US West Coast port is 'more than a pipe dream': Cloud Peak CEO

Washington (Platts)--11Nov2010/458 pm EST/2158 GMT

The construction or expansion of coal terminals in the US Pacific Northwest is inevitable, Cloud Peak Energy CEO Colin Marshall said Thursday, as building Asian demand for Western US coal outstrips the region's existing port capacity.

"In terms of the port, I'd say it's absolutely more than a pipe dream, there's a lot of real action in terms of people trying to put that together and ... demand from some of the utilities," Marshall told a Raymond James investor conference.

"It's very real, it's a matter of when, rather than if. Its obviously difficult getting these large projects together, but it should happen," he added.

Several companies with large stakes in western coal fields including Arch Coal, Peabody Energy, BNSF Railway and Union Pacific, are studying various options along the Pacific Coast.

Marshall did not address how Cloud Peak might be involved in terminal construction or expansion -- "everyone is talking to everyone else," he said -- except to say the company supported its construction due to the capacity crunch at Westshore Terminals in Vancouver.

"Obviously Westshore is capacity-constrained," Marshall said. "The demand is certainly there and obviously there's a lot of talk about potential West Coast terminal capacity increases. ... We'd be very supportive of someone getting the pieces together to expand that capacity."

Cloud Peak, which owns three mines in the Powder River Basin, would stand to benefit from construction of a new West Coast port. The company expects to ship about 3 million short tons of coal overseas this year and again in 2011 -- about 3% of its total production. That is double the amount it shipped abroad in 2009 and three times as much as in 2008.

The company expects to produce 94 million st in 2010.

Marshall has seen demand pick up from developers of Korean power plants looking for more stable supplies than can be found from Indonesian producers. US producers, though, have been handcuffed by limited ship-loading capacity at Westshore, the largest North American coal terminal by volume.

"We've seen very strong demand for Spring Creek coal to go out through the Westshore terminal," Marshall said.

The mine, like others in Montana, has advantages over larger Wyoming mines to the south that are also eyeing Asia as a new market. Spring Creek is about 200 miles closer to Westshore. It also mines a subbituminous coal with a 9,300-Btu/lb heating value. Operations in the southern tip of the PRB produce 8,800 Btu/lb coal.

"We think we can get ... up to about 99 million tons without too much capital," Marshall said when asked about the company's overall production capacity. "The obvious place for us to do that is at Spring Creek which is great for the exports as long as terminal capacity increases."

--Peter Gartrell, peter_gartrell@platts.com

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