HomeMy WebLinkAboutAPA1633•
MARKETS FOR ALASKAN COAL
.
Llf ,.
r:.,
flO
3547
1\4
046
1.1
HOUSE RESEARCH AGENCY
ALASKA STATE LEGISLATURE
Janua ry 1981
House Research Agency Report No.80-3
~•
•
APR 1 3 1981
Coal Policy Paper:
MARKETS FOR ALASKAN COAL
Anne H.DeVries
HOUSE RESEARCH AGENCY
ALASKA STATE LEGISLATURE
January 20.1981
House Research Agency Report 80-3
I NTRODUCTI ON
The current demand for alternatives to oil as a source of energy has
focused attention on the exploitation of the Nation's coal resources.
As Alaska holds a large portion of these resources,there has been a
great deal of interest among Alaskan po1icymakers in where,when and
how Alaskan coal will be commercially exploited on a large scale.
The Usibe11i mine,near Healy,is currently the only operating mine in
Alaska.It produces about 750,000 tons of low-sulfur subbituminous coal
a year for use by local utilities in Healy and Fairbanks.This amount
of coal is roughly the energy equivalent,measured in Btus,of 5,670
barrels per day of crude oil production.For the future,however,com-
panies holding leases on this and other coal·fields are considering
large-scale development plans which ~ay increase Alaska's coal produc-
tion by as much as twenty times withln the next ten to fifteen years.
Most,if not all,of this increased production will be exported.Devel-
opment on this scale will have a large number of environmental,social
and economic impacts.
As the first in a series of papers examlnlng the public policy implica-
tions of coal development in Alaska,this paper describes the potential
markets for Alaska's coal resources.The impact of coal development
on taxation and leasing policies,on environmental protection efforts,
and on rural energy problems will be examined in subsequent papers.
This paper provides a framework for understanding the economic factors
which will determine the competitiveness of Alaskan steam coal in Alas-
kan and export markets.Its focus will be on answering these questions:
When will domestic/export markets become large enough to
justify expanded Alaskan production?
How much Alaskan coal might be demanded?
Which Alaskan coal deposits are likely to be developed in the
next twenty years?
Our findings are summarized briefly on the following pages.
•
Page 2
SUMMARY OF FINDINGS
Resources
The Division of Geological and Geophysical Survey (DGGS),of the
Department of Natural Resources,estimates that Alaska's onshore
coa 1 resources equal 1.9 trill i on tons.Thi sis a "best est imate"
that was compiled in 1979,based on a review of the available geo-
logic literature •
This estimate includes measured,indicated and inferred,and ~
thetical resources.Measured resource estimates carry the hi~t
degree of geological assurance,as they are based on actual field
exploration and drilling.Indicated and inferred resource esti-
mates are based on more limited geological data.Hypothetical
estimates reflect an assessment of resources that geologists
expect to find,based on an analysis of the general geology of
the area.
Most Alaskan coal is found in four areas of the State:on the
North Slope,along the northern side of the Alaska Range,in the
Susitna River Basin and on the southeastern side of the Alaska
Peninsula.The North Slope alone is estimated to contain 1.8 tril-
lion tons of coal,or 96%of the total DGGS estimate for Alaska.
Hypothetical resources constitute approximately 96%of the DGGS's
"best estimate"of Alaska's coal resources;most?these hypo-
thetical resources are found on the North Slope where little geo-
logical work has been done.
Eighty-three percent of the measured resources are found in areas
other than the North Slope;most of these occur in the Nenana
field,where the Usibelli mine is located,and the Beluga field,
where extensive geological studies have been conducted by lease-
holders.
Estimates of Alaska's coal resources vary widely;the DGGS esti-
mates are about twice as high as those provided by the U.S.
Geological Survey.Estimates by coal leaseholders are likely to
be higher than those of the DGGS for individual fields,as most
have performed extensive drilling and testing on their coal
prope rt i es.
Most Alaska coal is subbituminous;it has a heating value between
7,000 and 9,000 Btu/lb.,less than 1%sulfur,and is 35%to 50%
ash and moisture.Compared to the coals found in Montana and
WYoming,Alaskan coals have a lower heating value,a slightly
lower sulfur content and a much higher ash and moisture content.
Additional description of Alaskan coal is found in Appendix A.
Page 3
Markets
There are two major uses of coal:metallur~ical coal is used in
steel-making and steam coal is used as a b01ler fuel in electrical
utilities and industrial plants.In addition,there is a growing
interest in the use of coal as a raw material for synthetic li-
quids (methanol)or gas production.Coal characteristics such as
heat value,moisture content,and burning properties determine
its end use.Most of the Alaskan coal that might be exploited in
thi s century is steam coal.
Metallurgical coal has a significantly higher value than steam
coal,and is widely traded in international markets.However,
until the worldwide 'energy crisis'of the past decade,there was
no comparable interest in shipping high bulk,low-value steam coal
any great distance.Currently,countries are diversifying their
ener sources,creatin a reatl ex andin worldwide market for
steam coa 1S expan 1ng mar et creates an opportun1ty or t e
export of Alaskan steam coal.
There are three potential markets for Alaskan steam coal:Alaska,
the West Coast and Asia.The most significant problem faced in
developing new,large-scale coal mines in Alaska is finding a sin-
gle user or group of users whose demand,demonstrated by long
term (up to 30 years)contracts,is sufficient to justify develop-
ment.Leaseholders on the Beluga field estimate that production
of about 5 million short tons a year is necessary to justify the
requi red investment ina port faci 1 i ty.
The Asian market appears to be the only one where incremental in-
creases in coal demand are sufficient to justify the capital expen-
ditures required to open a new mine(s)in Alaska within the next
ten years.
Alaska is likely to capture a growing share of this Asian market
because it has large,low-sulfur coal reserves at tidewater;it
has a shipping advantage over competitors in the western U.S.
and Canada to the Pacific Rim;and its potential customers are
seeking a diversity of supply sources to reduce the impact of
possible supply interruptions caused by such things as labor
problems or political unrest.
Suppl ies
The two most likely sources of Alaskan coal supply which might
serve this market are the Nenana field and the Beluga field.For
economic and environmental reasons,it is unlikely that any large
amount of coal will be produced from Alaska's largest field,
which lies north of the Brooks Range,within the next twenty
years.
Page 4
The long lead-times required to acquire and explore coal proper-
ties,build production and shipping facilities,and construct
coal burning power plants will result in a three-phased develop-
ment of these markets over the next twenty years.
During Phase I -1981 to the mid/late 1980's -any increases
in demand could only be filled by increasing production at the
Usibelli mine.This mine could expand capacity to about four
million tons a year.Any demand increases would probably be
the result of conversions of existing oil and gas-fired facili-
ties to the use of coal or the increased use of coal in coal-
burning plants.Such demand mig~t come from Asian countries,
but is unlikely to come from eit er Alaska or the West Coast.
During Phase II -mid/late 1980's to early 1990's -Alaskan coal
production may increase significantly.Decisions which will
determine supply and demand in this period are being made now or
will be made in the near future.Current leaseholders on the
Beluga field estimate that new Alaskan capacity could come on-
line as soon as five to six years after contracts for substan-
tial portions of planned output are obtained.Increased demand
in this period would be the result of construction of new Asian
coal-fired power plants.Again,neither Alaska nor the West
Coast markets are likely to be a factor in expanding production
in this period.
Increases in demand in Phase III -early 1990's and beyond -may
come from facilities designed to convert coal into synthetic
fuels for the West Coast market,as well as continued construc-
tion/conversion of coal-fired facilities in Asia,and possibly
in Alaska and on the West Coast.Additional capacity may come
from new mines on newly-issued leases,as well as expanded
production from existing leases.
The following table summarizes the probable market volumes which
may develop during each of these three phases and shows possible
production volumes from each field.It is important to remember
that the beginning and ending dates of each phase,as well as the
production volumes and market sizes are "best guesses"based on
the information currently available.
•
Page 5
TABLE I
Time Frames for Potential Lar e-Scale Develo ment in Alaska
annual demand in mst-A*
Phase I Phase II Phase I II
1981-Mid/Late Mid/Late 1980s Early 1990s
1980s -Ea r ly 1990s &Beyond
Asia o-3.3 3.3 -13.3 13.3+
Markets West Coast 0 0 5.0 -7.0
Alaska .7 .7 .7
TOTAL .7 -4.0 4.0 -14.0 19.0-21.0
Nenana .7 -4.0 4.0 4.0
Supply Beluga 0 o -10.0 15.0 -17.0
TOTAL .7 -4.0 4.0 -14.0 19.0 -21.0
*mst-A =million short tons of 8,000 Btu/lb.Alaskan subbituminous coal
Assumptions
Asia:util ity demand in Japan,Korea and Taiwan is filled by
expanded production at Usibelli in the short-term and by new
mines on the Beluga field in the longer term.
West Coast:Alaskan coal is converted into methanol and then
shipped to the West Coast sometime in the early 1990's.
Alaska:a 1500 MW hydroelectric facility is built at Susitna
substantially eliminating the need for new coal-fired genera-
tion.
Nenana:only the Usibelli leases are developed.The develop-
ment plans of Meadowlark Farms (subsidiary of AMAX),which is
another leaseholder on the Nenana field,are unknown.Two of
our reviewers questioned whether the necessary rail and port
facilities will be available to export 4 million tons a year.
Beluga:Phase II data assume two 5-million ton a year export
mi nes;Phase II I data assume addit i ona 1 capaci ty to servi ce a
methano 1 plant.
House Research Agency/AHD 11/5/80
Page 6
OVERVIEW OF GROWING WORLD DEMAND FOR COAL
A recent t comprehensive study of the world's energy needs t conducted by
the Massachusetts Institute of Technology t reached .the foll oWl ng concl u-
sion:
It is now widely agreed that the availability of oil in inter-
national trade is likely to diminish over the next two decades.
Vigorous conservationt the development and rapid implementation
of programs for nuclear powert natural gas t unconventional sources
of oil and gas t solar energYt other renewable sources t and new
techno1 ogi es wi 11 not be suffi ci ent to meet the growing energy
needs of the world.A massive effort to expand facilities for .
the productiont transportt and use of coal is urgently regui.red
to provide for even moderate economic growth in the world between
now and the ear 2000.Without such increases in coal the outlook
1S eak.Emp aS1S a e •
These conclusions were re~ched after an eighteen-month study of growing
'worldwide demand for coal.The World Coal Study (WOCOL)data were com-
pi1ed'by sfxteen teams t each representing a major energy-using .country.
Mem.bers of each country's team included representatives from industry
and·government;representatives from the United States included senior
'officers of AMAX t Commonwealth Edison t Bechtel and 'Atlantic Richfieldt
as well as the fonner di rectors of the Energy Research and Development
Administration (ERDA)and the Environmental Protection Agency (EPA).
The final report was compiled from the individual country reports by the
project staff at the Massachusetts Institute of Technology t di rected by
Carroll Wilson.Project staff also developed supplementary material on
coal demand in those countries not participating in the Study.Volumes
I and II of the Study were published in the spring of 1980.This report
seems to be highly regarded by the coal industry and is widely quoted as
a source on the future demand for coal;consequent1Yt we wilT use its
findings to establish the potential markets for Alaskan coal.
1 tarrol1 Wi1son t Project Director t COAL - A Brid~e to the Future t
Report of the World Coal StudYt Massachusetts Ins 1tute of TechnologYt
Ballinger Publishing CompanYt Cambridge t Massachusetts t 1980.Volume
It page xvi.
Page 7
Note on Coal Conversions
The WOCOL findings are rep?rted in tenns of tons of coal eduivalent,or
.tce;one tce equal s a metrl c ton.(2,205 1bs ./ton)of 12,60 Btu/lb.·.
coal.The -following table indicates conversion factors fo-r different
types of coal.Data for a"typical"Alaskan coal from the Nenana or
Beluga fields is included for reference.
TABLE II
Conversion Factors for Coals of Various Calorific Contents
1 tce =
12,000 Btull b.
9,000 Btu/lb.
8,000 Btu/lb •
7,000 Btu/lb.
Typical
Calorific ContentTypeofCoal
I
Bitumi nous .
Subbitu!1linous
.Al askan
Li gnite
Adapted from WOCOL,Vol.I,page 58.
WOCOL also provides the following comparisons of the.energyprovided by
different amounts of coal.
TABLE III
Illustrative Staling Comparisons for Various Quantities of Coal
Annual
2 mtce
(3.5 mst-A)
5-7 mtce
(9.0 .;,12.0
mst.;.A)
Indicator of Amount of Ener Provided
nnua primary fue requl rement for a ,000 Mwe.
electric power plant if it operates at 65%capacity
and generates 5.7 billion Kwh per year electricity
(Note:the Alaska Railbelt.consumed approximately
2.8 billion Kwh in 1980..-
nnua coa ee stoc requlrement or a ,
barrels per day synthetic liquids plant-or a 250
mcf synthetic gas faci 1ity.(Note:the proposed
methanol plant on the Beluga field would produce
54,000 bbls/da of s nthetic li uid.
76 mtce
(132.2 mst-A)
Amount of energy supplied by 365 million barrels -
or annual production of 1 million barrels per day
of oil.(For reference,a mtce equals 4.8 million
barrels of oil.A mst-A equals 2.8 millon barrels
of oil.
*mst-A =million short tons of 8,000 Btu/lb.Alaskan subbituminous
.coal.
Source:WOCOL,Vol.I,Page 59.
Page 8
Current and Projected Energy Consumption
WOCOL reports that in 1978,the world's energy was supplied in these'
proportions by the following fuels:
TABLE IV
World Energy Supplies by Fuel in 1978
2.4%
4.8%
Nuclear
3 mbdoe-
HYdro/'
6 mbdoe
Source:WOCOL,Vol.I,page 76.
Of world oil consumption,55%-or about 35 million barrels per day (mbd)
moves in international trade,of which about 80%comes from the OPEC
countri es.Oil has provided for most of the growth in developedcoun-
tries'energy needs in the last twenty years as the following table
indicates:
TABLE V
Oil·s Share of the Increase in Energy Use,Selected Countries (1960-1978)
lQQ%
87%
'r--
67%
po-
50%43%...-
lotal .United Canada Japan France F.R.I aly United
OECD*·.States .Germany Ki ngdom
*OECD--The Organi zat i on of Economic C~:)Qperat i on and Development,an
organization of major western industrial ized countries and Japan.
Sourc~:.WOCOL,Vol.I,pag~62.
Page 9
However,it is unlikely that oil will continue to meet the growing
energy needs of the world.As WOCOL states:
It ;'s with considerable concern,therefore,that we support the
principal conclusion of nearly every recent world energy study:
that world production of oil from traditional sources is likely
to peak before the end of the centur~and probably much sooner.
Of even greater consequence to mosteveloped countries is that,
after allowing for the increased consumption of oil by producer
countries,and the growing energy needs of developing countries,
the availability of oil for import to the OECD countries may have
alread eaked and will ver likel be less in the ear 2000 than
today.WOCOL,Vol.I,page 63
While increased use of natural gas,unconventional oil·and gas supplies,
and nuclear power and conservation will be able to fill some of the
needs 1eft by shortages of oi 1,WOCOL projects that coal wi 11 be the
major source of fuel to meet growing energy requirements.In pro-
jecting the future use of coal,WOCOL established two scenarios:Case
A is the "l ow-coa 1"scenari 0,with modest growth in e1ectri ci ty demand,
a strong reliance on nuclear power and limited synfuels production.
Case B is the "high-coal"scenario,where electricity demand grows more
quicklY,nuclear power is less prominent and there is extensive syn-
fuels production.Using these two scenarios,WOCOL projected coal's
share of the expanding energy needs between 1977 and the year 2000~
TABLE VI
Coal's Share in Meeting the Increase in Energy Needs -
.Total OECD and Selected Countries (1978-2000)
100
Case A 81%
75%
50%
25%
la
Source:WOCOL,Vol.1,Page '104.
Overall,.WOCOL projects that total world coal use ~ill increase from 2.5
billion tcein 1977 (33 million barrels per day oil equivalent -nt>doe)
·to 6-7 billion tce in 2000 (79 mbdoe).
Page 10
Projecte~World Steam Coal Trade
Many countries which are planning to increas,e their rel i ance on coal,
such as the U.S.,Australia and Canada,have large indigenous coal
resources and wi 11 not be buyi ng coal in the worl d market.,However,
many countries will have to rely on imported coal to provide for their
energy needs.As a consequence,international trade in steam coal is
projected to increase by five to eleven times by 2000 in order to meet
this demand.WOCOL has projected that Japan will become the world1s
,largest importer of coal by 2000,and that the Asian countries together
will be importing between 38%and 44%of the world's total import
shipments.This'is shown on the table below:
Table VII
World Steam Coal Imports by Country and Region
(mtce)
2000
Country/Regi on 1977 Case A Case B
OECO Europe 37 146 333
Canada 6 8 4
Japan 2 53 121
Sub-Total OECD 45 207 458
,East and Other Asi~60 179
Africa and Latin America 1 6 10
Centrally Planned Economies 17 30 30
TOTAL WORLD 63 303 677
Source:WOCOL,Vol.I,page 107.
Most of these imports will come from four exporting countries:the,
United States,Austral i a,Canada,and South Africa.The fo 11 owi ng
table indicates posSible steam coal export capacities by the year
2000:
TABLE VI II
Steam Coal Export Potential,for Leading Countries (mtce)
Country
United States
Australia
Canada
Republic of South Africa
TOTAL
Source:WOCOL,VoL I,page 111.
1977
5
4
1
13
23
2000
65 -280
85
44
55
249 -464
Page 11
Thesec.ountries are expected to command between 37%and 68%of the world
steam coal market,as shown in Table VII,by 2000.The People's
Republic of China represents large export potential;however,no one
has been able~o estimate its coal export intentions.
The balance of coal exports will come from Poland,the Soviet Union,
West Germany,Latin America and Africa.As demand levels approach
thosei n the "high-coal"case,the United States and Austral ia will be
supplying about half of the world's import requirements.Because the
U.S.is believed to be the only country where it is "technically and
..econoinically.feasible to expand coal exports significantly beyond 200
mtce by 2000,II the U.S.will become the "bal anci ng suppl i er"of steam
coal in ·the world.(WOCOL,Vol.I,page 24.)
Capital Costs
As the world steam coal trade increases dramatically over the next
twenty years,a great deal of new capital will be required to build
the necessary production and transportation facilities •.WOCOL has
estimated that the following capital costs are required to build a
coal "supply ch~i nil:..
TABLE IX
Capital Costs in Coal Supply Chains
($1978 U.S.)
Per Annual tce Per Annual Short Ton*
Mines $53 $48
Inl and Transport 23 21
Ports 23 21
Ships 59 53
TOTAL $158 $143
*These figures are provided as reference.They are approxi-
mately 10%less than the WOCOL data reflecting the difference in
weight between metric and short tons.
Source:WOCOL,Vol.I,page 213.
Another $500 per annual tee ($454 per annual short ton)of coal consumed
is required to build the coal-burning facilities for the user.It costs
approximately $1 billion to build a 1,000 MWe (1 Gigawatt)facility,
which uses about 2 mtce of coal a year.Consequently,about 75%·of the
total cost of producing and using coal is borne by the utility investing
in a power plant.
Page 12
Pricing
Coal is currently priced at about one-fourth to one-third the price of
oil,per delivered Btu.Over the long term,WOCOL projects that real
costs will rise as the low cost reserves are depleted and new higher
cost mines are opened,the costs of environmental protection increase
arid as labor costs rise.Much of the coal with export potential i's
found in high labor-cost countries,such as the U.S.However,WOCOL
concludes that:
In the long run,because of its abundance,and provided a free
and competitive international market is maintained,there is
little reason to expect that steam coal prices will be directly
coupled to world oil prices •.This,will be particularly so as
oil is increasingly removed from the heating market for use .in
transport and as a speci a1 i zed petrochemical feedstock.(W'OCOL,
Vol.I,page 26)
Timing
WOCOL clearly states that the projections it has made depend on decisions
made in the early 1980's.If decisions to support coa1's production
and use are not made then,there may be insufficient energy supplies
to·fue1 growth by the year 2000.
Given the long lead times involved both for coal using and coal
producing projects,the required expansion of coal demand and
coal trade will be realized by the year 2000 only if both producers
and consumers are willing to make commitments in the early 1980s,
even before all the uncertainties about future coal supply and
demand are resolved.Unless these commitments are made,there is
a real risk that the bulk of the new facilities needed to meet
the required acceleration in demand and trade from 1985 onwards
will not be available in time.(WOCOL,Vol.I,page 24)
Page 13
ASIAN MARKET POTENTIAL
The developed Asian countries on the Pacific Rim -Korea,Japan and
Taiwan -provide the largest potential export market for Alaskan steam
coal.Beluga coal is the most likely Alaskan source of long-term supply,
for this market,even though some limited quantities might be shipped
from the Nenana field pending development at Beluga.
In a report prepared for the Division of Policy Development and planning,
Battelle Pacific Northwest Laboratories concluded that Beluga coal must
be marketed in a sufficiently large or rapidly growing market where the
incremental increase in demand exceeds lithe critical size necessary to
support a Beluga delivery system."The report goes on to state that in
contrast to the West Coast markets "all forecasts for growth in East
Asian steam coal markets indicate the need for opening a large number of
mines regardless of 10cation."2 .
Alaska is a ljkely location for some of this new capacity because it
has large,low-sulfur coal reserves at tidewater,it has a'shipping
advantage to the Pacific Rim over competitors in the western U•.S.and
Canada and its potential customers are seeking a diversity of .supply
sources to reduce the risk of supply interruptions due to labor problems,
etc.This section will review WOCOL forecasts of coal demand in the
Pacific Rim and the competitive position of different suppliers,includ-
ing Alaska.
2 .W.H.Swift,J.P.Haskins,M .•J.Scott,Beluga Coal Market Study,
Battelle Pacific Northwest Laboratories,.September 1980,·Draft Fi·nal
..Report.
Page 14
The following table summarizes the expected import requirements for the
Asian countries on the Pacific Rim:
Case.A Case B
69 88
53 73*
54 65
12 12
6 6
5 5
3 3
202 252
2000
TABLE X
WOCOLProjections of Asian Import Demand
.(mtce)
Co~ntry 1977
South Korea
Japan 2
Taiwan
Ph i 11 i pi nes
Hong Kong
Si ngapore
Mal ays ia
~TOTAL,these countries 2
NOTE:Data for Vietnam,Thailand,Indonesia,North Korea and the
Pe6ple 's Republic of China (PRC)is not available.The PRe
is expected to be a net exporter of steam coal as it has the
third largest reserves in the world,after the Soviet Union
and the United States.Indones fa a1 so has some export
potential.
*Japanese projections for import demand g~as high as 121 mtce,
as noted earlier,if demand for 48 mtce for synfuels production
is i nc1 uded.However,thi s synfuel s demand is specu1 ative.
Source:WOCOL,Volumes I and II.
..
Japanese Demand
In Japan,the major projected uses of steam coal in 2000 are in e1ectri-·
cal power generation and synfuels production.In the electrical genera-
tion market,between 57 and 72 mtce would be required,according to
the projections of the WOCOL Japanese team.The table below indicates
how Japan is planning to reduce its reliance on oil in electrical
generation by 2000.·
Page 15
TABLE XI
Japan's Electricity Balance
(Gwe capacity)
2000
Power Pl ant Ty.pe 1977 %Case A %Case B %
.NuClear 8 7%94 33%100 32%
Hydro/Pumped Storage 25 23%51 18%62 20%
Geothermal/Solar/Other 1 3 1%
Foss il Steam
Oil 61 56%50 18%50 16%
Gas 11 10%44 16%46 15%
Coal 4 4%41 15%52 16%
tOTAL CAPACITY 109 100%281 100%313 100%
Note:
Source:
This data seems to assume that the coal-fired power plants
will be·operating at slightly higher than 65%capacity.
WOCOL,Vol.II,page 27.
Even though coal-fired capacity will contribute only between 15 and 17%
of Japan's elettrical needs,it will have to increase its current capa-
city by at least a faCtor of ten,if not more.Most of this new coa 1-
fired capacity is scheduled to begin coming on-line in the late 1980's.
and early 1~90's.The following table sh6ws the timing of coal ~equire-
ments for the planned additions to Japanese coal-fired capacity;all
tonnage quantities are stated in terms of "specficationcoal",that
which meets Japanese·utility heating value requirements.
..
Page 16
TABLE XII
Projected Additions to Annual Coal Requirements
Japanese Utilities,1981-1993
(million metric tons)
Annual Additions %Procured Cumulative Cumulative %
Japanese specs •8/80 Additions Procured,8/80
1981 2.67 82%2.67 82%
1982 3.36 46%6.03 63%
1983 1.74 0%7.77 49%
1984 2.32 0%10.09 37%
1985 1.90 61 %11.99 41%
1986 5.94 0%17.93 27%
1987 2.86 0%20.79 24%
1988 10.78 0%31.57 16%
1989 5.28 0%36.85 13%
1990 11.00 0%47.85 .10%
1991 1.32 0%49.17 10%
1992 5.94 0%55.11 9%
1993 1.32 0%56.43 9%
Source:Estimated Demand and Procurement of Steaming Coal by Japanese
Power Ut i1it i es,Energy Development Depa rtment,Ma ruben i .Cor-
poration,August 1980.
As the table above shows,about 63%of Japan's anticipated coal require-
ments will be needed after 1987.As of August 1980,no s~pp1iers had
been contracted for these supp1 i es.In all,Japan has committed supp1 i es
for only about 9%of its projected coal needs over the next 13 years.
The timing of the maj6r Japanese requirements for coal -after 1987 -
corresponds with the likely time of startup for a large-scale Beluga
mine,assumin y that contracts were signed in the near future and.that
.inevitaQ1e de ays lengthen the projected startup.of a mine beyond the
six years estimated for planning purposes.
Japanese .requirements are stated on the above table in termS'of its
"specification"coal.As of August,1980 the Japanese were requiting
coal that has approximately 11 ,880 Btu/1 b.Gi ven these current Japanese·
c.oa1 specifications,no A1ask.an coal would be able to compete inthis
market.A Japanese buyer would incur both a transportation a·nd opera-
ting cost penalty if he substituted lower quality Alaskan coal for
"specification "coal.However,these "specifications"are"subject to
change as the Japanese develop and modify their existing equipment and
their planned equipment to correspond to the characteristics of other
Page 17
coals,such as Beluga coal,which may be in greater supply.Lower
quality coals might be attractive to the Japanese for a number of
reasons including securi·ty of supply,balance of payments considerations,
and the quantity available.
Alaskan coal is currently being tested by Japanese utilities to deter-
mine its burning characteristics.The Japanese are particularly inter-
ested in some sort of a coal/oil mixture,which would upgrade the low-
heating value of Alaskan coals and would reduce problems of spontaneous
combustion in transit.
The other major Japanese use for steam coal is as a raw material for
synfuels.Under the low-coal growth Case A assumption,synfuels only
require about 7 mtce in 2000.However,under the Case B assumption,48
mtce of steam coal would be required for synfuels.It is most likely
that synfuels will be produced at mine-mouth plants and then imported
into Japan.
Korean and Taiwanese Demand
In Korea,steam coal demand will come from two major sectors--residential
consumption and electrical power generation.The residential market
probably will require a high grade coal,possibly anthracite.Alaskan
coal would be unlikely to compete in this market.However,the electrical
market is projected to require between 28 mtce and 47 mtce by 2000;
this represents between 29%and 47%of total Korean coal requirements
projected for 2000.Again,nuclear power is expected to predominate
in the electrical generation market,accounting for between 36%and
54%of power requirements.(WOCOL,Vol.II pages 532-533)
Within the past two weeks,30,000 metric tons of Usibel1i coal has been
shipped from the Port of Anchorage to Korea.A Korean utility company
will be testing this coal in its facilities before deciding on a larger
purchase.
The circumstances in Taiwan are similar.Between 50 mtce and 56 mtce are
projected to be required by 2000 to serve the electrical needs of the
country.Nuclear power is projected to account for between 39%(low-
coal case)and 34%(high-coal case)~Cl~arly,in each of these coun-
tries,the trade-offs are between nuclear power and coal-fired electri-
cal power generation.Anything that inhibits the growth of nuclear
power will probably promote coal-fired generation,given the con-
straints on oil and gas supplies.Neither Taiwan nor Korea has any
significant hydroelectric capability.(WOCOL,Vol.II,pages 534-535)
Page 18
Competing Sources of Supply
According to WOCOL,the United States and Australia are likely to be
the two major sources of supply for steam coal markets in Japan,Korea
and Taiwan.As Japan will probably be the major market in Asia,data
on its supplier preferences will be used as an indicator of the pre-
ferences of the region.The table below indicates projected tonnage
shipments,by supplier,to Japan in the years 1977,1990 and 2000.
Data for 1990 and 2000 reflect the Case A (low-coal)assumptions.
Table XIII
Potential Share of the Japanese Market
by Suppl ier
1977 1990 2000 Itons%tons %tons %
U.S.(West Coast)-- --
10.2 38%24.8 41%
Australia .7 50%10.2 38%14.7 25%
China (PRC).2 14%2.3 8%5.6 9%
Canada (West Coast)----1.1 4%4.5 8%
South Africa .2 14%2.3 8%4.5 8%
Indonesia --------2.3 4%
U.S.S.R..3 22%1.1 4%2.3 4%
India ---- ----1•1 1%------------
TOTAL 1.4 100%27.2 100%59.8 100%
*This table assumes coal of 11,070 Btu/lb.rather than the 11,800
Btu/lb.coal assumed in Table XII;consequently,the tons of coal
required are higher.
Source:WOCOL,Vol.II,page 285.This data was compiled by Japan's
WOCOL team for the purpose of determining the number of ves-
sels required by each supplier to meet expected shipping
volumes.
However,there is a great deal of uncertainty about the probable mar-
ket shares of different suppliers.Some forecasts limit the total
U.S.market share in Japan and/or the Paci fic Rim to 10%,citi ng the
problems of high inland transportation costs and low quality coal.
Others give the U.S.and Canada a combined 30%share,again far lower
than the 49%combined share attributed by WOCOL.China is another
question mark in all forecasts.WOCOL projects it will represent about
5-6%of the Japanese market,while other forecasts place Japan's depen-
dence on Chinese coal as high as 30%.
The source of some of the forecast uncertainty is the fact that both
the U.S.West Coast and China lack large-scale coal shipping ports.
Certainly,new U.S.coal ports on the West Coast will face a series
Page 19
of delays due to environmental opposition,in addition to the delays
that always develop in large-scale building activities.Chinese develop-
ment activities would probably require foreign captial and expertise;
observers are uncertain whether the Chinese want to commit extensive
resources to an export effort;,
Com~arative 1980 Coal Prices.Based on data currently available,
inc uding the projections of the Beluga leaseholders,Battelle estimates
that dried coal from the Chuitna portion of the Beluga field would be
competitive in "Asian markets today.The table below was derived from
.Battelle data and shows estimates for the del i vered price of di fferent
coals in Japan,Korea,and Taiwan.Clearly,Australia is the lowest
cost supplier.However,as noted before,Alaskan coal will not be
coming into the market until much later in this decade;by that time,
its relative cost postion may be even stronger."
In the foll owi ng sections,other factors i nfl uenci ng the competit i ve-
ness of each country I s coal are di scussed bri efly.
,..
JAPAN
F.O.B.dock
Transportat i on
Delivered
KOREA
F.O.B.dock
Trans portat i on
Del i vered
TAIWAN
F.O.B.dock
Trans portat i on
bel i vered
Alaska Western U.S.Western Canada .Austra 11 a South Africa
Chuitna Wyoming Arizona S.E.Br.Col.New S.W.Queensland Natal N.Transvaal
--../
·1.00 1.30 loll .75 .93 .45 1.04 .51 1.71
.55 .55 .75 .70 .57 .58 .60 1.06 .88
135 T:85 T:86 T:45 1.50 1.03 1:64 T37 2:""59
1.00 1.30 .75 1.09 .93 .45 1.04 .51 1.71
.58 .58 .79 .76 .59 .60 .62 .98 .81
T38 T:88 T:54 T:85 T:52 1.05 1:"66 T:49 2:52
1.00 1.30 .75 1.09 .93 .45 1.04 .51 1.71
.70 .70 .93 .84 .70 .50 .51 .88 .73
T:7IT ~~T:"9!T:l>"!79"5"US""'J':j9 2:44
Source:Battelle,Ope cit.
Page 21
U.S.,excluding Alaska.The largest economically recoverable 're-
serves of coal found in the U.S.are in Montana and Wyoming.These
states contain six of the ten largest mines in the U.S.,each averaging
about 8.5 million tons of annual strip 'production in 1978.For Asian
markets,coal from these fields could be moved by rail -the Burlington
Northern and Union Pacific -to proposed coal ports in Portland and
Seattle,a distance of about 1000 miles.At that point,the ocean
shipping distance to Japan is about 4,300 miles.The Montana and
WYoming coals rrave heat values ranging from 8,740 Btu/lb.to 10,750
Btu/lb.and sulfur contents between .4%and .8%.
The alternative source of export coal is found in the fields of/south-
western Wyoming,Utah,Colorado,Arizona and New Mexico.Coal from
these states could be fed to a California port -Los Angeles or San
Francisco by the Atchison,Topeka and Santa Fe,the Western Pacific
or the Union Pacific railroads,a shipping distance of about 800
miles.Coal in these states is higher quality,about 10,750 Btu/lb.
to 12,250 Btu/lb.,and about the same sulfur content as Montana/Wyoming
coal.In Utah,where 12,250 Btu/lb.coal is mined underground,.produt-
tion costs are about three times those in strip mines.
There are two major factors which will affect the competitiveness of
these coals in the Pacific Rim market:the lack of large coal-handling
ports on·the West Coast and the sensitivity of delivered prices to the
cost of inland rail transportation.While there are limHed exports
of metallurgical coal out of California ports,no facilities are cur-
rently available to handle large shipments.As noted above,environ-
mental problems may preclude or delay the construction of the needed
port facilities."
Inland shipping charges constitute a large portion of the delivered
As ian pri ce Of western coals.Accordi ng to data comp iled in the .
Battelle repo"rt,inland shipping charges constitute between 33%and
45%of the current delivered cost of western coals in Japan.Given
current expectations that rail rates will rise rapidly,this is seen
as a major potential competitive problem for these coals,assuming
port facilities are available to ship the coal.
The impact of inland transportation costs on the competitiveness
of western coal s may prove to be a short-term (ten to fifteen years)
problem.Other suppliers face rising costs as annual production volumes
increase,whereas cost projections for the largest western U.S.fields
show tha4 relatively small increases in cost accompany large increases
in output.Consequently,as other suppliers,notably Australia and "
South Afrfc~,begin to exhaust their lowest cost reserves,their costs
may ri se enough to offset the transportati on di sadvantage of western
coals.It seems likely that these two countries will supply most of
the short-term "demand for steam coal in the Paci fic Rim and,as a
consequence,deplete their lowest cost reserves.
·Page 2.2
The .importance of western coals in the Pacific Rim'markets is ap6int
of disagreement between the Battelle study and.the WOCOL report."·Battelle
argues strongly that these coal s will be priced out of the market because
of transportation costs.*WOCOL,on the other hand,projects a signi-
ficant role for western coals.The reconcili.ation of these points of
view probably lies in assumptions about the eventual size of the world
steam coal market and the rate at which it develops.A study of U.S.
coa 1"exports done by theU .S.Department of Energy concludes that:
The eneral cost disadvanta e of U.S.coal,is valid onl for
re at1ve y sma 1ncrements 1n wor steam coa tra e.s
"discussed in the previous section,the U.S.resource base is
so large that the cost characteristics of new mines will not
be substantially different.Other potential coal suppliers,
"however,such as Australia,South Africa and Poland,may be
able to supply only limited amounts of addition~l steam coal
without major cost increases.As the world steam coal mar-
ket expands from the current 1eve 1 of about 30 mi 11 i on tons
per year toward 100 million tons or more by1990,U.S.coal
could face competition from other sources.But,as the world
coal trade expands toward 150 million tons per year or more,
the U.S.share of the market will robabl increase si nifi-
cant y.Emp aS1S a e
Australia.Australian coals originate in Queensland (northeastern
Australia)and New South Wales (southeastern Australia).Queensland
coals range in heating values of 9,000 Btu/lb.to 12,250 Btu/lb.Coal
in New South Wales is a bituminous coal with heating values between
10,500 Btu/lb.and 12,500 Btu/lb.Shipping distance to Japan from
Australia is about 4200 miles.There is relatively little inland
transportation of Australian coals.
Battelle notes there is uncertainty about Australia as a supplier;the
sources of this uncertainty include shortage of labor,labor problems,
availability of internally-generated capital in view of foreign invest-
ment restrictions and the attitude by the government with respect to
~oal taxation."
3 U.S.Department of Energy,Coal Exports Study,December 1979,
pages 1,15 •.
*Re.viewer's note:"Also,we have more recent intell"igence on the exper-
ience the railroads are having with unit trains.Apparently mainten-
ance costs for rolling stock are much higher th~n expected,and present
rates may be too 10w.1I Ward Swift,Battelle Northwest Laboratories
.,.
Page 23
Canada.Western'Canadian coals originate in southeastern British
Columbia and Alberta.Coals from Alberta are similar to those from
Montana and Wyoming while British Columbian coals are bituminous with
a higher heating value of around 11,000 Btu/lb.The Canadians have a'
coal port at Roberts Bank,British Columbia,which has been used for
the export of metallurgical coal.Shipping distances to Japan from
Roberts Bank is about 4260 miles •
South Africa;South African coals range in heating value b~tween
9,000 and 12,000 Btu/lb.These coals lie about 7200 miles from Japan
and are clearly at a disadvantage in shipping distance.It is not
clear what portion of South African coals will go to serve the western
European market instead of the Asian market.
A1aska~There are two potential sources of export coal in Alaska:the
existing Usibe11i mine on.the Nenana field and proposed mines on the
Beluga field.The Usibe11i Coal Mine,Inc.has just shipped a small
amount of coal to Korea for tests.Of tbe three active leaseholders
on the 'Beluga field -Mobil Oil Corporation,Bass/Hunt/Wilson group,
and Placer Amex Inc.jCook Inlet Regio'n,Inc.,the latter two have
actively been seeking overseas markets..'
The Nenana field .is located approximately 230 miles north of Anchorage,
6n the northern side of the Alaska range.Coal found there has about
8,000 to 8,500 Btu/lb.and less than 1%sulfur.The Usibel1i mine is
c~rrent1y producing about 750,000 tons per year for local Alaskan con-
sumption.Coal is either used at a mine-mouth generating plant or
shipped on the Alaska Railroad to Fairbanks.
The Beluga field is located on the north sid~of Cook Inlet,about
fifty miles west of Anchorage.There are three major deposits on the
field:the Chuitna River,the Capps,and the Threemi·1e.Again,the
coal is a low heating value subbituminous coal,with extremely low
sulfur contents.,Certain coal deposits would require drying to improve
their heating values sufficiently for export.The table below summar-
izes some of the characteristics of coal found in the Chuitna and
Capps deposits on the Beluga field..
Page 24
TABLE XV
Comparat i ve Characteri st i cs
Beluga Coals vs.Japanese Specification Coals
Heating Value,Btu/lb.
Ash Content,%
Moisture Content,%
Japan
E.P.O.C.
11 ,160
20
10
Chuitna
10%
Moisture
9,570
9
10
Waterfall
Seam
Run of Mine
7,536
16
21
Source:Beluga Coal Market Study,Final Report,Battelle
Pacific Northwest Laboratories,December 1980,.
page 7-2.
Within the next six or seven jears,corresponding to Phase I in the
.Summary.of Findings,the only possible source of export coal is the
Nenana field.While it would be possible for the Usibelli mine to
expand production to about 4 million tons a.year,it is unclear whether
or'not sufficent railroad and port facilities will be available to
.transport the coal to tidewater.*
A second phase of coal development will occur in Alaska if leaseholders
ori the-Beluga field are able to secure contracts with an Asian buyer.
In order to justify the required port infrastructure,an estimated
annual volume of five million tons is required.As the Battelle report
notes,the Asian market is the only market that is expanding rapidly
enough to absorb the opening of new mines in Alaska or elsewhere.
*Reviewers'Notes:"In this,we also note that the expansion at the
Usibelli .mine to four million tons per year.and assumed unit train
shipment of coal to some export facility on the Alaska Railroad would
require major upgrading of both roadbed,storage and loading facilities
at the mine,as well as a stockpile and reclaim facility at the port.
While such legislation may be forthcoming to acquire funds for such
'work,it m,ay require some time to get the necessary bill prepared and
through the Congre~s to authorize the funding."Cole McFarland~Placer
Amex Inc.
"CQal handling,port facilities are a real hurdle for moving Usibelli
'coal out on the Alaska Railway,at least in large tonnages."Ward
Swift,Battelle Pacific Northwest Laboratories.
.,
Page 25
ALASKAN MARKET POTENTIAL
Currently,about 750,000 tons of coal are supplied to the Alaskan market
from the Usibelli mine in Healy.The timing and extent of further devel-
opment to serve an expanded Alaskan market for coal will be determined,
to a large extent,by the decision whether or not to build the Susitna
hydroelectric project.If Susitna is built,it is unlikely that there
would be any other requirements for Railbelt power within this century.
If it is not built,then coal is one of the likely sources of fuel for
electrical generation.If coal were to capture all of the increased
Railbelt demand for electric power by 2000,an additional 2.5-3.0 million
tons of Alaskan coal would be needed annually.This volume of demand
would not be sufficient,on its own,to justify opening a facility on
the Beluga field,so it would probably be met by expanded production
at Healy.However,given that new power plants have lead-times of up
to ten years,new Alaskan demand might not begin to develop until the
early 1990's,assuming a no-go decision is made on Susitna within the
next few years.
Usibelli coal is currently purchased by two Fairbanks area utilities,
the University of Alaska,and the military installations around Fair-
banks.The table below shows the consumption of coal,by user:
TABLE XVI
1979 Consumption of Alaskan Coal
(thousands of short tons)
GVEA FMUS UA Mil itary
Coal Purchases
For Electricity 147 122 20 88
For Steam,Other 0 0 40 313
TOTAL 147 122 60 401
Key:GVEA
FMUS
UA
Mil itary
-Golden Valley Electric Association,a mine-mouth plant
at Healy
Fairbanks Municipal Utility System
University of Alaska,Fairbanks Campus
-Fort Wainwright,Eielson AFB,Clear AFB,Alaska Railroad
Source:House Research Agency,Memorandum to Representative Bi 11 Mil es
from Alexander Hoke,January 18,1980
Of the 730,000 tons purchased in 1979,about 55%went to meet military
demand.Of the 45%which supplied civilian demand,88%of the coal
was used to produce electricity.In the overall picture of Alaskan
energy demand,coal produces only a small proportion of our energy
.,
Page 26
needs.Transportation accounts for about 47%of Alaska's energy re-
quirements while the commmercia1,residential and industrial sectors
use the remaining 53%.
Coal contributes almost none of the energy consumed by the transpor-
tation sector,either in Alaska or in the U.S.as a whole.While the
transportation sector does not rely on coal to any extent,the commercial,
residential and industrial sectors do.The following table compares
Alaska's use of coal for these sectors to that of the U.S.as a whole.
TABLE XVII
Comparative Consumption of Coal by
Commercial,Residential and Industrial Sectors
(%of Total Btu Consumed)
U.S.Alaska's Rai1be1t
Coal
As Coal 7%2%
As E1ectri city 19%10%
COAL,TOTAL 26%12%
Other Fue1s--0i1,Gas,etc.74%83%
TOTAL Btu CONSUMED 100%100%
Sources:Department of Energy,Monthly Energy Review,March 1980;
Alaska Center for Policy Studies,Energy Alternatives for
the Rai1be1t,prepared for the Alaska House Power Alterna-
tives Study Committee,August 1980.
As Table XVII shows,in Alaska,coal provides a much smaller percentage
of the energy consumed to meet commercial,residential and industrial
requirements than in the rest of the U.S.One of the major reasons for
this is the small contribution coal makes to electricity production in
Alaska.While in the U.S.,46%of the energy consumed to produce elec-
tricity comes from coal,only about 15 to 20%of the energy consumed to
produce electricity in Alaska comes from coal.However,if Susitna is
not built and Alaskan utilities are not able to get exemptions from
regulations which prohibit the use of oil and gas in new power facili-
ties,coal could become a more important factor in this market.
In the most recent projection of the Rai1be1t's power requirements over
the next twenty years,ISER4 has estimated that civilian demand for
4 Scott Goldsmith and Lee Huskey,Electric Power Consumption for the
Rai1be1t:A Projection of Requirements,University of Alaska Institute
for Social and Economic Research June 1980.This report provides the
demand projections for the Susitna feasibility study being prepared for
the Alaska Power Authority by Acres American.
-;
Page 27
electricity will increase at an average annual rate of 4.1%per year
and that utility sales will increase 4.5%per year between now and
2000.This means that demand will increase from its current level of
2.80 billion Kwh/year to 6.3 billion Kwh/year by 2000.If coal were
to supply 100%of this increased demand for electricity,then by the
year 2000 approximately 2.0 to 3.0 million tons/year of coal would be
required.5 At this level coal would be supplying almost 60%of the
Railbelt's power requirements.
An excellent discussion of the relevant considerations involved in
power planning and ~n analysis of the alternatives to a large scale
hydroelectric project for Alaska is provided by-Arlon Tussing in
Introduction to Electric Power Supply Planning O• A copy of this was
provided to all Legislators by the House Power Alternatives Committee.
Other than noting that coal-fired generation is clearly an alternative
to Susitna,it is beyond the scope of this paper to explore the relative
merits and problems of each of the alternatives.
5 Assuming 10,500 Btu/Kwh and 8,000 Btu/lb.coal,the coal requirement
is about 2.2 million short tons.
6 Arlon Tussing &Associates,Introduction to Electric Power Sup~
Plannin awith Special Attention to Alaska's Railbelt Reton and tfl"e
Propose Susitna River Rydroeroelectric Project,May 19 o.
Page 28
WEST COAL MARKET POTENTIAL
Within the next tenyears,it is unlikely that any Alaskan coal would
be required on the West Coast.All current and planned coal-fired
facilities have already secured coal supplies from utility-owned mines
or through long.,.term contracts wi th independent mi nes in the western
states.After 1990,the picture is less clear.If a new coal-fired
p1ant'is permitted and sited on the coast,then Alaskan coals may be
able to service this market.However,demand from a likely 500 to 1000
MWfaci1ity would only be 2.0-3.0 million tons of subbituminous coal;
thi s demand would not besuffi ci ent to warrant opening a 'mi ne'and
requisite port facilities in Alaska and on the West Coast.The other
alternative market for Alaskan coal after 1990 is as a coal derivative.
Placer Amex estimates that about five to seven million tons/year would
be required for a 54;000 bb1s/day methanol facility.For environmental
reasons,the West Coast has a high demand for clean fuels.Methanol
derived from coal would meet that demand.,However,assuming a methanol
market does develop on the West Coast,Alaska developers would not be
alone in wanting to serve the market.Likely sources of competition
would be Australia and the Western states.
There are four factors which are important to consider in evaluating
the West Coast market for Alaskan goals:
There is little or no coal found in Washington,Oregon and
California.There is none in California and only scattered
deposits in Washington and Oregon,one of which is already
already the site of a mine-mouth power plant.
The Coast h~s a strong dependence on long-distance transmission
of energy,either hydroelectric energy for the Northwest from
the Bonneville Power Administration or transmission into
California of power generated in plants sited in Utah,Nevada
and other western states •
•'There are no facil ities on the West Coast to hand1e1arge-sca1,e
shipping of coal.While some coal is moved out of Puget Sound
~nd California ports,there are no specific u.S.facilities for
coal.
Any coal shi pped into the West Coast by water would have to be
-used on the coast in order to maintain its cost advantages.The
addedcost~of transferring the product and incurring rail charges
inland would e1imin~te the ocean shipping advantage of Alaskan
coal with respect to western coals.As the Battelle study notes,
"In'considering Beluga (Alaska)coal utilization in California,
it is apparent that coastal plant sites would be required as the
additional cost of multiple coal hand1in~and transport inland
would be prohibitive."(Battelle,page 4-22)
·Page 29
There are no coal-fired electricity plants in California,and only two
in the Pacific Nortwest.There is a 1363 MW mine-mouth plant in
Centralia,Washington,which is supported by the seventh largest coal
mi ne in the country.The mi ne supp 1i es the plant with about fi ve mi 11 ion
tons of c.oal annually.In addition,there is a 530 MW plant in Board-
man t Oregon;this plant is supplied by rail shipments from Wyoming.
Both of the major California utilities hav~plans to construct coa1-
fired facilities for use in the late 1980's.All current production is
generated from natural gas,nuclear t oil or hydroelectricity.'
Pacific Gas and Electric (PG&E)serves the Northern California market.
It h.as requested pennits for two coal-fired plants,originally scheduled
tope on-line by 1986 or 1987 •Plans for these plants have been delayed
two years because load growth has slowed~nd there are questions about
the economic trade-offs between direct-fired coal plants and the cost of
complying with air pollution restrictions.Each of the proposed plants
would be an 800 MW facility,burning two (12,000 Btu/lb.coal)to three
(8,000 Btu/lb.coal)million tons of coal a year.PG&E owns a coal re-
serve in Utah which will supply these plants.
Southern California Edison (SCE)is trying to locate a site for a single
1500 MW coal-fired plant,scheduled for start-up inthe late 1980's.The
pl~nt would require low-sulfur coal with a minimum heat content of
,11,000 Btu/lb.Based solely on the Btu requirement t Alaskan coals'
(8,000 Btu/lb.)would not be able to supply a plant of this sort.,Of
the five sites SCE is considering,only the seacoast location provides a
scenario in which Beluga (Alaska)coal might be competitive t as inland
shipping would not be required.However,it is unlikely that this site
will be chosen because of population densitYt environmental concerns,
and the opposition of the California Coastal Commission.Because of
both coal quality and siting considerations,western coals are planned
as the fuel source for the probable inland sited plant.
Both of 'these California utilities indicated that methanol was one
potential way of using Beluga coal in this market.Federal funding for
a methanol ,feas ibil ity study was recently recei ved by Pl acer Amex Inc.
and the Cook·Inlet Region,Inc.The following was their marketjusti-,
fication in the request for funding:
The Pacific Coast states t principally California,constitute an
extremely large potential market for clean-burning synthetic li-
quid fuels.The increasing cost,and more importantly,impending
shortages,of low-sulfur light-distillate fuels and gasoline will
provide a market for alternate fuels.Methanol has the burning
characteristics and fleXibility to meet a variety of fuel uses.
•
Page·30
POLICY IMPLICATIONS OF COAL DEVELOPMENT
This paper has presented the market factors which are expected to govern
the large-scale development of A1aska 1 s coal resources.Based on these
factors,development can be expected to occur in three phases.The first
phase,which will probably extend until the mid to late 1980's,may involve
addHiona1 capacity at the Usibe11i mine to serve an Asian export market.
During this .period,the groundwork will be laid for the next phase of
.development which will probably include the opening of one or more mines
on the Beluga fie1d~These mines will also serve an Asian market.Once
Alaska's position as a coal supplier becomes established,the development
will enter the final stage which is likely to include incremental addi-
t ions to capacity to serve new customers in As ia or the West Coast.
In addition to raw coal,Alaska may be exporting coal-based synthetic
fuels·in this third stage of development.
In presenting this development scenario,the roles of the feder~l,State
.and local governments have been assumed to be neutral,neither encQur-
.aging nor discouraging the private development of the State1s resources.
This may or may not be the case.
There are a number of ways in which the federal government could affect
th;~development •.Probably the most significant federal influence
would be the·way in which it applies.surface mining reclamation require-
ments to Alaska's environmental conditions;such regulations may place
an undue economic burden on the coal producer.
Methanol production is another way in which the federal government could
bec:omeinvovled in Alaska's coal development.Currently,Placer Amex1s
investigation of a potential methanol facility on the Beluga field to
serve the West Coast market is funded under the federal g6vernment's
synfuels effort.With the new administration,the extent of future
federal support for synfuels is unclear •
.The State is 1i ke1y to have a more di rect impact on development.For
the most part,the State controls access to the resources 'that are
most attract i ve to developers in thi s century.In the short-term,its
planned increase in the royalty rates charged to current leaseholders
will bea factor in determining the price competitiveness of Alaskan
coal.In the longer term,its willingness to increase the amount of
land available for development and the terms and conditions of those·
new 1eases wi 11 i nfl uence the share of the As i an market that A1 aska
will capture.CL!rrently,only five companies control about 91%of·the
State1sleased acreage;of these,four are actively producing or seeking
markets..--
In addition to its leasing policy,the State will influence the competi-
tiveness of Alaskan coal with its tax policy.Currently,the State.has
.a minimal Mining License Tax which applies to coal production.While
Page 31
the State's tax is not a large source of revenue,other coal producing
states are taxing coal more heavily.The State's course of action in
changing its tax policy,as actual development approaches,will have an
impact on.the extent of that development.
The State may also play a role to encour.age development through the
financing of necessary infrastructure,such as a dock in the Cook Inlet
to.load ocean-going freighters with Beluga coal,or to finance improve-
ments to the Alaska Rail road or the Port of Anchorage.Cl early,i nfra-
structure assistance could also be undertaken by local government,
through municipal tax-exempt bonding (industrial development bonds).
In the next of this series of papers prepared by the Agency,we will dis-
cuss the current and proposed changes to coal leasing and taxation laws
and reguiations.Ina later paper,we will discuss the provisions of
the federal Surface Mining Control"and Reclamation Act,and how they apply .
to Alaska.These next papers are intended to provide amore.detailed
discussion of how these mechanisms are likely to influence the develop-
ment of coal in the·State.
.APPENDIX A
The fo 11 owi ng i nformati o.n is excerpted from a Hou se Research Agency
.MemorandClm to Representative Bill Miles,May 23,1980 •
.Marketing Characteristics of D·ifferent Forms of Coal
.The key questionsurroundi.ng the ·exploitation of any coal resource is:
In what form -solid;liquid or gas -will it be competitive with
.other fuels?.
Users ar.e ·faced with an economic trade-off between payi ng higher prices
per Btu for coal converted into a liquid or a gas for use in existing
facilities,versus making large capital investments to convert existing
facilities or construct new facilities to handle solid coal.This
economic decision is made within the context of environmental requir~-
.ments.
The fo 11 owi ng paragraphs bri efly revi ew the advantages and di sadvan-
tages of using coal as a solid,liquid or gas.
Coal as a solid.Solid coal can be shipped in a number of different
forms:as-mine4,washed and dried or as a solvent refiend coal (SRC)~
The method used depends on the quality of the C9al and the buyer's
requirements.Solvent refining is the extreme upgrading of solid
coal~.Coal is dissolved in a solvent and ash,sulfur and moisture are
removed.The technology of solvent refining is still being developed
for commercial applications.
..
Coal is awkward to ship as a solid.It is also subject to degradation
in transit when exposed to moisture and air.Users must have large
areas in which to hold the coal,unless they are assured of constant
deliveries from a local mine or coal transportation network.Coals
with high ash and moisture content,such as those at Beluga,face a
shipping disadvantage;the buyer must make the tradeoff between paying
for an upgraded coal to save shipping costs versus incurring the cost
of shipping waste material and then disposing of it at his plant.
8ecause of the high cost of shipping solid coal,it is ideally used
close to the mine.
Coal as a liguid.Coal can be converted into a liquid in the form of a
coal-oil mixture,methanol or a slurry.Coal-oil mixtures (COM)are
made by dissolving a pulverized coal in residual fuel oil.This mix-
ture·offers heating characteristics similar to 100%oil while conser-
vi ng oil.
The Japanese have expressed an interest in coal-oil mixtures,possibly
from Alaska;however,there are political restrictions to 'exporting
.U.S.oi l.In addit i on,the coal s on the Beluga fiel d are hard to
grind,making the pulverization process more difficult and expensive.
"
Methanol is a chemically created liquid - a synfuel.
considered a potential market for methanol because of
burning characteristics.Methanol technology is only
ary stages of development in the u.s.
The West Coast is
its very clean
in the prelimin-
"..
Coal slurries are a means of moving coal through pipelines ,by suspend-
ing the coal in water;the water is removed before the coal is burned.
Using coal as a liquid,as COM or methanol,allows utilities to capi-
talize on existing.tansportation networks and generating facilities
built for petroleum
Coal as a aas.Coal can be converted into a low or medium Btu gas in
an encloser vessel;this gas can then be used in.modified existing
facilities designed for high-Btu gas.It is likely that the conver-
sion would take place at the power plant as it is not economical to
ship a gas or liquify,then regasify,a gas derived from coal.
Coal Characteristics
The·table on the following page,compares the characteristics of Beluga
coal with those of other coals found in the U.s.Beluga coal is a
subbituminous coal ,similar to coal found in the area east of the
Rockies.It ~as the following characteristics:
Lower heating value per lb.than other western coals and lower than
Chinese,Australian and South African coals.
Higher ash and moisture content than competing subbituminous coals.
Sulfur levels significantly lower than those found jn other coals.
Fewer Btu/lb.and higher ash and moisture contents are unattractive .to
.buyers becuasethey increase the costs of shipping given amounts of
Btlis.'Low sulfur levels are attractive'to U~S.and Japanese buyers con-
cerned with meeting air quality standards.
•···
..
TABLE I
Comparison between Beluga and Other U.S.Coals
Flxed Sulfur Ash MOl sture
Btu/l b.Carbon Content Content Content State
Anthracitic
Anthracite 12,925 79.4%.60%11.9%2.5%PA
Bituminous
High Volatile B 12,600 50.2%.90%6.4%5.2%UT
Bitumi nous
Subbituminous
Subbituminous A 11 ,140 46,.2%.43%7.0%14.1%MT
,Subbi.tuminous B 9,345 40.8%.30%3.7%25.0%WY
Subbitumi nous C 8,320 32.8%.55%4.8%31.0%Wy .
Beluga Seams -
Waterfall*7,400 28.1%.16%14.1%24.0%AK
Capps*5,746 21.4%.14%27.5% 23.0%AK
Chuitna**7,250#N/A .15%12.8%'26.0%AK
Threemile*7,000 N/A N/A N/A N/A
Lignitic
Lignite A 7,200 32.2%.40%4.2%37.0%ND
Sources:All data for non-Beluga coals is taken from:The Direct Use ~f
Coal,Congress of the U.S.-Office of Technology Assessment,April 1977.
All data for Beluga coal is taken from:Beluga Status Report,Placer Amex
Inc.,September 1979..
Notes:Analysis of non-Beluga coals was done on a IIbed moisturell basis.Bed
moistur:e is the inherent moisture of the coal under specific temperature and
pressure conditions.Analysis of the Beluga coal was done on an lIa~received ll
basis~liAs received ll is defined as the condition of the coal when it reaches
the buyer's delivery point,a ra.ilroad siding,port,etc.In this case,it is
at mine-mouth.These are roughly comparable bases for'comparison for the
purposes of this report.
*Dilution included.This measure includes the weight of the top and bottom·
three inches of sand abbve and below a seam in the analysis of coal consti-
tuents.If the seam is very deep,the dil uti on,the rati 0 of sand to co~l,is
less than if the seam is thin.**Undiluted.The weight of the upper and
lower layers of sand has not been included in the analysis.#.Average.
House Research Agency/AHD 5/14/80