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HomeMy WebLinkAboutAlaska Coal Resources Marketing Strategy Discussion Paper 1991ALASKA COAL RESOURCES MARKETING STRATEGY DISCUSSION PAPER Prepared by: International Coal Preparation Consultants Limited 932 Lake Twintree Cres. S.E. Calgary, Alberta, Canada T2J 2W3 Tel. (403) 278-2789 Fax. (403) 271-1521 August, 1991 Background The ability of the world’s coal industries to respond to the oil supply concerns of the 1970* by developing major new production capacity in the 1980* (much of it based on low cost open pit operations) is proof of coal’s strategic importance and economic strength. Indeed following the first oil crisis of 1973 the industrialized world began reducing its dependency upon imported oil for generation of electricity, and coal became the fuel of choice in this market. Demand for electricity has trebled over the last twenty years and in the Western World it continues to increase faster than both total energy use and overall economic growth. Coal demand now runs parallel with the ever increasing demand for electricity and the phrase "Coal By Wire" was coined to identify the link between coal and electricity. The explosion in international steam coal trade which has been gathering momentum since 1987, offers an excellent window of opportunity for Alaskan sub-bituminous coal to gain entry into this rapidly expanding market. To realize this objective, the present perception among both coal buyers and potential coal producers. that low-rank coals are technically and economically unattractive, must be changed. There is a need to recognize that in today’s ever-changing world, energy economics are also changing as they become affected by the cost of resolving environmental problems. Many of the conventional parameters hitherto used by coal buyers as their basis for fuel selection, are having to be modified as the impact of additional costs created by the introduction of new environmental protection legislation, becomes apparent. In terms of utilization, it is now clear that environmental considerations will determine a coal’s acceptability for use as a fuel, as other technical issues become secondary considerations. Alaskan sub-bituminous coal meets all of the environmental criteria. It is highly reactive, has a low sulphur content, and its excellent combustion characteristics ensure maximum carbon burn- out. The environmental benefits to be derived from using low-rank coal seems likely to become an acceptable trade-off against the higher heating value of its bituminous coal counterpart. However, it should be recognized that the mining, handling, processing, combustion, and pollution control aspects of low-rank coal, are quite different from those of high rank bituminous Alaska Coal Resources - Marketing Strategy Discussion Paper Prepared by: International Coal Preparation Consultants Limited - August 1991 Page 1 coal which currently accounts for most of the coal being burned by the industrialized world. High rank bituminous coal has been favoured to-date because until now heating value has been the primary consideration in fuel selection; environmental considerations have been viewed as being of secondary importance. Today’s environmentally sensitive climate has changed this situation, and the excellent combustion characteristics and low sulphur content of highly reactive low rank coals make them a more attractive source of primary energy than hitherto. The growing demand for the recently developed large production base of low sulphur and very low cost Western U.S. sub-bituminous coal, is evidence of this. Given the wide range of coal qualities and end-users in international steam coal trade, international coal price comparisons are not a valid yardstick. In order to cope with this situation, comparisons between coals must be based on the summation of all unit cost elements that go to make up each specific coal supply chain. This means evaluating a coal’s economics on a cost per million Btu at the bus-bar, not on its delivered price per tonne. Evaluations conducted on this basis are the only realistic means of determiring the true cost to the end-user. Suggested Marketing Strategy Among Alaska’s vast coal deposits which remain largely unexploited, Beluga merits priority consideration. The Beluga project which is at present on the shelf, has many outstanding features which in light of the changed circumstances now warrants re-evaluation. This should be given some urgency because today’s coal marketing scenario is quite different from that which existed at the time the project was initially being studied. To take advantage of the present window of opportunity, the lengthy lead time to bring a new mine on-stream needs to be taken into account. In this regard, market development strategy becomes the key to success. Since the international steam coal market is primarily centred around countries in Western Europe (the Netherlands, Denmark, France, Italy and Germany), and the Far East (Japan, South Alaska Coal Resources - Marketing Strategy Discussion Paper Prepared by: International Coal Preparation Consultants Limited - August 1991 Page 2 Korea, Taiwan, Hong-Kong and Singapore), any marketing strategy for Beluga should be based on exporting to these two major coal importing regions. Coal delivered into Japan normally passes through large coal centres for onward transportation via. ocean barge for distribution to end-users. The estimated delivered cost of Beluga coal into Japan, of $2.44 per million Btu, includes these terminal charges and distribution costs. In the case of Europe, after allowing for the longer sea journey and tariff for passage through the Panama Canal, the estimated delivered cost of Beluga coal into Europe of $2.47 per million Btu also includes terminal charges and distribution costs. It is worth noting that the latter are less than half those for Japan and the option of rail or river barge transportation is available to distribute the coal to the end-user. Based on these estimated costs, Beluga coal will be extremely competitive in these two major coal importing regions of the world. While the economics are very attractive, launching the Beluga project will require a major sales effort if its implementation is to be seriously pursued. In this respect, the following salient points are relevant: ¢ very low delivered cost per million Btu * very low sulphur content * acceptable fuel ratio, high reactivity, and good combustion characteristics * no negative features in the ash components ¢ favourable results of combustion tests undertaken in Japan allow comparisons to be made with eight other coals from various coal exporting countries including Australia and South Africa * easily managed open-pit mining operation under well financed ownership Alaska Coal Resources - Marketing Strategy Discussion Paper Prepared by: International Coal Preparation Consultants Limited - August 1991 Page 3 * ocean shipping via vessels from Alaskan shallow draft port facility would enable coal to be delivered direct to end-users able to receive shallow draft vessels ¢ stable U.S. political climate under which coal exports would help redress the trade balance with countries in the two major coal importing regions The marketing strategy should also include a major drive to counter the following misconceptions generally associated with Alaskan low-rank coal: Severe Winter Climate The northern environment does not cause weather delay problems Spontaneous Heating Spontaneous heating problems with sub-bituminous coal in export markets are avoided by adopting good housekeeping practices. The success of such operations as Usibelli and Powder River Basin in the U.S., and Obed and Bienfiat in Canada, plus other ocean movements of such coals, is evidence of this. Low Heating Value The low heating value of Beluga coal is compensated for by its lower cost per million Btu than that of its high heating value bituminous coal counterpart. Boiler De-rating and Environmental Issues While 100% of highly reactive, low-rank coal may not be possible in an existing boiler due to the risk of de-rating, its utilization as a blending component minimizes the impact of this technical problem. From an environmental point of view, the high carbon burn-out of this low sulphur coal adds weight to the case for its use as a blending component. Alaska Coal Resources - Marketing Strategy Discussion Paper Prepared by: International Coal Preparation Consultants Limited - August 1991 Page 4 Conclusions Low mining costs, closeness to tidewater, and cheap off-highway use of large trucks to transport its coal to the shipping point, are outstanding economic features of the Beluga project. When coupled with its low sulphur and excellent combustion characteristics Beluga coal should be very competitive in the world’s two major coal importing regions of Western Europe and Japan. Its economic and environmental attraction could be key to moving Alaska decisively into the international steam coal trade. To support this conclusion an economic excercise conducted on the coal supply chain to those regions, is attached. Technical support is provided in the attached combustion test results which compare Beluga coal with eight others from coal exporting countries, including Australia and South Africa. The potential to compete in the coal market of Western Europe as well as the Pacific Rim, is a unique situation for Alaska which should be fully exploited. Alaska Coal Resources - Marketing Strategy Discussion Paper Prepared by: International Coal Preparation Consultants Limited - August 1991 Page 5 Btu/Ib Million Btu/tonne Mine-Port (miles) Inland Transport Exporting Ports Ridley Island Distribution via. Barge Alaska Coal Resources - Marketing Strategy Discussion Paper COAL CHAIN Coal Trade - Details D 25 Truck N. Foreland Barge Prepared by: International Coal Preparation Consultants Limited - August/91 XIGNddd¥ COAL CHAIN Typical Unit Costs (1991 U.S. Dollars) Million Btu Mine Cost Inland Transport! Inland Transport* Port Charges FOB! FOB? Ocean Freight! Ocean Freight? Ocean Freight® CIF! CIF? CIF? Terminal Charges Distribution Delivered Cost! Delivered Cost? Delivered Cost? Exporting Ports: (1) Roberts Bank: Seward: N. Foreland (2) Ridley Island (3) Los Angeles Alaska Coal Resources - Marketing Strategy Discussion Paper Prepared by: International Coal Preparation Consultants Limited - August/91 XIGNdddV Chemical analysis of bulk coal samples tested in Wakamatsu FBC Pilot Plant Taiheiyo Beluga Plateau Namazuda APPENDIX Item Coal Type Higher calorific value (kcal/kg) 6291 (Btu/b) 11324 Moisture 4.70 Proximate Volatile Matter 43.92 Analysis Fixed carbon 37.23 (%) Ash 14.16 Carbon 65.05 Hydrogen 5.80 Ulumate Analysis Nitrogen 0.90 (%) Oxygen 13.34 Combustible sulfur 0.05 Incombustible sulfur (%) 0.13 Ratio of combustible sulfur to total sulfur in coal 28% SiOz 48.90 Al03 24.49 Ash Analysis (%) CaO 6.36 MgO 2.72 S03 2.13 Grindability “HGI) 37 Fuel Ratio 0.84 N content (g/1000 kcal ) 1.38 S content (g/1000 kcal) 0.27 Source of information: Reference A-3 22% 46.20 37.50 11.60 2.47 2.97 36 0.85 1.65 0.31 78% 60.85 21.61 4.79 1.35 3.62 51 1.25 2.03 1.08 63% 65.90 28.40 1.81 0.50 0.69 1.45 1.49 0.75 66% 45.11 28.78 7.10 2.40 5.16 49 1.83 2.05 1.43 6920 12456 3.20 30.78 54.62 11.40 73.31 4.88 1.43 8.23 0.38 0.02 95% 59.56 18.36 1.68 0.36 0.66 50 1.77 2.00 0.58 6749 121481 5.12 29.60 56.44 8.75 72.20 4.43 0.71 12.271 0.58 0.09 87% 54/50 19.20 2/80 0.90 3.30 49 1.90 1.00 0.94 97% 58.31 20.96 0.65 0.39 0.31 56 2.14 2.08 0.58 6390 11502 3.00 APPENDIX Combustion efficiencies obtained for various coals at Wakamatsu FBC Pilot Plant t “FZAQg ‘oe: SINGLE-STAGE COMBUSTION BED TEMPERATURE 850°C 80 Jy TWO-STAGE COMBUSTION BED TEMPERATURE 820°C COMBUSTION EFFICIENCY ( & ) 40 50 60 70 FIXED CARBON ( M.A.F. % ) A - TAIHELYO B - ERMELO C - PLATEAU D - BLAIR ATHOL E - DAIDO F - LEMINGTON G - WITBANK H - BELUGA | - NAMAZUDA A-3 Characteristics of Fluidized Bed Combustion Boiler Test Results of 20-t/h AFBC Pilot Plant. The Coal Mining Research Center (Japan); the Eelectric Power Development Co.; Babcock-Hitachi K.K.; Kawasaki Heavy Industries, Ltd. Source of information: Reference A-3