid rule include DryShips Inc., FreeSeasInc., Globus Maritime Ltd., Paragon Shipping Inc., Top Ships Inc. and Ultrapetrol Ltd.

Star Bulk didn’t reply to requests for comment.

A handful of smaller operators filed for bankruptcy-court protection last year. Also last year, at least a dozen closely held companies ceased operations, mostly in Asia and Europe, brokers said.

“A lot of companies have gone under, and more will go under this year,” Mr. Lauro said. “We will go under if this market persists.”

Scorpio Bulkers now has a fleet of 49 smaller ships, and Mr. Lauro said he would try to hold on to them in hopes of a recovery.

“This year is going to be very tough, but for those who can weather the storm, the upside could be very high,” he said.

The market is expected to be at least partially supported in the second half as increased volumes of grains come into play. Brokers said Ukrainian wheat exports will move in substantial volumes this year, boosted by the falling value of the hryvnia. The lifting of a grain-export tax by the new Argentine government also should support the market.

“We rely on moving products like cement and steel,” Mr. Lauro said. “The grain-exports pickup will boost the market, but agro products alone [are] not enough, and this year I don’t see any other drivers strong enough to push the market up.”

—Khadeeja Safdar in Davos contributed to this article.

Write to Costas Paris at costas.paris@wsj.com

Corrections & Amplifications: 
Shares in Scorpio Bulkers listed in New York at $9.75. An earlier version of this article incorrectly stated they listed at $117. (Jan. 20, 2015)

 

 

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