This is a pretty amazing story about one of the major coal exporters, from Sightline.
Cloud Peak Energy, one of the major coal producers in the Powder River Basin, is doing its very best to sound upbeat about coal exports. In an investor conference call this past July, the company declared that, even though falling international coal prices had eaten into their earnings, their exports were “still profitable overall.”
But a close look at Cloud Peak’s second quarter financial statements suggests a far stranger story: the company’s export division actually made most of its profits from derivatives trading rather than coal. Stripping away the financial-speak, the implications are striking: Cloud Peak’s export arm made at least 10 times more money betting against coal than it did selling coal.
Obviously some of that is reasonable and companies hedge their bets with these sort of financial instruments all the time. And this is one company. But given that they made $2.6 Million betting against coal and $200,000 on coal, it’s one more reason to not build more coal infrastructure as we look toward the future.
Humble request: As the Coal Terminal up here is a major issue, and this has been the crux of all my arguments during local discussions and meetings I’ve gone to, could it be possible for someone to really break this down, in terms of financial reports, coal prices, current shipping reports on bulk coal and mine activities such as equipment purchases, output and labor reports? Maybe Roger the mad Lagomorph with his experience in researching commodities prices and the shit that goes with the Baltic Dry Index and shipping and suchlike could sniff around this for me. The ultimate purpose for this would be to compile something really comprehensive for my environmental science class I’m taking this quarter. We need to do a final written and oral presentation for the end of the quarter here and this is a hot subject in this town.
I’m not terribly good at sorting out the bullshit on this subject. There is a huge amount of misinformation and outright propaganda on the subject that is being thrown around up here, frankly on both sides although much of the anti-terminal people have been alluding to this as well as the direct environmental concerns. Finding accurate and reliable sources where one isn’t required to pay thousands of dollars for access is well-nigh impossible.
People are approaching real violence in the meetings without having much to go on except the crap that comes off the Internet. That just ain’t right. It’s not helping.
@1 I’m into stocks, not commodities per se, which is a very different game, but I’m somewhat informed on the energy industry and I own a couple of coal stocks so I know what’s happening in the coal industry.
Here’s what I can tell you off the top of my head that I believe is reasonably accurate based on general information available to the public.
At this point, the shale gas revolution is still largely confined to North America, as the rest of the world has not caught up with that technology, so natural gas is much cheaper here than in Europe or Asia, where coal remains a cost-competitive energy source.
In fact, coal is becoming cost-competitive in the U.S. again, because natural gas prices have risen from under $2 to the high $3’s, so some domestic utilities are shifting back to coal, which accounts for roughly 35% – 40% of U.S. electricity.
The Baltic Dry Index measures the cost of shipping bulk commodities like grain and coal via ocean shipping. The BDI plunged a few years ago and has remained very low, in other words, shipping rates are very cheap right now, due in part to overbuilding of ships and in part to slack demand caused by the global economic problems. This makes shipping U.S. coal to Asia an attractive proposition for domestic coal producers looking for new markets to replace lost domestic sales.
Coal shipped from U.S. West Coast ports would be sourced in the Powder River Basin, whose coal is of relatively high quality and has below-average production costs, in other words both of these factors work in favor of marketing PRB coal overseas. U.S. coal’s main competitors in Asian markets (primarily China and India) would be those countries’ domestic production and Australia, which is a major coal exporter and enjoys the advantage of close proximity to the end markets.
China has serious urban smog problems and in policy terms is starting to drift away from reliance on coal and explore other energy sources, which has some potential to weaken Chinese coal demand. The Chinese economy, especially its financial sector, probably is more wobbly than anyone is admitting and problems in their economy could further weaken Chinese coal demand and consumption. So you want to be somewhat skeptical of coal volume projections coming from the coal industry and coal terminal supporters because the demand picture probably isn’t as rosy as they want you to believe.
A bigger concern is what happens down the road after these export terminals are built. These things aren’t going to amortize in a couple of years; they’re long-term facilities. The global economy, shipping rates, and end-market demand won’t turn on a dime, but they aren’t static, and while the economics of exporting U.S. western coal to Asia work today, that may not be true 10 or 15 years from now. The BDI has fallen almost 90% from its peak; what if shipping rates increase by a factor or 3 or 5 or 10? Can anyone guarantee they won’t? What will happen to these coal terminals 10 years from now if U.S. coal isn’t competitive overseas then?
And when you look 10 or 15 years into the future, the countries we’re hoping will buy our coal are likely to be farther along with their own shale gas development, which would reduce their demand for our coal. Or Russia, at least, will be and it’ll make more sense for them to buy gas from Russia than coal from us.
And solar just keeps coming.
The idea of building a 100 year facility for a dying industry doesn’t make a lot of sense. Kind of like giving tax cuts to newspapers. If the “market” can’t sustain the product, why should the taxpayers? Right Libertarians? Right GOP?
Something I’m still wondering about–and perhaps if Evergreen Railfan is around he might comment–is whether or how much the coal port is contributing to the justification (and picking up some of the cost) of the upgrade to BNSF’s trackage in the region which is supposed to allow the Amtrak Cascades to go faster.