Loading...
HomeMy WebLinkAboutDomestic Coal Handling Study 1997Domestic Coal Handling Study {Work Order 006) Prepared for: Arctic Slope Consulting Group, Incorporated Prepared by: Northern Economics in association with: Ogden Beeman and Associates, Inc. October 1997 NORTHERN ECONOMICS 880 K STREET SUITE 210 ANCHORAGE, ALASKA 99501 (907) 274-5600 FAX (907) 274-5601 e-mai!: norecon@norecon.com Domestic Coal Handling Study Table of Contents 1. Executive Summary ......... 2. Introduction........... 2.1. Types of Coal. 2.2. Sources of Coal .. 2.3. Production Scenarios. 3. Energy Consumption........ 3.1. Electricity Consumption... 3.2. Domestic Heating Consumption.. 4. Coal Demand......... 5. Coal Mining Costs. 5.1. Beluga.. 5.2. Healy 5.3. Omalik. 5.4. Sutton .. 5.5. Vancouver, B.C... 6. Delivered Coal Costs.... 6.1. Methodology and Model Description. 6.2. Coal Transport Model Modes............. 6.3. Transport Model Assumptions and Input Data. ’ 6.4. Transportation Model.......... 6.4.1. Mode 1A (ocean barge) 6.4.2. Mode 1B (truck)........... 6.4.3. Mode 2A (ocean barge and river barge) 6.4.4. Mode 2B (rail and ocean barge).. 6.4.5. Mode 2C (truck and river barge). 6.4.6. Mode 2D (ocean barge and truck).. 6.4.7. Mode 3A (truck, rail, and ocean barge). 6.4.8. Mode 3B (rail, ocean barge, and river barge)... 6.4.9. Mode 4A (truck, rail, ocean barge, and river barge) 6.5. Barge Loading and Unloading Costs.. 6.6. Results of Model Runs . 6.7. DisCussiOn .........::.00000 6.7.1. Coal Measured as Cost per Metric Ton. 6.7.2. Coal Measured as Cost per Million Btu’s.. - Cost of Coal Consumption .........ccceeeecceeesceeeseseesesesesesseseseseseescseseeeeeeeeeees . Comparison of Delivered Cost of Coal to Unsubsidized Cost of Diesel Fuel . Small Coal Evaluation Studies 9.1. Little Tonsona Coal.. 9.2. Atqasuk Coal..... 9.3. Jarvis Creek Coal... oon Northern Economics Domestic Coal Handling Study Executive Summary The purpose of this study is to evaluate the delivered cost of coal from five origins: one operating mine at Healy, Alaska and three potential Alaska mine sites at Omalik, Beluga, Sutton, and Vancouver, B.C. to seven communities in Alaska (Nome, Unalaska, Cordova, Bethel, McGrath, Galena, and Tok) and compare these costs to the delivered cost of fuel oil presently used in the communities. The product of the evaluation is a weight cost measured in terms of “cost per metric ton” and an energy cost measured in terms of “cost per million “British thermal units” from each of the five origins to each of the seven destinations inclusive of cost of coal at the mine, handling costs at each transfer site, and transportation costs for each transport mode. The result is a cost of coal “on the dock or on the ground” at each of the destinations. The study estimates the energy cost of coal and fuel oil delivered to the chosen communities in Alaska, excluding any direct state or local subsidy. These costs are then used in an economic comparison of coal and fuel oil as sources of rural energy. When coal is measured at a cost per metric ton, Beluga is the low cost alternative for four of the destination communities. The cost per ton of coal is somewhat deceiving however, since each of the mines produce coal of different energy value. In some cases the quality of the coal was able to overcome the transportation disadvantages noted for the destination sites. When considered on an energy basis, Omalik coal is in a favorable position. Omalik (with 13,000 Btu/pound coal) provides the lowest energy cost for Nome, Unalaska, Bethel, and McGrath. Sutton (with 11,000 Btu/pound coal) provides lower energy cost to Galena and Tok, surpassing Healy, even though Healy had the lowest transportation cost. Beluga is the lowest cost alternative for Cordova when measured on a weight or energy basis. Table 1 Cost of Coal Expressed in Dollars per Million Btu’s Mine\Destination Nome Unalaska Cordova Bethel McGrath Galena Tok Btu’s/pound Omalik $ 1.93 $ 220 $ 281 $ 213 $10.91 $ 836 $4.50 13,000 Beluga $ 3.28 $ 2.76 $ 250 $ 299 $1667 $12.73 $4.36 8,300 Sutton $ 3.50 $ 309 $ 266 $ 3.23 $1344 $ 7.06 $2.31 11,000 Healy $ 4.41 $ 386 $ 339 $ 410 $1859 $ 853 $3.00 7,800 Vancouver, B.C. $ 429 $ 373 $ 3.38 $ 403 $1695 $13.39 $5.18 8,500 Low Eneray Cost Selection: Cost/million Btu's $ 193 $ 220 $ 250 $ 213 $1091 $ 7.06 $2.31 Mine Site chosen Omalik Omalik Beluga Omalik Omalik Sutton Sutton Comparison to Btu’s/gallon Diesel Fuel Cost/million Btu's $ 6.60 $ 606 $ 643 $ 958 $11.52 $ 8.79 $ 5.13 138,000 Certain destinations presented unique cost issues. For Galena and McGrath, the volumes were low which complicated the issue of providing quantities from tidewater mines to the origination points for river barging. The low volumes made it impractical to use efficient equipment to transport the coal. Therefore, the rates posted by common carriers for bulk materials were used to compile the river barge segment of the journey. Northern Economics 1 Domestic Coal Handling Study The delivered energy cost of diesel fuel is higher than the energy cost of coal in all of the cases evaluated. The overall results of the analysis are thought to provide a relative comparison of the delivered weight and energy costs of coal and diesel fuel for the alternatives considered. The results are sensitive to the volume estimates and equipment use assumptions and are less meaningful when looked at in absolute terms. Project sponsors attempting to minimize the delivered cost of coal could seek optimal use of equipment and develop scenarios that are not examined here. Northern Economics ii Domestic Coal Handling Study 2. Introduction Alaska has an abundance of proven coal reserves at various sites throughout the state. However, at this time there is only one mine operating on a regular basis, the Usibelli mine near Healy. The mine serves regional customers in the Fairbanks area and an international export market through the Port of Seward in South Central Alaska. During the 1980's a great deal of research was performed on the feasibility of using coal from the Western Arctic coal deposits on the Chukchi Sea near Point Lay to serve regional domestic markets. Several reports and technical memoranda were prepared evaluating the marine transportation alternatives and costs of providing this coal for power generation and domestic heating at a number of communities generally bordering the Chukchi or Bering Sea areas of Western Alaska.’ * More recently, additional studies were conducted on the competitive position of Alaskan coal producers in international markets.* Other research has been performed regarding Alaska coal including an analysis of transportation and shipping costs of railbelt coal from locations at Healy and Palmer. Some of the results of this work are unpublished since they contain proprietary information. The purpose of this study is to evaluate the delivered cost of coal from five origins (including four Alaska mine sites and Vancouver, B.C.) to seven communities in Alaska (Nome, Unalaska, Cordova, Bethel, McGrath, Galena, and Tok) and compare these costs to the delivered cost of fuel oil presently used in the communities. The product of the evaluation is a “cost per metric ton” and “cost per million Btu's” from each of the five origins to each of the seven destinations inclusive of cost of coal at the mine, handling costs at each transfer site, and transportation costs for each transport mode. The result is a cost of coal “on the dock or on the ground” at each of the destinations. ' Arctic Slope Consulting Engineers with Ogden Beeman & Associates, Inc. Western Arctic Coal Development Project Phase II - Technical Memorandum Marine Transportation Evaluation prepared for Alaska Native Foundation October 1985. ? Arctic Slope Consulting Engineers with Northern Economics. Western Arctic Coal Development Project Phase II - Technical Memorandum Institutional Market Assessment prepared for Alaska Native Foundation May 1985. > Ogden Beeman and Associates and Northern Economics. Southcentral Alaska Coal Transportation Study prepared for the Alaska Industrial Development and Export Authority June 1993. Northern Economics 1 Domestic Coal Handling Study Figure 1 is a map of Alaska showing the various mine sites, destination communities, and transfer sites considered in this study. Figure 1 Origin and Destination Sites Considered Beaufort Sea © [Origin Sites - X Transfer Sites Chukchi Sea Healy | Northern Economics 2 Domestic Coal Handling Study 2.1. Types of Coal Coal is classified by rank according to heat content and quantity of fixed carbon. Generally speaking, older coal deposits tend to be of higher rank than younger deposits. The following term descriptions are taken from the Energy Information Administration/Quarterly Coal Report and are used to describe the types of coal anticipated to be mined at the origin sites being considered for this study: e Anthracite Coal - A hard, black, lustrous coal, often referred to as hard coal, containing a high percentage of fixed carbon and a low percentage of volatile matter. e Bituminous Coal - The coal is dense and black and the most common of the coals found in Alaska. Its moisture content is usually less than 20 percent. Used for generating electricity, making coke, and space heating. There are five subgroups within this definition pertaining to the amount of fixed carbons, the degree of volatility, and the heating content (Btu’s/Ib.) of the mined coal. e Subbituminous Coal - A dull black coal of rank intermediate between lignite and bituminous, consisting of subbituminous A coal, subbituminous B coal, and subbituminous C coal. e Lignite - A brownish-black coal of low rank with high inherent moisture and volatile matter used almost exclusively for electric power generation. It is also referred to as brown coal. 2.2. Sources of Coal This report examines five coal origin sites: Omalik, in the western Arctic; Healy, approximately 60 miles south of Fairbanks; Sutton, ten miles east of Palmer; Beluga, in western Cook Inlet; and shipments from Roberts Bank in Vancouver, B.C. The five origin sites are further described in the following paragraphs. Western Arctic - Omalik Lagoon is the anticipated stockpile site for production from the North Slope Basin coal province. The coal bearing lands of the western Arctic extend along the Chukchi Sea coast from Cape Beaufort northeast to the village of Point Lay. The site represents the western boundary of what may be the largest coal province in the world, stretching more than 300 miles from the Chukchi Sea east through the Arctic National Wildlife Refuge (ANWR). This large basin in the foothills of the Brooks Range is reported to contain numerous coal beds more than 3 feet thick, with 10 foot beds being common and 20 to 40-foot beds known to be present. The coal deposits have been found to underlie approximately 30,000 square miles of the North Slope area. Title to the western Arctic coal resource where the mine would be developed is held by the Arctic Slope Regional Corporation (ASRC). Coals from the western boundary of this basin, near Omalik Lagoon, are primarily low volatile bituminous coal with an estimated heat content of 13,000 Btu’s per pound. Some of this coal is of coking quality. In general, coke is made from bituminous coal (or blends of bituminous coal) from which the volatile constituents are driven off by baking in an oven at temperatures as high as 2,000 degrees Fahrenheit, so that the fixed carbon and ash are fused together. Northern Economics 3 Domestic Coal Handling Study Coke is hard and porous, has a gray, submetallic luster, and is strong enough to support a load of iron ore in a blast furnace. Healy -The second coal origin site is the Usibelli Coal Mine, founded in 1943, and located within the Alaska Range near the town of Healy. The coal bearing strata in the basin crop out in a discontinuous belt about 80 miles long that runs parallel to the Alaska Range and is from 1 to 30 miles wide. The only active coal mine in Alaska since the early 1970's, the plant has a work force of approximately 120 employees and operates year-round. The mine produces over 1.5 million tons of coal per year, almost half of which is exported. The Usibelli surface mine at Healy produces subbituminous coal mainly from three beds.* Coal bearing zones include a number of coal beds ranging in thickness from a few inches to 60 feet or more. Fossil leaves and pollen indicate that the coal bearing rocks range in age from Oligocene to late Miocene.*® Overburden is removed by a dragline that reportedly is the largest land-based machine in Alaska. Heat content for the Healy coal is estimated at an average 7,800 Btu’s per pound. Sutton - The third coal site is the Sutton coal mine, part of the Matanuska coal field in the Matanuska Valley just east of Palmer, and an offshoot of the Cook Inlet deposits. The coal- bearing strata are complex with many folds and faults. Coal mining began at the Matanuska site in 1914 but was discontinued in 1968. Recently, Nerox Power Systems, Inc. obtained permission to reopen the mine and coal is scheduled to start flowing from the mine in the spring of 1997.° The company anticipates production once the mine is in full operation of 400,000 tons annually.” The mine is scheduled to initially employ 10 people with up to 70 persons needed when the mine is at full operation. Most of the coal found in the valley is bituminous, but some is anthracite. The heat content of the Sutton coal is approximately 11,000 Btu’s per pound. Beluga -The fourth coal site is the Beluga field located in the Cook Inlet coal basin. This site is in a large basin of varied geography and complex geology. It encompasses coal-bearing strata that surround the inlet on the northwest, north, and northeast, underlie the waters of the inlet, and are exposed on the Kenai Peninsula to the southeast. The Cook Inlet coal basin is a large basin of varied geography about 320 miles long and up to 80 miles wide. It's total coal bearing area is approximately 12,000 square miles. The Beluga field is located northwest of the Inlet. One of four fields in the Cook Inlet basin, the Beluga field contains lignite to subbituminous coal beds that are a few inches to more than 50 feet thick. A near horizontal bed of subbituminous coal 30 to 50 feet thick has been traced for more that 7 miles along the middle course of the Chuitna River. Another bed approximately 50 feet thick has been found near the Capps Glacier, and other equally promising occurrences are known to exist elsewhere in the Beluga field.2 The heat content is approximately 8,300 Btu’s per pound. “ Energy Information Administration - State Coal Profiles - January 1994. ° Dorland E. Edgar, Lawrence J. Onesti, and Gary M. Kaszynski - Alaskan Coal: Resources and Developmental Constraints August 1982. ° The Associated Press as quoted from the Anchorage Daily News - “New coal project cleared” July 30, 1996 7 personal communication - Nerox Power Systems, Inc. (Mike) January 2, 1997. * Mineral Industry Research Laboratory special publication #4 - Surface Coal Mining in Alaska - An Investigation of the Surface Mining Control and Reclamation Act of 1977 in Relation to Alaskan Conditions National Academy Press, Washington D.C. 1980. Northern Economics Domestic Coal Handling Study Drilling has shown that several hundred million tons of coal are close enough to the surface for surface mining. Powder River - The fifth coal site is a transfer site at Vancouver, B.C. The coal transferred at this port is assumed to be subbituminous coal originating from the Powder River Basin in Wyoming and Montana. The Powder River Basin coal is estimated to have a heating value of 8,500 Btu’s per pound in its unblended state. Table 2 summarizes the heat content of coal from the origin sites. Table 2 Heating Value of Coal per Origin Site (Btu’s per pound) Sutton Healy Omalik Vancouver Beluga 11,000 7,800 13,000 8,500 8,300 2.3. Production Scenarios Coal production at the origin sites exceeds the needs for electricity and domestic and public facility heating for each destination community. Information on production volumes and costs are provided in Section 5. Coal Mining Costs. Joint use of transportation modes (e.g., offloading at two communities during a single voyage of a tug and barge) to serve more than one community have not been examined in this study. Considerations for the estimate of the coal needs for each community include size of population along with future projections and historic energy consumption for rural communities described more fully in the following section. 3. Energy Consumption Energy demand for electricity and heating in a community is a function of a few primary variables including the size of the community, the degree days for the region, and/or alternatives for energy generation. Population numbers for the destination sites in this study are obtained from Alaska Department of Labor 1995 population data. 3.1. Electricity Consumption Diesel fuel consumption for the purposes of generating electricity in the individual communities is established for fiscal year 1995 using the data obtained from the Department of Community and Regional Affairs (DCRA) Division of Energy.’ Electricity consumption by community facilities are indicated by individual community in the DCRA report, however, we have combined consumption by community facilities and residential customers for ease of analysis. Proprietary data were obtained for the communities of Bethel and McGrath corroborating estimations of per capita consumption from which to base electricity needs for the destination communities. ° State of Alaska Department of Community and Regional Affairs - Statistical Report of the Power Cost Equalization Program - Fiscal Year 1995, Eighth Edition December 1995. Northern Economics 5 Domestic Coal Handling Study 3.2. Domestic Heating Consumption Proprietary data were obtained for the communities of Bethel and McGrath supplementing our estimations of per capita consumption from which to base domestic heating needs for the destination communities. Some domestic heating needs in the communities examined are being met with wood fuel. For purposes of this study, we have assumed that those consumers presently using wood fuel will continue to do so. Table 3 shows population and 1995 diesel consumption data by community for utility and heating fuel. Table 3 Diesel Fuel Consumption for Electricity Utilities and Heating by Community Gallons of Diesel Fuel Electricity Heating Fuel Location Population Consumption Consumption Total Nome 3,576 1,958,454 1,321,690 3,280,144 Galena 527 563,979 194,779 758,758 Tok 1,204 721,176 444,998 1,166,174 McGrath 479 251,036 177,038 428,074 Bethel 5,195 2,447,111 1,920,072 4,367,183 Dutch Harbor 4,083 1,961,683 1,509,077 3,470,760 Cordova 2,568 1,579,651 949,133 2,528,784 Table 4 shows dollars expended by community for diesel consumption for utility and heating fuel. Costs for diesel fuel are estimated based on delivered cost of fuel without retail markup. Dollars per gallon were obtained through Alaska Public Utilities PCE Forms for the respective communities. This allows consistent comparisons throughout this report. Diesel fuel is also consumed in the communities for vehicles, air transport, and marine transport. The fuel consumed for transportation purposes is not included in the total diesel consumption by community. Table 4 Cost of Diesel Consumption Electricity Heating Fuel Gallon Community Consumption Consumption Total delivered Nome $ 1,783,564 $ 1,203,663 $2,987,227 $ 0.91 Galena $ 683,937 $ 236,209 $ 920,146 $ 1.21 Tok $ 510,232 $ 314,836 $ 825,068 $ 0.71 McGrath $ 399,147 $ 281,491 $ 680,638 $ 1.59 Bethel $ 3,235,081 $ 2,538,335 $5,773,416 $ 1.32 Dutch Harbor $ 1,639,182 $ 1,260,985 $2,900,167 $ 0.84 Cordova $ 1,401,150 $ 841,881 $2,243,031 $ 0.89 Northern Economics 6 Domestic Coal Handling Study 4. Coal Demand In order to determine the coal demand for each community, minimum levels of coal demand for electricity consumption were developed. Diesel fuel consumption levels for electricity were obtained from Department of Community and Regional Affairs'®, converted to Btu’s using 138,000 Btu's per gallon of diesel fuel, and then converted to demand for metric tons of coal using the Btu's per metric ton of coal as listed in Table 2 for each origin site. Depending on the size of the community, efficiencies of coal generated electricity range from 76 percent to 83 percent. For the smaller communities of Galena, Tok, and McGrath the lower figure was used and the higher percentage was used for all other communities. Table 5 depicts metric tons of coal needed for electricity generation by community taking into consideration the origin site and the heating value of the coal. Table 5 Coal Demand by Community for Electricity Generation (Metric Tons) Sutton Healy Omalik Vancouver Beluga Nome 13,425 18,933 11,360 17,373 17,792 Galena 4,222 5,954 3,573 5,464 5,596 Tok 5,399 7,614 4,568 6,987 7,155 McGrath 1,876 2,645 1,587 2,427 2,486 Bethel 16,775 23,657 14,194 21,708 22,231 Dutch Harbor 13,447 18,964 11,378 17,402 17,821 Cordova 10,828 15,271 9,162 14,013 14,351 Maximum levels of coal demand include the assumption that 80 percent of the population presently using diesel fuel would be willing to convert to coal fuel for purposes of domestic heating. Table 6 depicts metric tons of coal needed for electricity generation and domestic heating by community based on origin site and heating value of coal. Table 6 Coal Demand by Community for Electricity Generation and Domestic Heating Sutton Healy Omalik Vancouver Beluga Nome 20,945 29,538 17,723 27,105 27,758 Galena 5,330 7,517 4,510 6,898 7,064 Tok 7,931 11,184 6,711 10,263 10,511 McGrath 2,883 4,066 2,439 3,731 3,821 Bethel 27,699 39,063 23,438 35,846 36,710 Dutch Harbor 22,033 31,072 18,643 28,513 29,200 Cordova 16,228 22,886 13,732 21,002 21,508 '° State of Alaska Department of Community and Regional Affairs - Statistical Report of the Power Cost Equalization Program - Fiscal Year 1995, December 1995. Northern Economics 7 Domestic Coal Handling Study 5. Coal Mining Costs Mining costs presented in this section are derived from a number of sources. The following paragraphs discuss the basis of the mining costs for the sites considered in this study. 5.1. Beluga There are several potential coal projects located in the area of the Beluga River on the west side of Cook Inlet. These coals are located relatively close to tidewater and have minimal transport cost to shipping facilities. In 1990 the U.S. Department of Energy estimated that Beluga coals could be mined for about $16.60 per short ton and transported to a port for $5.25 per short ton. This is equivalent to mining costs of $18.30 per metric ton and transportation costs of $5.79. Review of these costs by project proponents in 1993 resulted in comments that the costs were too high but proprietary information on mining costs at Beluga were not provided. The coal leases contain an estimated 500 million tons of surface-minable coal.'' Production from the property is envisioned to start with an initial long-term contract of at least 1.5 million tonnes per year with production increasing to 5.0 million tonnes per year or more as dictated by the market. The annual average producer price index for surface mining at bituminous coal and lignite mines has increased 3.9 percent from 1990 through 1996.'? This suggests that the mining and transport costs to the port would now approach $19.00 and $6.00 per metric ton, respectively, for a total cost at the port of approximately $25.00. Northern Economics developed a set of equations for the Western Arctic Coal Project in the late 1980s to provide order of magnitude mining cost estimates for surface coal mines. These were based on work done by the Department of Energy in 1980 and the Electric Power Research Institute in 1981, modified to account for the additional costs imposed by Arctic conditions and the remote nature of a mine at Omalik.'*'* Several adjustments were made to the data on which the equations are based to account for the location of the Beluga fields and the environmental conditions. Additional adjustments were made to incorporate the 7.6 percent change in the producer price index for surface mining at bituminous coal and lignite mines since 1987. These adjustments result in mining cost estimates of approximately $15.38 per metric ton in 1996. Discussions with persons promoting development of the project indicate that these estimates are reasonably close to their current estimates of production cost. The additional transport costs to the port would increase the total delivered price to the origin port to about $21.60 per metric ton. This price is used in the analysis given the project sponsor's comments about previous mining cost estimates being too high. "Cole E. McFarland Beluga Coal, Positioned for the 1990s? - Focus on Alaska’s Coal ‘93. "2 U.S. Bureau of Labor Statistics. Producer price index for bituminous coal and lignite, surface mine [database online]. Series PCU1211#21492. Accessed January 4, 1996. '’ McLean Research Center, Inc. and Synergic Resources Corporation. Development of Surface-Mine Cost-Estimating Equations, 1980. Prepared for the U.S. Department of Energy under Contract No. DE-AC01-79EI-10577. '* Electric Power Research Institute. Coal Mining Cost Model. Volumes 3 [Surface Coal Mining Cost Model] and 4 [Users’ Guide for the Surface Coal Mining Cost Model]. Prepared by NUS Corporation. 1981. Northern Economics 8 Domestic Coal Handling Study 5.2. Healy The Usibelli Coal Mine at Healy produces 800,000 tons of coal for domestic consumption by six interior Alaska power plants as well as exports of 700,000 tons per year shipped through the port of Seward to the Republic of Korea.'® Contracts for domestic consumption are based on full cost recovery, while export prices are set to be competitive with other global suppliers. Due to a number of factors including low Btu content and high transport costs to the port, export prices are less than full cost recovery. Export prices cover variable operating costs and make some contribution to fixed production costs and overhead. The Department of Energy estimated that the minemouth cost for exports at Healy in 1990 was $16.00 per short ton ($17.64 per metric ton).'* A 1985 study investigating the use of coal as an alternative power source for the Railbelt estimated total mining costs of $22.08 per short ton ($24.34 per metric ton) at Healy.'? Adjusting this latter price estimate for inflation according to the producer price index for surface mining at bituminous and lignite mines and the change to metric tons suggests a current price of about $26.80 per metric ton. The mining cost equations developed by Northern Economics indicate a price of $26.60 per metric ton after making adjustments from the Beluga model to account for the smaller annual production at Healy, the overburden ratio, and inflation factors. This analysis uses $26.80 per metric ton because of the detailed site-specific nature of the 1985 mine cost estimate. Omalik The costs at Omalik are taken from a 1993 mine feasibility study of the Deadfall Syncline."® The cost presented in this analysis assumes full production of approximately 2.8 million tons at an underground mine using longwall mine methods. Full production is achieved in the fifth year of mine life with production costs declining from years six through ten. This report uses the average mining cost between years five and ten of $25.54 per metric ton for subsequent calculations. The producer price index for underground bituminous mines has declined from 106.8 in 1986 to 95.4 in 1993 and to 89.5 in 1994."° There was a slight increase in 1995 to 92.0. This suggests that the mining cost at Omalik may have actually declined since the 1993 study was completed. Since the price index increased in 1995 and 1996 data are not yet available it is assumed that the 1993 mining cost estimate is appropriate for 1996. Sutton There are several mines being evaluated in the Sutton area. The Jonesville Mine is closest to production, although a decision to proceed to production is still dependent on market conditions. Published production cost estimates are not available for the Sutton area mines. The Northern Economics cost estimating model results in an estimate of about $34.40 per metric ton assuming a 7 to 1 stripping ratio for the mine at a one million ton per year production rate. 'S Alan E. Renshaw - Cast Blasting and Presplitting at Usibelli Coal Mine, Inc. Focus on Alaska’s Coal ’93. ‘© U.S. Department of Energy. Innovative/Alternative Transport Modes for Movement of U.S. Coal Exports to the Asian Pacific Basin, 1990. '’ Harza-Ebasco Susitna Joint Venture. Analysis of the Coal Alternative for Supplying Power to the Railbelt Region of Alaska. 1985. Prepared for the Alaska Power Authority. 'S John T. Boyd Company, Mining and Geological Engineers - Mine Feasibility Study Deadfall Syncline, K-3 Seam, North Slope, Alaska - Report No. 2416, December 1993. '° 19 U.S. Bureau of Labor Statistics. Producer price index for bituminous coal and lignite, underground mine [database online]. Series PCU1211#21491. Accessed January 4, 1996. Northern Economics Domestic Coal Handling Study 5.5. 6. De 6.1. 6.2. Vancouver, B.C. The scope of work does not require development of mining costs for coal moving from Vancouver, B.C. The cost of coal used in this report is based on the 1996 world steam coal benchmark price of $40.30 per metric ton FOB port of origin. The benchmark price assumes a heat content of 12,060 Btu per pound which results in $1.515 per million Btu. Adjusting for the Btu value of Powder River coal results in a price of $29.28 per metric ton loaded on a vessel at Vancouver. livered Coal Costs Methodology and Model Description The concept of this study was to use the large body of information available from the Western Arctic Coal Study’? and the South Central Alaska Coal Transportation Study*' previously prepared by the consulting team. In order to perform the study within the time and budgetary allowances, the consultants relied heavily on previous cost estimates which were updated as appropriate based on communication with knowledgeable individuals, appropriate indices, and consultant experience. Coal Transport Model Modes The first step of the process was to identify the logical transportation modes required to move the coal from each of the five origins to each of the seven destinations. In some cases this was one mode ( for example barge from Omalik to Unalaska) while in other cases up to four modes were required (for example truck-rail-ocean barge-river barge from Healy to McGrath). A large scale map of Alaska and the consultant's knowledge of available transportation routings was used to define the modes of transportation for each origin- destination pair. For purposes of setting up the transportation model, a coding system describing the number and type of modes was established. In the system the initial number (e.g. 1,2,3 or 4) refers to the number of transportation modes required to get the coal from the mine to the destination. The alpha designation (e.g. A, B, C or D) was used to describe the modes used for that particular origin-destination pair. The following list summarizes the modes used in the analysis: e 1A One mode; ocean barge e 1B One mode; truck e 2A Two mode; ocean barge and river barge e 2B Two mode; rail and ocean barge e 2C Two mode; truck and river barge ° Arctic Slope Consulting Engineers and Ogden Beeman & Associates, Inc. - Western Arctic Coal Development Project - Phase II - Technical Memorandum Marine Transportation Evaluation - October, 1985. *! Ogden Bee: man & Associates, Inc. in association with Northern Economics - South Central Alaska Coal Transportation Study - Transportation Model - June 24, 1993. Northern Economics 10 Domestic Coal Handling Study e 2D Two mode; ocean barge and truck e 3A Three mode; truck, rail, and ocean barge e 3B Three mode; rail, ocean barge, and river barge e 4A Four mode; truck, rail, ocean barge and river barge Table 7 shows the modes and corresponding codes used for each of the 35 possible origin- destination pairs considered in the model. The number following the hyphen (e.g. -1, -2, .... - 12) identifies individual model runs within each mode and mode description. Using a spread sheet format, the transportation model was established and set up to run for each of the origin-destination pairs shown (35) and using nine (9) discreet modal descriptions (e.g. 1A, 3B, etc.). The italicized community name within certain cells is the modal transfer port or ports. Table 7 Coal Transp 1A-2 1A-4 2A-1 2A-2 barge barge barge-barge | barge-barge Bethel St. Mary’s 1A-6 1A-8 2A-3 2A-4 barge barge barge-barge | barge-barge Bethel St.Mary's 3A-1 3A-2 3A-4 4A-1 2C-1 truck-rail- | truck-rail- truck-rail- truck-rail- truck-barge barge barge barge barge-barge Nenana Seward Seward Seward Seward | Bethel 2B-1 2B-2 2B-4 3B-1 2C-2 rail-barge | rail-barge rail-barge rail-barge- truck-barge Seward Seward Seward barge Nenana Seward Bethel Vancouver, B.C. 1A-9 1A-10 1A-12 2A-5 2A-6 barge barge barge barge-barge | barge-barge Bethel St.Marys The assumptions used in preparing the model are shown below by modal descriptions which also serve as Excel spread sheet designations. 4A.XLS | One mode transportation model uses ocean barge from Omalik, Beluga, or Vancouver B.C. mines to the destination ports of Nome, Unalaska, Cordova, or Bethel. Northern Economics 1 Domestic Coal Handling Study 1B.XLS One mode transportation model uses truck from either the Healy or Sutton mine to the destination of Tok. 2A.XLS Two mode transportation model uses ocean barge from Omalik, Beluga, or Vancouver B.C. mines to transfer port of Bethel or St. Mary’s and river barge to destination port of either McGrath or Galena, respectively. 2B.XLS Two mode transportation model uses rail from Healy mine to transfer port of Seward and ocean barge to destination ports of Nome, Unalaska, Cordova, or Bethel. 2C.XLS Two mode transportation model uses truck from Healy or Sutton mines to transfer port of Nenana and river barge to destination port of Galena. 2D.XLS Two mode transportation model uses ocean barge from Omalik, Beluga or Vancouver B.C. mines to transfer port of Valdez and truck to destination of Tok. 3A.XLS Three mode transportation model. Uses truck from Sutton to Palmer, rail to Seward, and then ocean barge to Nome, Unalaska, Cordova or Bethel. 3B.XLS — Three mode transportation model. Uses rail from Healy mine to Seward, and then ocean barge to Bethel, and then river barge to McGrath. 4A.XLS Four mode transportation model. Uses truck from Sutton to Palmer, rail to Seward, ocean barge to Bethel, and river barge to McGrath. 6.3. Transport Model Assumptions and Input Data To provide inputs to the transportation cost model, a number of input sheets were created covering necessary information such as origin-destination pair, modes and associated distances and costs. These sheets are listed below. Input Select Origin (mine), Transfer ports (if applicable) , and Destination port. Model determines trip distance from OceanDist, RiverDist, RailDist, and TruckDist sheets and looks up coal maximum demand depending upon the origin and destination (Demand sheet). Select Ocean Barge size. Model looks up annual cost and capacity. (From OceanBarge sheet). Select Ocean Tug size. Model looks up vessel speed loaded and unloaded as well as at sea and in port daily costs. (From OceanTug sheet). Load Costs Loading and unloading costs and rates for all mines, transfer points and destinations. OceanTrips Determines number of ocean trips required based on maximum community coal demand, ocean barge capacity, and number of available shipping days per year. Assumes a maximum of 75 shipping days per year for Omalik and at least 125 days elsewhere. Assumes 8 hours lost time at the origin and at the destination (Total of 16 hours lost time per Northern Economics 12 Domestic Coal Handling Study OceanTug OceanBarge RiverTrips RiverBarge Truck Train trip). Computes number of days required to travel north from Vancouver, B.C. to the destination port and the number of days to travel south from the last port of delivery. Uses methodology from 1985 Western Arctic Coal Development Project for determining daily at sea and in port costs for various size ocean tugs. Includes three tug sizes 1) Yard tug, 2) Limited tug, and 3) Unlimited tug. An annual amortized cost for the tug was determined from a first cost using a 10 year period with 10% interest. An additional 10% of first cost was added to account for maintenance and insurance cost. Overhead and profit was also assumed to be 10%. Daily in-port costs included the bare boat rate plus labor and subsistence. Daily at sea costs used in port costs plus fuel. In 1985 the cost of fuel was $1.26/gallon, however, current cost of $0.80/gallon was used for 1996. All costs were then increased by the Anchorage Consumer Price Index (From CPI sheet) to 1996 costs. The resulting rate was verified with an_ industry representative. Also included are vessel speeds (in knots) for loaded and unloaded conditions. Uses methodology from 1985 Western Arctic Coal Development Project for determining annual cost for various size barges. Includes three barge sizes: 1) 180'x54’x12’ 2) 250’x72’x16’ and 3) 300’x90’x20’. The annual cost used the same assumptions as the tug costs. The interest rate of 10%, 10 year period, maintenance and insurance cost of 10% of first cost, overhead and profit of 10%. The costs were then increased by the Consumer Price Index (From CPI sheet) to 1996 costs. The resulting cost was verified with current rates through communication with an industry representative. Also included are barge capacities. The capacity of the 300’x90’x20’ at 12’ is 8,640 short tons. Determines number of river trips required based on maximum coal demand, river barge capacity, and number of available shipping days per year. Assumes a maximum of 123 days per year. Also assumes 8 hours lost time at the origin and at the destination (Total of 16 hours lost time per trip). If the number of trips required to fulfill demand exceeds 123 days, the trips are limited to the number that can be completed in a single season. Uses barge rates quoted by Yutana Barge Lines. Source: Larry Shelver, Yutana Barge Lines. Also included are capacities. The barges used are 175°x45’. Costs include wharfage and handling. Cost per metric ton mile for trucks. Updated from 1993 data in South Central Coal Transportation Study after discussion with industry representatives. Cost per metric ton mile for rail from Healy to Seward or from Palmer to Seward. Rail costs were calculated after meeting with Alaska Railroad Officials. Northern Economics 13 Domestic Coal Handling Study Mine Cost per metric ton of coal from Sutton, Healy, Omalik, Beluga, and Powder River (via Vancouver, B.C.). Costs taken from coal mining costs section. CPI Anchorage Consumer Price Index, All Urban Consumers (CPI-U), listing percent change for each year from 1984 through 1996. The costs were compounded from 1985 through 1996 for purposes of updating 1985 tug and barge costs and from 1993 through 1996 for updating trucking costs. Source: U.S. Department of Labor, Bureau of Labor Statistics. Demand Maximum potential coal demand for Nome, Galena, Tok, McGrath, Bethel, Dutch Harbor, and Cordova as described in Section 4. OceanDist Distance in nautical miles between various origins and destinations. Sources: Publication 151 Distances Between Ports, Defense Mapping Agency Hydrographic/Topographic Center, 1993 and scaled from State of Alaska Map, scale 1:1,584,000 (1”= 25 miles) by U.S. Geological Survey, 1986. TruckDist Distance in statute miles between various inland origins and destinations. Source: The Milepost - 44" Edition, Spring 92-Spring 93. RailDist Distance in statute miles between various inland railroad origins and destinations. Source: The Alaska Railroad Distance Table 11-E. RiverDist Distance in statute miles between various inland river origins and destinations. Source: The Alaska Railroad Distance Table 11-E and scaled from State of Alaska Map, scale 1:1,584,000 (1”= 25 miles) by U.S. Geological Survey, 1986. Sum Summary sheet of model results. 6.4. Transportation Model With the above described input sheets prepared, a spreadsheet model was prepared which would calculate the delivered cost for each origin-destination pair using the selected modes and distances. A run was made for each pair and the results were examined to check the assumptions and the logic. The model computes cost based on quantity, distance, time required, and mode capacities or limitations. 6.4.1. Mode 1A (ocean barge) Model inputs consist of mine (origin) and destination port, barge and tug size. The maximum coal demand for the mine and destination is obtained from the Demand sheet. Using the quantity, vessel size, tug size, loading and unloading rates, and distance, the number of required trips are computed. In addition a total of 16 hours of lost time is accrued for each round trip. The number of trips is rounded up unless the time exceeds the shipping season. (For instance, the shipping season for the Omalik mine is 75 days). The time required to complete the trips is totaled. It was assumed that mobilization and demobilization time for Northern Economics 14 Domestic Coal Handling Study the tug/barge is five days each for a total of 10 days. All ocean tugs and barges are mobilized out of Puget Sound. The transportation cost is the sum of tug and barge costs for mobilization and demobilization time at the in-port rate, the at-sea cost for traveling north (from Puget Sound), operating time for coal delivery and traveling south. The barge cost is based on the total number of days that the barge is in use divided by 250 working days per year multiplied by the total annual cost of the barge. 6.4.2. Mode 1B (truck) Truck costs of $0.0755 per metric ton mile were applied to the required distance. 6.4.3. Mode 2A (ocean barge and river barge) Ocean leg transportation costs were determined as in Mode 1A. River leg costs were determined by calculating the required number of trips, based on annual coal demand and barge sizes available. Sixteen hours of lost time per round trip was assumed. The number of trips determined the actual coal quantity delivered. Cost of transportation was determined by using the current shipping rates for Yukon, Kuskokwim and Tanana Rivers. 6.4.4. Mode 2B (rail and ocean barge) Ocean leg transportation costs were determined as in Mode 1A. The rail rate was calculated using the 1992 South Central Coal Transportation Study methodology. The rates were increased to account for changes since 1992. These changes include using a three man instead of two man crew, 6 locomotives, 67 cars per train, revenue loading of 88 metric tons per car, $0.80 per gallon for fuel, and 3.7 gallons per mile consumption. The resulting rate for Healy to Seward in dollars per metric ton mile is $0.0287. 6.4.5. Mode 2C (truck and river barge) Truck costs were determined as in Mode 1B. River leg costs were determined as in Mode 2A. 6.4.6. Mode 2D (ocean barge and truck) Ocean leg costs were determined as in Mode 1A. Truck costs were determined as in Mode 1B. 6.4.7. Mode 3A (truck, rail, and ocean barge) Truck costs for moving coal from the mine at Sutton to Palmer were determined as in Mode 4B. The rail rate for Palmer to Seward was determined in a similar manner as Mode 2B. The resulting rail rate for the Palmer to Seward distance is $0.0467 per metric ton-mile. The ocean leg costs were determined as in Mode 1A. 6.4.8. Mode 3B (rail, ocean barge, and river barge) Rail rates used the same methodology as Mode 2B. Ocean leg transportation costs were computed as in Mode 1A, river leg costs were computed as in Mode 2A. Northern Economics 15 Domestic Coal Handling Study 6.4.9. Mode 4A (truck, rail, ocean barge, and river barge) Truck and rail rates from Sutton to Palmer to Seward were computed as in Mode 3A. The ocean legs costs were determined as in Mode 1A and the river leg cost was determined as in Mode 2A. 6.5. Barge Loading and Unloading Costs The “Western Arctic Coal Development Project” Phase II report’? and associated work papers were examined to establish the criteria and cost estimates for loading and unloading barges associated with the various transportation scenarios. Given the relatively low impact of the marine transfer component on overall transportation costs, a simplified approach was used to compile the estimated cost of that component. For the 1985 report it was assumed that in most cases a front end loader with a 10-ton effective bucket capacity would be used for both loading and unloading activities. It was further estimated that it would generally have a 2 minute loading cycle, work a 50 minute hour and therefore have a typical output of 250 short tons per hour. This would be applicable for loading situations where the pile was located near the dock and unloading situations where coal could be piled near the discharge point without subsequent rehandling to truck or conveyor. The equipment rental and standby costs used in 1985 were reviewed and in general escalated by 35 percent to account for the CPI index increase over the past 10 years. This resulted in equipment costs of around $185/ hour without operator. It was assumed the operator would be made available from the tugboat crew at the point of destination. This would translate into an operating cost of ($185/hr)/(250 tons/hr) or $0.75/ ton. Established ports will normally levy a “wharfage” charge per ton on commodities to help pay for construction and operations of docks and wharves used for handling commodities. For example, the wharfage rate at the Port of Anchorage is $2.00/ ton for dry bulk commodities unloaded with the owners equipment. Rather than estimate the cost of establishing unloading points or using existing facilities at the various sites, it is assumed that a wharfage charge in the range of $1.25/ton could be negotiated for bulk movements of coal. When added to the handling cost derived above, this brings the total cost of unloading to $2.00/ ton which is used for all barge load and unload scenarios except as described below. Where the movement is “off barge - on barge”, the wharfage charge is levied only once so the cost is $2.00 /ton unload and $0.75/ton to load for a total of $2.75/ton. For purposes of uniformity, these figures were used for all barge loading and unloading cost scenarios except those associated with established bulk handling facilities at Seward and Vancouver B.C. and proposed facilities at Omalik and Beluga where specific rates reflecting the storage, stacker-reclaimer, and higher speed loading were used. Fixed and variable costs of the coal transfer facility at Seward were compiled in an earlier study. For purposes of this study, the fixed costs were amortized over an increased throughput and the variable costs were used for the incremental tonnage. The result was a throughput figure of approximately $4.00/ ton to cover the fixed and variable costs for a facility similar to that at Seward. » Arctic Slope Consulting Engineers and Ogden Beeman & Associates, Inc. - Western Arctic Coal Development Project Phase 11 - Technical Memorandum Marine Transportation Evaluation - October, 1985. Northern Economics 16 Domestic Coal Handling Study Based on evaluation of available cost data, a loading cost of $4.00/ ton was used for Seward, Beluga, Omalik and Vancouver, B. C. to reflect the increased sophistication, capability and higher throughput rates associated with a larger shipping storage and stacking facility. For these facili capability and sophistication of the loading system. 6.6. Results of Model Runs The transportation results of the 35 model runs costs expressed in dollars/metric ton for coal d also shows the cost/ton and identifies the mine prod destination point. Mine\Destination Omalik Beluga Sutton Healy Vancouver, B.C. Low Cost Weight Selection: Cost/metric ton Mine Site chosen ities a loading rate of 750 tons/hour was used to reflect the increased are shown in summary form in Table 8, with elivered to each of the destination sites. It ucing the lowest cost scenario to each Table 8 Total Costs Per Metric Ton Nome Unalaska Cordova Bethel McGrath Galena Tok §5.23 63.17 80.55 61.16 312.86 239.55 128.88 60.07 50.47 45.84 54.66 305.04 233.02 79.79 84.90 74.94 64.44 78.37 325.98 171.34 56.01 75.91 66.31 58.25 70.58 319.79 146.63 51.53 80.42 69.82 63.26 75.52 317.76 250.89 97.04 55.23 50.47 45.84 54.66 305.04 146.63 51.53 Omalik Beluga Beluga Beluga Beluga Healy Healy Note: Includes mining cost, transportation cost, and loading and unloading cost. When measured as a cost per metric ton, Beluga is the low cost alternative for four of the destination sites. The cost per ton of coal is somewhat d mines produce coal of different Btu value. In order to demonstra’ in Table 8 were modified to account for the Btu value of the coal. Table 9 summarizes the cost expressed in dollars per million Btu's. Mine\Destination Omalik Beluga Sutton Healy Vancouver, B.C. Low Eneray Cost Selection: Cost/million Btu’s Mine Site chosen Table 9 Total Delivered Energy Cost of Coal (per Million Btu’s) leceiving however, since each of the te that difference, the results Nome Unalaska__ Cordova Bethel McGrath Galena Tok Btu’s/pound $ 1.93 $ 2.20 $ 2.81 $ 2.13 $10.91 $ 8.36 $ 4.50 13,000 $ 3.28 $ 2.76 $ 2.50 $ 299 $16.67 $ 12.73 $ 4.36 8,300 $ 3.50 $ 3.09 $ 2.66 $ 3.23 $13.44 $ 7.06 $ 2.31 11,000 $ 4.41 $ 3.86 $ 3.39 $ 4.10 $18.59 $ 8.53 $ 3.00 7,800 $ 4.29 $ 3.73 $ 3.38 $ 4.03 $16.95 $ 13.39 $5.18 8,500 $ 1.93 $ 2.20 $ 2.50 $ 2.13 $10.91 $ 7.06 $2.31 Omalik Omalik Beluga Omalik = Omalik Sutton Sutton When measured as a cost per million Btu's, Omalik is the low cost alternative for four of the destination sites. Northern Economics 17 Domestic Coal Handling Study 6.7. Discussion 6.7.1. Coal Measured as Cost per Metric Ton The wide range of costs within some of the alternatives demonstrates some actual inefficiencies and some difficulties in implementing the model on a realistic basis for all origin- destination pairs. Potential issues affecting transportation costs are identified in the following paragraphs. Originating coal at Omalik has several substantial disadvantages as discussed in earlier studies. The most significant disadvantage is the remoteness of the site. This results in very high mobilization and demobilization costs of transportation equipment each year and relatively high transportation costs to all destinations except, perhaps, Nome and Bethel. Since the methodology of the study considered each origin-destination pair separately for cost purposes, there was no joint use of barges to serve several destinations as was done in the Western Arctic Coal Study. This further exacerbated the high costs attributable to the mobilization of equipment. Note that Omalik presents the lowest transportation cost alternative based on dollars per metric ton only to Nome (See Table 8). Originating coal at Beluga appears to have significant transportation advantages for providing coal to waterfront communities. Note that Beluga coal is the lowest cost alternative for four of the seven destinations considered when measured at a cost per metric ton. Originating coal from Healy has advantages since the coal can be originated on rail or by direct short truck haul. Originating coal at Sutton did not present transportation economies for the destinations studied. This is probably due to the additional truck haul at origination and other cost factors. Connecting railroad to the Sutton site could be a lower cost alternative for the Sutton coal but was not an option considered for this study. Originating coal at Vancouver B. C. did not appear advantageous due to the significant distance disadvantages compared with, for example, Beluga coal. Vancouver would be more competitive if large volumes were involved allowing use of larger vessels for ocean transport. 6.7.2. Coal Measured as Cost per Million Btu's The conversion of costs from a per ton to a cost per million Btu’s caused a significant change in the results as shown in Table 9 and further discussed below. In some cases the quality of the coal was able to overcome the transportation disadvantages noted. When considered on a dollars per million Btu's, Omalik coal is in a much more favorable position. As indicated in Table 9, Omalik (with 13,000 Btu/pound coal) provides the lowest cost per Btu for Nome, Unalaska, Bethel and McGrath. In addition, Sutton (with 41,000 Btu/pound coal) provides lower cost per Btu to Galena and Tok, surpassing Healy, even though Healy had the lowest transportation cost. Beluga remains as the lowest cost alternative for Cordova. Northern Economics 18 Domestic Coal Handling Study Certain destinations presented unique cost issues. For Galena and McGrath, the volumes were low which complicated the issue of providing quantities from tidewater mines to the origination points for river barging. The low volumes made it impractical to use efficient equipment to transport the coal. Therefore, the rates posted by common carriers for bulk materials were used to compile the river barge segment of the journey. The overall results of the analysis are thought to provide a relative comparison of transportation and Btu costs for the alternatives considered. The results are sensitive to the volume and joint equipment use scenarios and thus are less meaningful when looked at in absolute terms. Cost of Coal Consumption Table 10 estimates the cost of coal per million Btu’s by community given the low cost alternative for the origin site of the coal. The table also depicts total cost of coal for the community given electricity generation by coal and 80 percent of the population choosing to use coal for domestic heating purposes. The total cost column represents the average annual cost. Actual costs per year could be higher to account for full barge load deliveries. For instance, the quantity of coal demanded for Nome is 17,723 metric tons but a full ocean barge delivery is 23,510 metric tons and the costs for barge delivery is based on a full barge load. The cost per metric ton is assumed to balance out over the years when stockpiled coal would eliminate a delivery in some years. Table 10 Maximum Coal Consumption Cost by Community Community Million Btu's Total Per Capita Nome $ 1.93 $ 873,633 $ 244 Galena $ 7.06 $ 202,088 $ 383 Tok $ 2.31 $ 310,599 $ 258 McGrath $ 10.91 $ 114,013 $ 238 Bethel $ 2.13 $ 1,163,156 $ 224 Dutch Harbor $ 2.20 $ 924,402 $ 226 Cordova $ 2.50 $ 673,516 $ 262 Comparison of Delivered Cost of Coal to Unsubsidized Cost of Diesel Fuel Fuel oil and diesel are the major energy sources for the destination communities at present. The cost of diesel fuel for the destination communities was determined using Alaska Public Utility records for the price of fuel delivered to the utility companies.” This price reflects the delivered price of large volumes of diesel. The price paid for fuel by utility companies may not reflect the actual price paid by residential consumers. The price paid by residential consumers would tend to be higher to cover additional costs of handling, overhead, and profits for retail suppliers. 23 Alaska Public Utilities Commission, copies of APUC Electric Utility PCE Form received October 8, 1996. Northern Economics 19 Domestic Coal Handling Study Table 11 demonstrates the per capita costs of diesel for utilities and heating fuel. Differences in cost per capita by community can be attributed to several factors: location, size of population, availability of alternatives for utility and heating sources, transportation modes available to the community, and facilities such as schools, harbor, or other large facilities in the community. Table 11 Diesel Fuel Costs by Community Community Million Btu's Total Per Capita Nome $ 6.60 $ 2,987,227 $ 835 Galena $ 8.79 $ 920,146 $ 1,746 Tok $ 5.13 $ 825,068 $ 685 McGrath $ 11.52 $ 680,638 $ 1,421 Bethel $ 9.58 $ 5,773,416 $ 1,111 Dutch Harbor $ 6.06 $ 2,900,167 $ 710 Cordova $ 6.43 $ 2,243,031 $ 873 When comparing the cost of diesel fuel versus coal, in all cases evaluated the cost of diesel fuel per million Btu's is higher than the cost of coal per million Btu’s. On a per capita basis, however, the smaller communities of Galena, Tok, and McGrath experience substantially higher costs associated with diesel production of electricity and heating needs. Factors that contribute to the higher cost include transportation modes chosen, number of modes necessary and distance to reach a community, total annual consumption, and size of community. Transportation costs to communities that can be reached by ocean barge are less than half of the transportation costs to inland communities. For instance, the low cost alternative to Nome is $23.09 per metric ton, to Unalaska is $31.03, and to Bethel is $29.02 per metric ton while the transportation cost to Galena is $131.76 per metric ton. The cost to McGrath was considerably higher due to the long upriver portion of the transport which increased the transportation fee to $277.72 per metric ton. Contributing even more to the cost of delivered coal for McGrath is the loading and unloading costs. The coal is loaded to an ocean barge at Omalik, unloaded at Bethel, reloaded at Bethel to a river barge, and then unloaded at McGrath. Loading and unloading costs for the Omalik to Nome, Unalaska, and Bethel alternatives was $6.60 per metric ton, Sutton to Nenana to Galena was $5.20 per metric ton, Sutton to Tok was $0.80 per metric ton, while the Omalik to McGrath loading and unloading costs were $9.60 per metric ton. Mine costs differ by origin site with Beluga being the low cost alternative at $21.59 per metric ton, Healy is $26.80, Omalik is $25.54, Vancouver, B.C. is $29.28, and Sutton ranks highest at $34.38 per metric ton. These costs reflect the size of the mine operation and the quantity of coal demanded for each destination site. The size of the community generally determines the quantity of coal demanded for each of the destination sites given. Larger shipments realize economies of scale for communities with greater populations that are not realized with the smaller communities. Northern Economics 20 Domestic Coal Handling Study 9. Small Coal Evaluation Studies 9.1. 9.2. Little Tonsona Coal The McGrath Coal Fired Power Plant Feasibility Project currently being undertaken for McGrath Light & Power assumes coal is mined from the Little Tonsona River coal site. The project proposes trucking coal 76 miles every other year over a snow road from the mine site to the limestone quarry at Noir Hill, about 15 miles from McGrath. The power plant is anticipated to be located in the town of McGrath in order to utilize the waste heat for home heating. Space is limited in the town of McGrath so the stockpiled coal would be delivered to the plant regularly throughout the year. The coal is expected to be supplied to McGrath for purposes of maintaining a 600 KW fluidized bed power plant. The project is anticipated to be funded by government grants and the project is expected to be a test site for electric and heating generation for other rural communities throughout Alaska. Little Tonsona coal has a heating value of 6,800 Btu’s per pound. The cost of delivered coal to McGrath is currently estimated at approximately $52.00 per ton. These costs include only the operating expenses and replacement of equipment, not the initial capital investment. If feasible, the Village of McGrath will begin using coal for the power plant in 1998. The cost of coal delivered to McGrath for this project, assuming federal grants for capital investment is approximately $3.41 per million Btu’s. This is less than one third of the anticipated cost from any other coal source. Atqasuk Coal Located approximated 75 miles south of Barrow on Alaska’s North Slope, Atqasuk was selected as a pilot project for the North Slope at the request of the local residents and under Borough sponsorship, due to the availability of a nearby coal source with existing drilling and related exploration and test information.”* Historically, coal from the Meade River deposits was used by the local people for their hunting and fish camps. The coal is primarily subbituminous. Before the 1940's, residents of Barrow depended on driftwood and petroleum residue from Cape Simpson as a fuel source. As the population grew, fuel shortages occurred. In 1943, the Bureau of Mines concluded that the coal from the Meade River deposits was of sufficient quality and quantity to be mined economically and supplied to Barrow. Hydraulic stripping was suggested as the appropriate mining method. Flooding later caused the abandonment of this mining method. During the winter of 1944-45, the Alaska Native Service mined coal from the site using an enlarged prospect shaft. The mine was shut down in 1964 when natural gas wells were brought into production near Barrow. Four seams have been identified in the mine area through outcrop and drilling information. The upper bed is approximately 34 inches thick, the second some five to six feet thick, and the two lower seams are about a foot each. These seams total approximately 19 acres in size. Assuming a maximum coal use, one of the three areas identified would supply the community needs for approximately 70 years. Numerous factors including costs, safety, >4 Howard Grey, Moening-Grey & Associates - Focus on Alaska’s Coal ’80 - Proceedings of the Conference held at the University of Alaska, Fairbanks, October 21-23, 1980. Northern Economics 21 Domestic Coal Handling Study equipment on hand, and the size of the operation, established that a surface mine was appropriate for the area. In general, stripping ratios are satisfactory on the order of three to one on the measured reserves in Area One. Because of the frozen or permafrost condition of the subsurface, overburden removal will be accomplished by a strip and thaw method; successive stripping would proceed after a newly exposed area had thawed to an appropriate depth. The impact of this coal mine on the residents of Atqasuk is considered very favorable. The mine is anticipated to increase employment, lower fuel costs, strengthen the local economy, and decrease dependence on imported goods. Jarvis Creek Coal Located in south central Alaska about 30 miles south of Delta Junction, the Jarvis Creek coal field is within the northern foothills of the Alaska Range. The coal field contains approximately 24 square miles, is bounded on the west by the Delta River Valley, the east by Jarvis Creek and its tributary, Little Gold Creek, and to the south by Ruby Creek, a westward flowing tributary of the Delta River.** Access to the coalfield is via a gravel road that leaves the Richardson Highway just north of milepost 242 and meanders along a ridgetop six or seven miles to an old mine site on Ober Creek.*® The coalfield is strategically located to serve the interior communities of Delta Junction, Tok, Northway, Paxson, Glennallen, and the military base of Fort Greely. Most of the coals are close to the surface and ranked as subbituminous C with a heating value from 8,300 Btu’s per pound to 9,500 Btu’s per pound.” From the recent drilling program a mine plan for Jarvis Creek is proposed that would include stripping and production of 500 tons of coal per day on a seasonal basis from May through September. Current reserve estimates indicate a 20 year mine life with a stripping ratio of five to one.”* 25 Bureau of Land Management Fortymile Resource Area- Final Jarvis Creek Preference Right lease Application Environmental Assessment. 1982 26 Michael A. Belowich - Stratigraphy, Petrology, and Depositional Environments of the Jarvis Creek Coalfield, Alaska, 7 Thid. September, 1988. 28 Paul A. Metz - Mineral Industry Research laboratory UAF - Mining, processing and marketing of coal from Jarvis Creek Field - Focus on Alaska’s Coal ’80, Proceedings of the Conference held at the University of Alaska, Fairbanks, October 21-23, 1980. Northern Economics