WRIGHT, Wyo. • From atop the 25-story coal silo overlooking Arch Coal Inc.'s Black Thunder mine in northeast Wyoming, a seemingly endless string of rail cars stretches into the horizon.
More than 20 trains arrive a day, each a mile and a half long. One by one, they snake around a loop where more than 120 hopper cars are topped off with dusty, black rock.
Almost every bit of coal that leaves is headed east, where the vast majority of the nation's 1,000-plus fiery coal boilers await their next feeding. But trains could soon start heading west — to dump their cargo on ships headed to the Far East. Miners here in the coal-rich Powder River Basin, the self-proclaimed energy capital of America, have plans to tap the Mother of All Energy Users: China.
China will triple its electricity use by 2035, with coal remaining the dominant fuel, according to a forecast last month by the Paris-based International Energy Agency. The fastest growth will happen during the next five years, as millions of Chinese migrate from the countryside to cities and electricity use per capita continues to rise.
For Peabody Energy Corp. and Arch — the nation's two largest coal producers, both headquartered in the St. Louis region — the rising tide of Asian coal demand couldn't be better timed. China and India are shopping the globe for new fuel supplies just as legal challenges and fears about climate change are jeopardizing demand at home.
For environmentalists, scientists and policymakers worried about the environmental and social cost of coal emissions, the timing couldn't be worse. To them, sending coal to Asia just means exporting American pollution and climate destruction. Global warming being global, burning coal overseas would have the same impact on rising temperatures and sea levels in the U.S. as burning it here.
"We plan, with the strong Democratic states of California, Oregon and Washington, to put up a wall to (those) efforts," said Bruce Nilles, who heads the Sierra Club's Beyond Coal campaign in Washington.
Others counter that exporting coal would have no impact on the amount burned, only on who produces it. China has ample coal reserves; it would only import coal if it can buy at prices lower than producing and shipping it at home.
"By importing U.S. coal, China is not changing the amount of coal that it burns," said Richard Morse, director of research on coal and carbon markets at Stanford University. "I understand why on an emotional level people don't like it. But if you actually understand the economics, and you understand how climate change works, it's a nonissue."
Historically, exporting coal has been a fickle business. International demand can materialize and disappear quickly as world markets shift. But rapid modernization of the world's most populous nations are tempting coal companies to make long-term bets.
It seems like a natural marriage: Asia's ravenous energy appetite and the Powder River Basin's seemingly endless supply. The big question: How to profitably move tons of coal roughly 10,000 miles across mountains and the Pacific Ocean to industrial centers on the Chinese coast.
The bottleneck is port capacity. No West Coast port is equipped with coal-handling terminals and machinery, and shipping coal through Gulf Coast ports makes a difficult logistical feat tougher because of the extra distance.
Peabody says it is conducting detailed engineering studies for a coal port somewhere on the West Coast of the United States or Canada that could handle 20 million to 30 million tons of coal a year.
Company executives are tight-lipped about details but expect to announce plans in the first quarter of 2011.
The coal shipments — projected to equal about 10 percent of Peabody's total 2009 production — would go either to China or other Asian nations, said Vic Svec, a senior vice president.
Typically, coal export agreements only last a year. But Peabody wants a long-term commitment from Asian customers to justify the investment in new infrastructure.
"We're certainly looking for continuity in this business, but everything about what is going on in the Pacific Rim tells us coal is here to stay and growing quickly," he said.
For Peabody, the world's largest private-sector coal producer, a big bet on Asia would be the culmination of a vast overseas expansion over the last six years.
The company has already plunged $2 billion into Australian mining operations to supply Asia and has a coal trading business with offices in Beijing, Singapore, London and Jakarta, Indonesia. It is studying joint ventures in Mongolia and China, discussing long-term supply agreements with India's state-owned coal company and pursuing projects and partners in Indonesia.
Arch has no current overseas operations. It does have ambitions, though its plans seem hazier. CEO Steven Leer only acknowledges that the company is "in discussions" about regular shipments of Powder River Basin coal to Asia.
"There's clearly a demand out there, and our forecasts and several other independent forecasts show that over the next five years we will see a continued shortage of supply into the Pacific Rim," Leer said. "The PRB can step in and fill some of that."
Shipping U.S. coal abroad isn't new. About 80 million tons of coal will be exported this year, mostly Appalachian coal sent to Europe through the port at Newport News, Va., which is 60 percent owned by Peabody and Arch. Smaller volumes will travel by barge down the Ohio and Mississippi rivers and out through ports on the Gulf Coast.
In all, the U.S. has the port capacity to ship about 100 million to 110 million tons annually, according to coal executives and analysts. That's equivalent to 10 percent of what the U.S. burns each year. But Leer believes that capacity will be tapped out by 2015. Peabody and Arch have dabbled with exporting Powder River Basin coal to Asia for a few years, occasionally sending test cargoes through British Columbia. Even that has gotten tough, as limited capacity is used mostly for shipping Canadian coal used in steelmaking.
"It's difficult for us to do more than a couple million tons a year to the Pacific Rim" because of the bottleneck, Svec said.
TROUBLE ON WEST COAST
Adding port capacity for coal to the West Coast would clear the way for millions of tons in coal — and profits. But those expansions face a fight from environmental groups that argue such exports would spoil efforts to reduce greenhouse gas emissions.
Brett VandenHeuvel, executive director of Columbia Riverkeeper, a Portland, Ore., environmental group, sees irony in a recent victory, when Oregon regulators endorsed a plan to close the state's only coal-fired power plant by the end of 2020.
"It's interesting to see headlines one day about the success of shutting down the coal plant in Oregon, and the next day talk about exporting orders of magnitude more coal to China," he said.
He's talking about a plan for the West Coast's first coal port, in southwest Washington state on the grounds of an old Alcoa Aluminum mill near the city of Longview. The Cowlitz County Commission on Nov. 23 approved the first of several permits needed to build it, with construction handled by Millennium Bulk Logistics, a unit of Ambre Energy based in Brisbane, Australia. The company has indicated the port could handle 5.7 million tons of coal annually — just a fraction of the volume Peabody wants to ship overseas. Ambre would source coal from the Powder River Basin, though it doesn't presently have any mining operations there.
Greenhouse gas emissions aren't the only concern, VandenHeuvel said. There's fear of dusty coal trains roaring through scenic areas along the Columbia River and the mercury and fine particulates from Chinese power plants blowing back to the U.S.
The Port of Tacoma, in Washington state, turned away an unnamed company proposing a 20 million-ton coal export facility because port officials didn't want the controversy that would go with it.
PRICE AND PROFIT
Ultimately, whether American companies can launch profitable international ventures will come down to price. At today's coal prices, shipping coal to Asia is feasible. But commodity markets have proven volatile in the past.
China already has the world's third-largest coal reserves after the United States and Russia. But most of it comes from Inner Mongolia and Xinjiang province in northern and northwestern China — far removed from the industrial centers on the coast.
The cost of hauling inland Chinese coal hundreds of miles on an already congested rail system, or down the coast by ship, has opened the door for international suppliers, said Morse of Stanford. The biggest competitors for that business are Indonesia and producers in the Powder River Basin, who sell comparable grades of coal sought by the Chinese.
Opponents of exporting point to a previous failed effort to operate a western coal terminal. Millions of dollars were spent in the 1990s at the Los Angeles Export Terminal to support coal shipments, but the terminal closed in 2003 when the anticipated surge in U.S. coal exports to Asian markets didn't materialize.
But the markets have changed, coal executives say. As recently as 2003, China exported 83 million more tons of coal than it imported. This year, the country will import 140 million tons more than it ships out.
Peabody believes China and the rest of the Pacific Rim, will import an additional 110 million tons of coal for power generation within a decade, with the Powder River Basin providing a healthy portion. But trying to forecast domestic coal prices in China is hugely complex — and coal from Wyoming must remain cheaper to sustain any long-term export relationship, Morse said.
"Or else they'll use their own coal and tell everyone else to go home."