A surge in demand for U.S. coal is expected to continue for two to three years

Feb 3 - McClatchy-Tribune Regional News - Peter Frost Daily Press, Newport News, Va.

Thousands of tons of black, sooty coal poured off long conveyor belts into holding bays on two large coal vessels docked at the pier of Newport News' Dominion Terminal Associates on Friday.

Standing beside his white pickup truck covered in sludge, safety supervisor David Hofe -- who's worked at the terminal for more than 15 years -- paused, staring at the spectacle. It's the first time he's seen two ships being loaded side-by-side in a long time.

"It's unbelievable," he said. "It's just something we haven't seen for years."

The combination of favorable economic and global supply-chain factors has Hampton Roads coal exporters scrambling to boost capacities to meet a skyrocketing demand for American coal.

A weak dollar, growing demand from developing countries like China and India and various supply problems in other coal-producing countries are pushing a resurgence in the coal industry not seen for nearly a decade.

Coal shipments though the port of Hampton Roads could rise more than 50 percent in 2008 to between 42 million and 45 million tons. That's up from about 28 million tons in 2007, said David F. Host, president of T. Parker Host Inc., a shipping agent based in Norfolk.

"It's crazy," Host said. "I've seen perfect storms, but this is the ultimate perfect storm. I mean, seriously."

The region's three coal terminals, two railways and a handful of companies on the periphery are adding workers, re-tuning idle equipment and paying hours upon hours of overtime to try to keep up with the surge, which many say could last two to three years.

At Dominion Terminal Associates, coal volume through the terminal could surpass 15 million tons this year, more than double what it moved in 2007, said president Charles Brinley. The group plans to boost its 60-person work force by eight to 10 new employees. In the meantime, Brinley said, terminal operations are running about 40 percent on overtime hours.

The region's two other terminals, Kinder Morgan Energy Partners Pier IX terminal in Newport News and Norfolk Southern Corp.'s Pier 6 at Lamberts Point in Norfolk, also are considering adding new staff as the coal surge continues.

Norfolk Southern's exports rose 25 percent in 2007 and the company expects "continued strong export volume," said Robin C. Chapman, public relations manager.

Coal shipments from Hampton Roads have averaged in the low- to mid-20 million tons range for the past seven years, down from a high of 65.5 million tons in 1991, Host said. Much of the coal shipped out of terminals here is metallurgical coal, used in making steel. The smaller but rapidly growing portion is "steam grade" coal, the type burned to generate electricity at power plants

Since that 1991 peak, the terminals have laid off coal workers, scaled back maintenance schedules on equipment with more downtime and mothballed some equipment and facilities. Now, with demand for U.S. coal projected to be strong for at least a couple of years, they're racing against the clock to return operating levels to where they were nearly two decades ago.

While demand for coal hasn't dipped much in the last 20 years, the business remains highly cyclical. Much of that is due to fluctuations in global currencies, which changes the bottom-line price of the commodity in different countries. When the dollar weakens, foreign buyers can get U.S. coal at a much cheaper rate because of more favorable exchange rates.

"But that's only one part of the picture," said Thomas Hoffman, a senior vice president with Pittsburgh-based Consol Energy Inc., one the nation's largest coal producers. "It's really a global phenomenon. A number of things have come together in the last 12 to 18 months and it really starts with China and India."

While Europe has long imported large amounts of coal to fire its power plants, it has only been a spot player in the U.S. market because it could get the fossil fuel cheaper from around the globe, including China, Australia, South Africa and South America. In other words, Europe only looked to the U.S. if there were problems elsewhere.

China has made a sharp turn from a net exporter to a net importer as its rapidly growing economy developed the need for steel to build and new power plants for electricity, and it dried up as a source. At the same time, it began taking coal from Australia, pushing up prices and putting pressure on Australia's limited infrastructure.

Meanwhile, supply in Colombia is "sold out," Brazil is "using more of its own coal than ever" and Venezuela is too unstable to be a reliable supplier, Host said.

Add to the picture a severe flooding incident in Australia that roiled its supply and power shortages in South Africa that shut down mines, "and you've got all these overseas buyers coming here asking us how many tons do we have to sell. It's no longer 'What's your price?' It's 'How much do you have?'" Host said.

For the Port of Hampton Roads -- the largest coal port in the U.S. -- the outcome is simple.

"We're just hugely busier," said Dominion president Brinley. "We're just trying to keep up."