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Western Arctic Coal development phase 2 1986
COA 025 Department of Community and Regional Affairs 949 E.36th Avenue,Suite 400,Anchorage,Alaska 99508 ' Alaska Native Foundation 733 W.4th Avenue,Suite 2,Anchorage,Alaska 99501 Western Arctic _Coal Development Project PHASE Il FINAL REPORT EXECUTIVE SUMMARY arctic slope consulting engineers JULY,1986 {-, Prepared for STATE OF ALASKA DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS 949 E.36th Suite 400 Anchorage,Alaska 99508 and AzLoe naa W ath Gute?.uite 2aeAnchorage,Alaska 99501 State Contract No.LG 210071 Western Arctic Coal Development Project -PHASE Il EXECUTIVE SUMMARY JULY 1986 Prepared by ARCTIC SLOPE CONSULTING ENGINEERS :313 E Street,Suite 3 -garctic dope Anchorage,Alaska 99501 engineers (907)276-0517 . TABLE OF CONTENTS ALASKA Re. WESTERN ARCTIC COAL DEVELOPMENT PROJECT STUDY AREA Preface This separate Executive Summary document of the Western Arctic Coal Development Project Phase II feasibility study consists of summaries of the following Phase II reports:Western Arctic Coal Development Project Final Report,Volumes I and II;Western Arctic Coal Development Project Environmental Assessment,and Western Arctic Coal Development Project Village End-Use Technology Assessment.This document was prepared because many readers will not have the time nor the need to read through the large volume of material represented by these reports. TABLE OF CONTENTS INTRODUCTION SUMMARY OF FINDINGS COAL RESOURCE PROJECT DESCRIPTION MINING AND TRANSPORTATION PLAN ENVIRONMENTAL AND SOCIAL ASSESSMENT MARKET EVALUATION VILLAGE END-USE TECHNOLOGY ASSESSMENT© FINANCIAL/ECONOMIC EVALUATION INTRODUCTION ARCTIC OCEay wannow BeaufortChukohi -- AN NOME ome aor pti ROR i aw Sains ot : agg PRSe ae . a fe eereSSat Lig Noatak National Preserve WW.RED DOG&"2 0 25 50 LEGEND SCALE IN MILES ARCTIC SLOPE REGIONAL CORPORATION WESTERN ARCTIC.) AND SUBSURFACE LANDS =COAL DEVELOPMENTSURFACEANPROJECT NORTHERN ALASKA COALFIELD LOCATION MAP Prepared by:Date: arctic sAope MAY,1986 oonsuRingengineers D,AREA OF HIGH MINERAL POTENTIAL INTRODUCTION This Executive Summary presents the highlights of the state-funded Western Arctic Coal Development Project (WACDP)Phase II feasibility study.This study,which was conducted from July 1984 through June 1986,assessed the potential of developing a coal industry in the western Arctic to supply an energy alternative to communities,industries,and military installations along the northern and western coasts of Alaska.In these areas,fuel oil is the predominant energy source and its costs have remained very high despite the recent decline in crude oi]prices.This situation has created hardships,altered lifestyles of rural residents,and suppressed economic development throughout the region.The problem is further compounded by recent reductions in federal and state energy assistance programs,and substantial decreases in state expenditures in capital projects which have provided cash income opportunities to many rural Alaskans.Both high cost of energy and low cash income are major elements of the rural energy problem in the area. Project History Many state and local agencies are aware of the need to address the rural energy dilemma.Seven preliminary studies performed from 1979 through 1983 by the Alaska Power Authority,the State of Alaska Division of Legislative Finance,and the North Slope Borough,indicated that the western Arctic coal resource represents a potentially feasible and cost-effective substitute for fuel oil for rural communities in western Alaska. Aware of this potential,the 1984 State Legislature and the Governor of Alaska appropriated funds to the State Department of Community and Regional Affairs (DCRA)to perform a preliminary engineering assessment of developing the western Arctic coal resource for use in rural Alaska.AS sponsoring agency for the WACDP,the DCRA in July 1984 contracted with the Alaska Native Foundation (ANF)to administer the WACDP.The interest of the ANF in pursuing the project was to investigate a long-term solution to the rising costs of maintaining rural lifestyles in western Alaska.The ANF retained- Arctic Slope Consulting Engineers to perform the technical portion of the. project. Western Arctic Coal Development Project The goal of the WACDP was to evaluate the feasibility of developing western Arctic coal as an energy alternative for fuel oil in northern and western Alaska.To that end,the study addressed itself to the following major objectives: -Evaluation of the coal resources of the area and selection of a preferred mine site. -Evaluation of the mining and infrastructure components to determine the project's technical and economic feasibility. -Determine potential environmental and socio-economic impact,permitting requirements and schedule. -Evaluation of the market for coal heating and power generation technology options with favorable application in the study area. -Development of a preliminary financial and economic analysis to indicate coal price as a function of production level and the costs and benefits of project development to the State of Alaska. The investigations and results of Phase II are described in a two-volume report entitled,Western Arctic Coal Development Project Phase II Final Report and in two supplemental reports entitled,Western Arctic Coal Development Project Village End-Use Technology Assessment,and Western Arctic Coal Development Project Environmental Assessment.These reports provide information on:(1)alternative designs for mine and infrastructure development;(2)field data from site investigations;(3)a marketing survey;(4)options available for heating and power generation;and (5) transportation,environmental,socio-economic,financial,and economic analyses.The WACDP Phase II Final Report can be used to assist in project permitting,scheduling,final design,and project construction. SUMMARY OF FINDINGS MININGCOST$/TON-- 100 150 200 PRODUCTION RATE (TONS x 1000) NOTE:COSTS FIGURED ASSUMING CONSTANT ANNUAL PRODUCTION RATES AND A MAXIMUM 10 YEAR CAPITAL RECOVERY PERIOO FOR MINE EQUIPMENT.COAL DEVELOPMENT'Qs WESTERN ARCTIC)PROJECT GRAPH OF MINING COST VS PRODUCTION RATE Prepered by Oate \ENGINEERING,INC.y, a SUMMARY OF FINDINGS The findings of the Western Arctic Coal Development Project (WACDP)Phase II feasibility assessment are most encouraging;the long-term benefits to be derived from its development warrant state support for further investigation of the project to a point where a firm decision on its implementation can be made.It appears that development of a coal industry in the western Arctic serving the energy needs of an in-state regional market area would make significant contributions toward meeting state and local social and economic objectives,including:(1)providing an abundant and economic local source of energy;(2)creating long-term permanent employment opportunities;(3) stimulating the regional economy while diversifying the state economy;and (4)reducing participation of the federal,state,and local governments in energy and power subsidy programs. . _The WACOP evaluated the near-term potential of developing the western Arctic coal resource.It was determined the "base case"or initial production Tevel would be at 50,000 tons per year (tpy).The general concept of the project is to economically mine coal in the western Arctic,transport it overland to an export facility,and load it into barges for transport to market. General -The selected mining area is the Deadfall Syncline located within the Arctic Foothills Province.The coal structure is non-complex and bedrock materials characteristic of the Foothills Province comprise the majority of the material to be encountered during mining.This allows a conventional approach to mining. -At a production level of 100,000 tpy,the Deadfall Syncline can supply the area's energy needs for over 400 years at a 5:1 stripping ratio. -Coal quality is High Volatile "B"Bituminous with an average (as- received)heating value of 12,000 Btu per pound,ash content about 10 percent,moisture content between 4 and 5 percent,and sulfur content of 0.1 to 0.3 percent. -Area strip mining using a truck/shovel system was selected as the mining method.7 -A four-year schedule is anticipated for pre-development activities including marketing,environmental baseline data studies,additional engineering activities,acquisition of 24 permits,and design and construction of:24-person campsite,5.4 mile hau?road,4,000 foot airstrip,and a 13-foot depth dredged channel and port facility. -The annual mining and barge loading operations will require a 20-personcrewandapproximately26,000 crew hours. -The environmental evaluation indicates there are no major environmental constraints to further consideration of the project. Market Evaluation -Total potential demand of the regional study area is in excess of 500,000 tpy.This is equivalent to about 80,000,000 gallons of fuel oil per year.The potential market demand included 130 villages,5 military bases,and 2 major mineral industry installations.. -A majority of the potential customers find coal an acceptable fuel source and would base their willingness to use it on its overall economics. Financial Evaluation -It is apparent that economics of mining and transporting western Arctic coal to market is highly dependent on the scale of operation. Therefore,as the annual production level increases from the initial production rate of 50,000 tpy,the unit cost of energy will be reduced to all customers. -The results of the financial analysis for the mine operations and supporting infrastructure are: Capital Cost:$16,000,000 Operating /Maintenance:2,000,000/year Annual Cost:4,600,000 -The above figures result in the following coal prices FOB at the mine port facility loaded onto a barge (MMBtu =million Btu): Price per ton:$91.00 Price per MMBtu:3.80 -The cost of coal in the community of Kotzebue is estimated at $108 per ton or $4.50 per MMBtu,compared to fuel oil at $1.60 per gallon or$11.60 per MMBtu. Economic Analysis -From the viewpoint of the State,the project is economically viable at the relatively low level of production,so long as crude oil prices areabove$15.00 per barrel.During the initial years of production,the market demand may not require that production levels exceed or even meet the base level of 50,000 tpy.Under these conditions,there wouldbeanetlosstoinvestors,or at best,a small profit.As both market demand and production levels increase,the return on investment will improve,with a positive return on investment expected over the life of the project. Recommendations Implementation of the project from its current status to operations involves activities in three major areas:(1)pre-development;(2)mine development; and (3)market development. Pre-Development -The market analysis conducted as part of the Phase II studies has identified many prospective customers in a large potential market area.However,prior to project implementation,marketing and sales efforts should be undertaken and sufficient contractual commitments obtained to justify development of the WACDP. Activities associated with marketing,definition drilling,bulk sampling, baseline data acquisition and analysis,preliminary mine and infrastructure design,and demonstration of the coal are pre-development activities necessary to provide the high degree of confidence needed to reach a final go-no go decision on the development of this project. Mine Development -A total of 24 permits may be required for development of the mine,including 11 federal and 12 state permits and 1 permit from the North Slope Borough.Completion of the permitting process is expected to | take from 12 to 24 months for the federal permits,and from 7 to 8 months for the state and local permits.Since applications for the state and local permits can be submitted concurrently with the federal permits,the entire permitting process can be completed within 2 years of initiation. Final mine and infrastructure designs must be prepared and construction activities implemented.This will include material and equipment purchase and shipment to the site.Once the necessary equipment,materials,and personnel are on the site,construction of the facilities can begin.The pre-development and development activities,including construction,can be completed within approximately four years. The State has several options available if it chooses to assist in the development of the project,such as:(1)developing a Northwest Area Development Plan where western Arctic coal would be an integral part of the overall policy and industries in the region would be induced to use the coal resource;(2)developing state facilities in the area to utilize western Arctic coal thereby increasing the demand for coal;(3)providing state assistance to coal-fired power plant developments,(4)provide financial support for infrastructure development;(5)provide tax incentives;(6) develop and operate the mine through a joint venture arrangement between public and private sectors;and (7)develop regulations based on a cost- benefit analysis. Market Development -Although there are many long-term social and economic benefits to be derived by the state and region from development of a coal industry in the western Arctic,there are several constraints to its development associated with the economic condition of the market area and energy policies of the state. Concerns associated with the lack of capital and income in the region and current energy subsidy programs that encourage the use of oil can be addressed by the following recommended options:(1)develope private and public joint ventures to construct and operate coal-fired power generation facilities;(2)amend federal and state energy and power programs to include alternative energy sources on an equal footing with oil;(3)based on potential savings,provide a portion of the energy assistance for purchase of alternative energy equipment;(4)provide incentives for alternative energy developments by private financing. COAL RESOURCE PROXIMATE ANALYSIS,%.HEATING VALUE,BTU/LB , 2 oe eo °o °o °o °o hallhMRE i Le ilSete) Lignite|B '\ N ELSE 20POA Oo Lignite/A N N (196L'seuseg:eounos)N Bh RCO Subbitiminoug C_\SISATWNYV1VWOO_N Lea NeW rao Ee TU SS SP, Subbituminoug B,\ N DaaoeeS ROR ae Subbitgeminoug A \ SNONINNLIG-GNS"ALINSMN I Re aar MEEe] High-pee]bituminous Gee:|FF La Se pee ty,fF Gon |awe", a bituminous Mee fe EY Campmor eR SG ESOS,4 ob ascoy as.PO en Mediu ee Dituminous anu f 12 OF PEE Ot iee:ee Low-va b 8 / AY,cae I eds Ls,25 RE essleet i 6 oe 8 Oe f we eS LagRe.ROR CEME KON PE Anthrad / ROTEL See A er TRY |Oe Sk rv :Meta-anthracite ; = Zz 2 re ' = : bs) n P:] m m ow> o G SNONINALIG"obSNVYLN3Y3I3I040S1VOO3OSISATVNWALWNIXOUdGNV3N1VALV3HJONOSIYVdNOO1LO3afOudLN3NdO13A30TWODALIOVYHLNYODILOYVNYALSAM COAL RESOURCE The Deadfall Syncline coal prospect is part of the Northern Alaska Coal Province.This province represents the largest coal-bearing region in Alaska and perhaps the world.Coal occurs in the sedimentary rock sequence, the Nanushuk Group of Early to Late Cretaceous Age,and may underlie 30,000 square miles of northern Alaska.Coal resource estimates range from 402 billion to 4 trillion tons.This resource has the potential of fueling the entire energy needs of the United States for over 300 years. Coal Characteristics The Deadfall Syncline prospect was selected as the preferred mining area after five regional mining sites were evaluated.The coal is considered to be a high quality fuel.Its'ASTM ranking is High Volatile "B"Bituminous with an average (as-received)heating value in excess of 12,000 Btu per pound (13,000 to 14,000 Btu per pound on an ash-free basis).The average ash content of the coal is about 10 percent,with a moisture content of 4 to 5 percent.Coal from this deposit has a total sulfur content of 0.1 to 0.3 percent,of which pyritic sulfur makes up about 0.03 percent.As part of the Phase II Village End-Use Technology Assessment,estimated sulfur dioxide emissions from the combustion of Deadfall Syncline coal would be approximately 20 to 50 percent lower than those from fuel oi1 combustion. This coal also has some coking quality characteristics. Coal Resource Nine coal seams ranging in thickness from 4.5 to 18.0 feet were identified in the Deadfall Syncline prospect area during the 1984 Phase I Exploratory Drilling Program.Bedding dips range from 11 to 24 degrees.The coal reserves present in the Deadfall Syncline,assuming a production rate of 100,000 tpy,are listed below for three different stripping ratios. Reserves by Stripping Ratio 3:1 531 10:1 Coal Supply Coal Supply Coal Supply Classification (tons)(years)(tons)(years)(tons)(years) Indicated 10,973,000 110 24,253,000 242 57,864,000 579 Inferred 11,000,000 110 25,000,000 250 _58,000,000 _580 Total 21,973,000 220 49,253,000 492 115,864,000 1159 Significant coal reserves probably exist in unmeasured seams which have been mapped.Additional field work will increase the lateral extent and measured reserves present in these seams.Further,significant reserves probably exist within seams which,due to the low density of field data throughout most of the Deadfall Syncline area,have yet to be identified and measured. From the table above,at 100,000 tpy the Deadfall Syncline alone could supply project energy needs for the next 400 years.This relatively:vast coal resource allows the development of western Arctic coal to take advantage of the regional concept of the project,providing a high level of probability of the project achieving near and long term market demands. Potential Uses for Deadfall Syncline Coal Deadfall Syncline coal is suitable for:(1)residential home heating;(2) electric power generation;(3)district heating by stand-alone generation of steam or hot water or in conjunction with electric power generation;and (4) the manufacture of coke for the iron and steel industry.It is technically and environmentally suitable to burn in its raw form or processed into other forms such as coke briquettes,lump char,gas,liquefaction products,or mixed with water or oi]to form liquid fuel mixtures. PROJECT DESCRIPTION Freshwater .{source a Mormon W,Block Mining Unit VgQ>engineers PROJECT WESTERN ARCTIC)2 og COAL DEVELOPMENT DEADFALL SYNCLINE MINE DEVELOPMENT \ Prepared by:Date : arctic dope May,1986 consuking engineer:y, PROJECT DESCRIPTION The WACDP assessed the near term potential of developing a coal industry in the western Arctic.At the initial mine or "base case"production level of 50,000 tons per year (tpy)the development of the mine will require the construction of mine and camp facilities,haul 'road,airstrip,marine berthing facility,and supporting infrastructure.Coal will be distributed by tug and barge from the port to the market. Regional Setting The Western Arctic Coal Region lies in the northern section of the Arctic Foothills Province.To the north,the hills grade into the flat, featureless Arctic Coastal Plain Province;to the south the hills increase in height and relief to the Brooks Range.The selected mining area,known as the Deadfall Syncline,is located within the foothills approximately 6 - miles east of the Chukchi sea near the base of the Amatusuk Hills.Located relatively near the Deadfall Syncline are:the North Slope village of Point Lay located some 40 miles north,the National Petroleum Reserve Alaska western boundary located 35 miles east;and the Cominco-NANA Red Dog mineral deposit located about 70 miles south of the prospect area.The entire proposed mine development area is under ownership of the Arctic Slope Regional Corporation,which selected the surface and subsurface rights to these lands as part of the Alaska Native Claims Settlement Act of 1971. The Deadfall Syncline area has an arctic marine climate characterized by long,cold winters and short,cool summers.The mean temperature of the area is approximately 10 degrees F.Precipitation is light and expected to be about 8 to 10 inches annually. The entire project area has a low vegetative cover and is underlain by continuous permafrost that exceeds 1,000 feet.The permafrost is overlain by an active layer that undergoes seasonal thawing and freezing.The depth of this layer is usually between 6 and 60 inches. The dominant feature of the hydrologic cycle is spring breakup and snow melt runoff.Surface water storage within the mining area is reduced by the fairly well-drained topography of the area and the absence of significant large streams that drain through the site.The occurrence of significant amounts of groundwater is unlikely due to the shallow active layer and permafrost,which acts as a barrier to infiltration;and essentially impermeable sandstone and siltstone bedrock that underlies the mining area. The Chukchi Sea,in the vicinity of the project area,is frozen or clogged with ice for all but about three months of the year,making the shipping season relatively short.The sea bed of the Chukchi Sea abutting the western shoreline of the project area is very flat and shallow.At approximately 2,800 feet from the coast the sea depth is only 13 feet. Infrastructure Components Campsite -A 4,800 square foot,24-man camp structure consisting of modular built units will be installed approximately one-half mile from the initial mining site.In addition,a 620 square foot life support facility modular unit will be installed adjacent to the camp facility.This unit will house power generation,waste treatment,and solid waste facilities.A 4,800 square foot pre-engineered metal structure will be constructed adjacent to the life support facility and will be used for vehicle and equipment maintenance and warm storage.All three structures will be placed upon a 2 acre gravel pad. Haul Road -The major roadway component is the road connecting the mine site to the port facility and is 5.4 miles in length.A short spur road about midway on the main road provides access to a freshwater source.The road design criteria consists of a 40 mph design speed and 24 foot design width with turnouts at 2,000 foot intervals.The road will not cross any major drainages. Airstrip -A 4,000 foot private airstrip will be located about one-half mile west of the initial mine pit and will be incorporated into the road alignment.The 100 foot wide strip with narrow shoulders will accommodate DC-6 and C-119 cargo aircraft. Port Facility -The port facility will consist of a dredged 2,800 foot lead- in channel,130 feet wide with a 50:1 channel slope and dredged turning basin within Omalik Lagoon.This will provide a weather protected marine berthing area and an operational depth of 13 feet for tug and barge traffic. Adjacent to the basin will be a 3 acre coal stockpile pad that will incorporate storage of 470,000 gallons of bulk fuel.Both the stockpile and fuel storage pads will be constructed of the dredge spoil material. Mining Equipment A truck/shovel system was selected for oerburden removal and extraction of the coal.This system was found to be the most economic and offered high mobility and flexibility in mining operations along with compatibility with the local labor force. The major project equipment types consist of: 4 cubic yard Hydraulic Front Shovel 450 hp Ripper Dozer 200 hp Winch Dozer Three,35 ton Off-Highway Trucks Overburden Drill Powder Truck 300 ton per hour Coal Crusher Marine Transportation Equipment Conventional tug-barge technology will be used for the ocean transportation of the coal.The following tug-barge equipment was selected on the basis of severe draft constraints at the receiving ports: Large Barge -12,000 short tons (st),loaded to 8,000 st at 12 foot draft.This is the largest barge considered and would be suitable for runs between fully developed ports. Medium Barge -5,500 st at 12 foot draft.This is the barge best suited for bulk deliveries including Kotzebue and over the beach operations where there are draft constraints at the point of loading. Small Barge -2,000 st at 8 foot draft.This barge is best suited for deliveries over the beach where there are draft constraints at and below 5 feet. Unlimited Tug -3,000 hp used with large barge(s).This tug would besuitablefortowingthelargebarge(s)over the distances involved. With the draft limitation at the port site,special consideration would be required to find a tug with draft or less than 12 feet. Limited Tug -2,000 hp used with medium or small barge(s). Yard Tug -700 hp,used at the mine site port for assisting with the barges at the port and at delivery ports where depths or channels are insufficient for the larger tugs. MINING AND TRANSPORTATION PLAN aeSaeedjoeesJ#,wvLEGEND BACKFILL MATERIAL Y/IN SITU SPOILS COAL SEAM TOPSOIL STOCKPILE WESTERN apoTiON COAL DEVELOPMENT PROJECT TYPICAL MORMON BLOCK STRIPPING SCENE Prepared by POOL ° ,ENGINEERING,INC. Date 7-19-85 a . SS MINING AND TRANSPORTATION PLAN To achieve the "base case"production level of 50,000 short tons per year, the coal mining method selected was area strip mining.The first ten years of coal production will occur at the Mormon Block West mining unit located along the western section of the northern limb of the Deadfall Syncline structure.This mining unit extends from the Mormon Benchmark,the local U.S.Coastal and Geodetic Survey monument,6,800 feet westwardly,toward the Chukchi Sea.Within this unit,three coal seams that run parallel will be mined individually at an average 4:1 stripping ratio.The seams range in thickness from 7 to 11 feet.The coal structure is non-complex and bedrock materials characteristic of the Foothills Province will comprise the majority of the material to be encountered in the mining operation.This allows a more conventional approach to mining. From the mine site the annual coal production will be delivered to a port site located at Omalik Lagoon,where it will be loaded on barges for sea transport to market.The annual mining and barge loading operations wil] require a 20 person crew and approximately 26,000 crew hours per season. These operations along with marine transportation of the coal to market will take approximately six months. Mining Operation The annual production and shipping schedule show mining activities beginning on April 1,with a two week effort in opening the pit for production activities.Following the pit opening,drilling and blasting will begin on the previous year's exposed coal and the overburden to be stripped the current year.Blasting is scheduled to continue through most of the coal removal and stripping operations.Coal removal will begin in late April after the blasting of the coal.Coal haulage to the port site stockpile will take place prior to spring breakup,to take advantage of favorable haul road conditions.Coal will be stockpiled at the port site with a front-end loader,crusher plant,and conveyor system. Stripping of the overburden will occur in mid-May immediately after the coal has been removed from the backfill area.The spoils from the stripping operation will be used to backfill mined areas and to develop road access to the coal seam being exposed for next year's production.The stripping operation will last until mid-August.Approximately 362,000 bank cubic yards of spoils will be generated from the initia?cut to open the pit;this material will be used for infrastructure construction fill as well as for pit backfill]material. Since the mining method is a cut and fill operation,reclamation will be accomplished contemporaneously with coal removal.This will decrease the amount of time in which the land is biologically non-productive.Annually, about 6 acres per seam will be involved in stripping,coal removal, backfilling,and revegetation operations for the base case production rate. Barge Loading Operation This procedure will involve reclaiming coal from the stockpile with a front- end loader and dumping it directly into the radial stacker/barge loading conveyor for direct discharge into the barge.A three person crew will be required to conduct the loading operation.The crew members will be selected from the mining crew. Marine Transportation Operation Coal will be shipped to market in bulk form from the marine terminal on towed barges.Accessibility to the mine site and delivery points is dependent on sea ice coverage and distribution.A maximum shipping season of 75 days (July 15 to September 30),or 1,800 hours,was established for the evaluation. One limited tug,180 foot and 250 foot barges,and one yard tug will be utilized to complete delivery in a total of 61 days at the base case production rate of 50,000 tpy. ENVIRONMENTAL AND SOCIAL ASSESSMENT CARIBOU HUNTING MARINE MAMMAL HUNTING "SMALL MAMMAL HUNTING FISHING MAXIMUM USE AREA MINE AREA **ee eoe% cesoeeeeeoveene eve eeereeweeens eoveveveseae eooeoeeee 'PEDERSON 1979,AND FIELDWORK FOR THIS STUDY WESTERN ARCTIC\COAL DEVELOPMENT PROJECT POINT LAY SUBSISTENCE USE AREAS Prepared by: STEPHEN R.BRAUND.&ASSOCIATES ENVIRONMENTAL AND SOCIAL ASSESSMENT Environmental Assessment Results of the comprehensive environmental evaluation of the WACDP mine and infrastructure components during Phase II continue to indicate that there are no major environmental constraints to further consideration of the project.Although the project area and planned facility site have been investigated since 1984,additional informationis needed in specific areas that were identified by the expanded WACDP data base and ongoing discussions with Point Lay residents,resource agencies,and project team members. Studies of soil behavior under site-specific conditions that influence erosion potential,soil transport by surface waters,and development of effective revegetation practices are necessary for appropriate assessment of water quality considerations and mitigative measures.Other studies are recommended to evaluate anadromous and marine fish populations of Kuchiak Creek and the proposed port site;perform seasonal surveys of waterfowl, belukhas,and caribou in the project environs;describe hydrologic characteristics of the Mormon Lake drainage;accomplish site-specific vegetative surveys;and define the status of cultural resources in the vicinity of Omalik Lagoon.The project team has recommended that these studies be done to augment the environmental data base and ensure compliance with preliminary environmental assessment requirements.A major concern is to assure that mining operations cause no significant impact on subsistence activities of the Point Lay community. Selection of the western Deadfall Syncline area as the proposed mine site and associated infrastructure components resulted from careful consideration of project alternatives,components,and options.The unique nature of the WACDP--a proposed strip mine in a remote arctic site underlain by permafrost and with little site-specific information on natural resources--has required a diligent search for pertinent literature,effective field programs to increment the initial data base,and solicitation of comments from appropriate resource agencies to assure comprehensive evaluation. Additional information will be obtained by accomplishing the several studies previously discussed;however,integration of the considerable information developed by WACDP team members has provided an effective analysis of the environmental implications of project components and practical approaches to mitigation,indicating that there are no major environmental constraints ("fatal flaws")to further consideration of the project. Potential Socio-Economic Impacts The Village of Point Lay,located approximately 40 miles north of the proposed project area,is the community most likely to be affected by project development.Residents of Point Lay have expressed their concerns regarding numerous issues important to their social and cultural customs. These concerns,which have been addressed in the WACDP Phase II Final Report,include the potential effects of the project on Kuchiak Creek,the impacts on belukha whales if there is marine transport activity in late June to early July,the influence of disturbance and human activity on caribou movements in the Deadfall Syncline area,and the impacts of mine development on furbearers,especially wolverine and marmot.Construction and operation of the project are not expected to result in any significant impacts on the existing social or economic conditions of the area. In addition,Point Lay residents were concerned about other potential environmental problems associated with the project,including chronic,low- level oil contamination from routine operations of heavy equipment, reclamation problems,and potential air pollution caused by burning coal on a community-wide basis. Point Lay currently has relatively low levels of unemployment;however,some Point Lay residents are expected to seek employment at the mine.Although mining skills are available in Point Lay,the village workforce will not be able to fill all of the positions required for project operation. MARKET EVALUATION 3AAW)?AAWN®KF: WESTERN ARCTIC) PROJECTPes Economie Residentia COAL DEVELOPMENT|| AXWN:AX R-R-hp-[_it}: AXXO COAL PRODUCTION LEVEL (000's) TONS:PER YEAR $NI LSOO TVANNV MARKET EVALUATION The potential market area of the WACDP includes a geographic region of the state stretching from Wainwright on the northern coast of the Chukchi Sea south to Kodiak Island and including all of the Aleutian Chain.Military bases,industrial users,and 130 communities within the study area were identified as the potential demand for coal heating and power generation. Market Demand The annual total potential demand for coal in the market area is estimated to be in excess of 500,000 tons per year (tpy).At this demand level the WACDP has the potential to displace over 80 million gallons of fuel oi] annually. The WACDP study evaluated the near-term potential of developing the coal resource in the western Arctic.From the preliminary marketing and economic analysis performed in Phase I,the study "base case"or initial mine production level was established at 50,000 tpy.This is only 10 percent of the total potential demand of 500,000 tpy.It is,therefore,reasonable to postulate that there is enough potential market volume to accommodate a coal industry in the western Arctic. Actual demand will be primarily determined by the relationship between the price of fuel oil or diesel in the community relative to the price of western Arctic coal in the same community.These factors are in turn dependent upon the world price of crude oi]relative to the price of WACDP coal.The latter is significantly affected by the economies of scale associated with the annual production level of the mine.As the production level increases,the cost of coal decreases.For example,at the study "base case"50,000 tpy production level,it is anticipated WACDP coal can be delivered to the City of Kotzebue at about $108 per ton ($4.50/MMBtu).Ata production level of 100,000 tpy coal can be delivered to Kotzebue at about $71 per ton ($2.96/MMBtu).Compared to oi]prices,based on a June 1986 survey of oil distributors,oi]is being sold in Kotzebue for $1.60 per gallon ($10.94/MMBtu). Two important factors are demonstrated by the Kotzebue example.First, there is sufficient disparity between coal and oil prices to anticipate a certain level of coal demand based on economic considerations.The significance of this factor in the decision to use coal can be supported by the results of the Phase II market analysis.The analysis shows the clear majority of potential customers viewed coal as an acceptable alternative to fuel oi]and would base their willingness to use coal on its overall economic value. The second important factor is that expansion of the annual production tonnages will provide considerable economic benefits to the consumer and improve upon the marketability of the coal.The potential of future market increases occurring throughout the life of the project is high due to the following:(1)the total potential demand is very large in comparison to the base case production level,therefore,future increases in market demand can be anticipated;and (2)the Deadfall Syncline Coal reserves are of sufficient size to accommodate any future increases in market volumes within the study area. Factors Affecting Marketability Several factors other than production level and oil prices influence the marketability of coal.They are:(1)instability of government regulatory and taxation policies that can result in changes in production costs which impair the ability of the mine operator to secure long-term contracts with set prices;(2)current state subsidy programs favor the use of oi]and reduce the incentive of local utilities and homeowners to conserve or develop alternative local resources;and (3)the market area is characterized by high unemployment and,therefore,many residents and institutions lack the capital to take advantage of a more economic energy alternative. ) VILLAGE END-USE TECHNOLOGY ASSESSMENT 2-kW, Linear Aiternalor 60 Hz 'ec Castable Retractory a <-In Domestic Hol Water ->Out at 125-175°F Bypass Door for Starting Fire a . ' - CombustionGasFlow 4 / ¢rl in.Hx 21 in.W J " |Radiant Firebrick Liner Toooooreyf'.!Lf / TI TLi |oe |LOL LLL.YIU.TOITITT, for Space Heating e-Ke in.Steel pate +|High-Temperature insulation |,nb «30 ww Characteristics of Free Piston Stirling Engines (FPSE) Applicable to Rural Alaska t--Noninsulated Batlle Chamber Engineering Model FPSE Requirements for Solld-Fuel,Smatt- Scale Generators In Alaska Characteristics of the FPSE Long Lite e No Dynamic Seals e No Side Loads or Friction Low Maintenance e No Ol e@ Hermetically Sealed System High Rellability "eo One-Piece Heater Head e Simpte Displacer Motion Controf System Engineering Model FPSE Solid-Fuel - Combustor Air Inlet Controls Combustion Gas Path 7% ane Alternate Flue Exit Load Doors (q2.WESTERN ARCTIC)COAL DEVELOPMENT PROJECT Quiet Operation e No Gears e No Lateral Loads STIRLING ENGINE TECHNOLOGY Low Cost ©Two Moving Paris ©One-Plece Heater Head Prepared by:Date: May 2,1985 y, VILLAGE END-USE TECHNOLOGY ASSESSMENT The WACDP Phase II Village End-Use Technology Assessment evaluated various coal heating and power generation technologies available to rural Alaskan communities.Preliminary results were reviewed by the communities of Nome and Kivalina and representatives from the Alaska Power Authority,the Alaska Village Electric Cooperative,the North Slope Borough,and the Tanana Chief's Conference.Their comments were incorporated into the selection and modification of the preferred systems,which are evaluated in greater detail in the Assessment and summarized in this document. Genera] The coal characteristics of Deadfall Syncline coal were found to be technically and environmentally suitable for all space heating and power generation scenarios investigated.In all cases,the use of Deadfall Syncline coal showed a significant reduction in sulfur dioxide emissions when compared to the use of diesel fuel. The most cost effective method for near-term commercialization of western Arctic coal appears to be in its raw form.Other forms,such as coal liquefaction,gasification,or as a fuel mixed with oil or water,were determined to be too complex and costly for use in the study area at the anticipated low production rates and present levels of technology development. Identified uses for raw coal were for:coal-fired power generation for larger communities such as Nome,Bethel,and Kotzebue;individual space heating for large institutional users or cluster of larger buildings (mini- district heating);and for residential individual coal-fired heating units in place of,or supplemented by,existing oi]and/or wood heating units. Heating Utilization of western Arctic coal can best be encouraged by installation of coal stoves or furnaces for institutional heating.These users have more incentive to convert because they are least impacted by energy subsidies such as the Power Cost Equalization and Energy Assistance Programs. Further,they have the following advantages:(1)relatively large demands that would improve upon the economies of scale and optimize on transportation equipment,thus reducing overall coal costs to all consumers; (2)provide the highest return on investment;and (3)coal space heating technology is highly developed and easy to install.By concentrating on the institutional user,it is an easy-to-implement program that will quickly establish western Arctic coal as a viable alternative to oi]and would provide the entire community with the opportunity to observe the requirements of using coal.As these markets are developed,additional conversions are likely to occur and marketing efforts can be redirected toward smaller institutions as well as residential customers. Although residential coal-fired heating units require more effort to operate compared to oil,it appears the use of Deadfall Syncline coal in these heating units will provide significant annual energy savings.Further, available modern airtight coal stoves offer a clean and efficient coal burning operation.The current technology in residential coal burning Stoves would provide up to 50 percent reduction in annual fuel cost to the user and a two year return on the coal conversion investment.Care should be taken by potential users to select heating unit and chimney components designed for burning bituminous coal.An overview of the different types of solid-fuel stoves and boilers and their capacities,combustion efficiencies, and prices are presented in the table below. Conceptual Price Levels of Different Heat Appliances in the U.S.Market Capacity Combustion Price Range Efficiency Range Heat Appliance (MBtu/hr)(%)._($) Stoves Coal 30 -70 65 -75 600-2,000 Wood/Coal 10 -70 60 -75 600-2,000 Wood 10 -60 60 -75 500-1,500 Boilers Coal 100 -300 65 -80 2,000-3,500 Multifuel,: double chamber 70 -300 75 -85 2,800-4,000 Wood/coal, single chamber 70 -300 65 -80 2,000-3,500 Wood 70 -250 65 -80 2,000-3,500 District heating systems are most attractive when a source of heat such as a gas turbine or furnace exhaust is available and the end users have a relatively large demand.Cost of heat from such systems ranges from $1.00 to $3.00 per million Btu.In addition,particulate emissions are much lower compared to individual coal heating units. Electric resistance heating was investigated and found not to be as economically viable as other options;however,there are several environmental,technical,and social factors that make this option attractive.This type of heat is both non-polluting and quiet for the residential user,and to provide the 30,000 Btu/hr required by the average rural Alaskan home,40 feet of baseboard heaters would be required at an investment of about $700. Power Generation Power plants offer the greatest single demand for coal in a community,and if they were developed to use western Arctic coal,the price of coal would be reduced considerably to all customers.Conversion of the heat energy released in the combustion process is best accomplished by either a steam- injected,externally-fired air turbine or a conventional condensing steam turbine.The recommended coal burning technology for burning coal for power generation is a chain grate stoker. Even though coal-fired power generation can provide up to 40 percent reduction in annual operating costs,the initial capital expenditures are relatively high compared to oil-fired technology.The large capital outlay makes use of such technology marginal at the lower production level of the mine and an obstacle to the capabilities of rural utilities.Further disadvantages to development of this market are:(1)since power generating units have a high energy demand and have large fuel oi]storage capacity, they usually command the lowest price for fuel oi]in a community;(2)the amount of time required to develop new power generation facilities is considerably longer and more complex compared to space heating facilities; and (3)there are only a few locations available to the project with sufficient demand to warrant conversion. Currently,available technologies do not offer a coal-fired power generation alternative that is suitable in communities the size of Kivalina (up to 500 kW).From a preliminary investigation,it appears these villages connected by a power grid may provide a method to deliver coal-fired power at a price less than the current cost of operating individual diesel engines. Although there are no recommended small scale coal-fired power generation technologies for small Alaskan communities such as Kivalina,there are several emerging technologies that bear monitoring and when appropriate, demonstration in the state.The most promising are the externally fired Stirling engine and coal-fired diesel engine. FINANCIAL/ECONOMIC EVALUATION Summary of Capital and Operating Costs for Mining at 50,000 tpy Production Level Cost Factor Pre-Development Costs Initial Transportation Environmental Studies Development Drilling Engineering and Construction Management -Contingency Subtotal Mine Development Annual Reseeding Final Pit Backfill Sediment Pond Reclamation Reclamation Bond Subtotal Mine Operation Costs Equipment Cost Labor Cost Subtotal Infrastructure Costs Port:Omalik Lagoon (13') Bulk Fuel Storage Road (5.4 miles) Private Airstrip w/road Camp Subtotal Total Production Costs: Non Production Costs Profit Royalty Insurance Taxes,Local Working Capital Total Non Production Costs Wholesale Cost at 50,000 tpy Cost per ton FOB Shipping Port (1986 $) Initial Annual Costs Capital Cost Capital Operating Total 500 ,000 57,731 0 57,731 107 ,600 12,424 0 12,424 300 ,000 34,639 0 34,639 847,000 97,796 0 97,796 1,404 ,000 162,108 0 162,1083,158,600 364,698 0 364,698 0 0 12,000 12,000 1,250,000 35,850 _0 35,850 100 ,000 2,868 0 2,868 0 36,000 0 36,0001,350,000 74,718 12,000 86,/18 3,976,375 587 ,383 571,989 1,159,372 0 0 854,868 854,8683,976,375 -587,383 1,426,857 2,014,240 1,842,000 212,680 212,000 424,680 490 ,000 56,576 f/a 56,576 1,750,000 202 ,058 f/a 202,058 970,000 111,998 f/a 111,998 1,911,000 297,772 226,708 524,480 6,963,000 881,084 438,708 1,319,792 15,447,975 1,907,883 1,877,565 3,785,447 187,757 154,256 100,698 236,061 93,878 93,878 772,650 $91 $3.80CostperMillionBtu f/a =force account FINANCIAL/ECONOMIC EVALUATION The economic viability of the project is dependent on the relationship of the price of crude oil and the price of western Arctic coal.In turn,the cost of coal is highly dependent on the scale of operation.Therefore,if the price of oi]remains low or inflates at the same rate as coal,the WACDP remains competitive with oil at higher coal demand levels.On the other hand,if the price of oi]begins to inflate at a greater rate than coal, western Arctic coal will remain an economically sound alterative compared to oil at all levels of coal production.Both the financial and economic analysis were based on the "base case"mine production rate of 50,000 tpy. Financial Analysis Mine development costs will require a capital expenditure of about $16,000,000.This cost estimate includes the component costs associated with pre-development,mine and infrastructure development,and non- production costs such as insurance,taxes,royalties,and profit.The yearly operating costs amount to about $2,000,000.The total annual cost, including operating and annual capital costs,is estimated at less than $4,600,000 resulting in a cost per ton of coal of about $91 per ton FOB at the shipping port and loaded on the barge. Unit costs for transportation,exclusive of handling or port charges,will range from $10 to $14 per ton for higher volume shipments between developed port sites.For middle volume shipments between developed or partially developed port sites,transportation costs will range from $23 to $28 per ton.Transportation costs may be as high as $50 per ton for lower volumes and over-the-beach unloading operations. The cost of coal in several communities throughout the study area is presented in the following table.Coal costs are compared to the diesel costs for space heating on a per million Btu basis.Values shown here represent the retail basis within the community and include FOB costs at the mine port site,transportation costs and a 20 percent mark-up for retail handling and profit.At demand levels greater than 50,000 tpy the cost will be reduced significantly. Comparison of Coal and Diesel Sold for Space Heating (50,000 tpy Production Level) Coal Diesel Per Per Per Per Community Ton MMB tu Gallon MMBtu Kotzebue $108 $4.50 $1.60 $11.60 Nome 113 4.71 1.51 10.95 Bethel 121 5.04 1.24 8.99 Dillingham 124 5.17 1.07 7.76 Dutch Harbor 125 5.21 0.79 5.73 Kodiak 137 5.71 0.74 5.37 Note:Assumes 12,000 Btu per pound coal and 138,000 Btu per gallon diesel fuel During the initial years of the project,market demand may not require production levels at the base rate of 50,000 tpy.Under these conditions, there could be a net loss to investors,or at best,a small profit.As both market demand and production increase,the return on investment will improve,with a positive return on investment expected over the life of the project. Both the Red Dog and Lik mining and mineral processing projects in the area will require large amounts of energy and can substantially influence the economics of the project.Even if no other residential,institutional,or commercial energy users convert to coal usage,implementation of the WACDP can be justified if either of these two projects is developed to use coal as the primary source of fuel. Economic Analysis The basic premise of the WACDP is that the coal resource in the region can provide energy for heating and power generation at a lower cost than petroleum products.At the assumed initial production of 50,000 tons per year,the total cost of mining the coal,delivering it to the markets,and converting the users'facilities for coal use would be equal to the continued use of petroleum products,with crude oil at $20.20 per barrel. At this level of production,the mining enterprise would have to Operate at a nominal rate of return or possibly at a small loss,in order to provide coal at a price that would be attractive to the users.Thus,the financial analysis shows that the project would be only marginally attractive to private enterprise investors at the lower production rate. From the viewpoint of the region or the state as a whole,there are other objectives that would be obtained from the development of the project,such as creating jobs in the region,developing a locally based alternative source of energy,and stimulating and diversifying the economy of the region.It would also contribute to local and state royalty and tax revenues.The benefits of creating long-term permanent jobs are difficult to measure.They cannot be included in the financial analysis of the coal- producing company since they do not accrue to the company in the form of revenue.However,they represent real benefits to the region and the state. Methods of economic analysis are available for such situations and are commonly applied by major lending agencies such as the World Bank and the United States Agency for International Development.Their objective is to estimate the true economic costs and benefits of a proposed investment from the viewpoint of a region or state as a whole,rather than from the more narrow viewpoint of a single private enterprise.These methods of economic analysis have been applied to this project in order to evaluate the economic viability of the project from the viewpoint of the State of Alaska. The economic analysis starts with the financial costs of developing and operating the mine,transporting and distributing the coal,and converting the users'heating and power generation facilities (or providing new facilities)for the use of coal.These financial costs are then adjusted to reflect the true economic costs to the region and the state as a whole.The main adjustments are in the cost of labor,royalties and taxes incurred in coal production.The wage costs used in the economic analysis were adjusted downward from those used in the financial analysis to reflect the direct benefits of employing labor which would otherwise be unemployed.State and local taxes,and royalties for the use of the coal resource were not considered as transfer payments from one entity in the state to another. For these reasons,state and local taxes,and royalties,were not considered as costs in the economic analysis. In Chapter 12 of WACDP Phase II Final Report,the total economic costs of producing and using 50,000 tons of coal per year in the market area were compared with the economic costs of continued use of an equivalent quantity of petroleum products over a 20-year period.This assumes no growth in demand over that period.From the viewpoint of the state as a whole,using a discount rate of 10 percent per year,the costs of using coal are less than the costs of using oi]by about $14 million.At a rate of 5 percent per year,the savings are about $35 million over the 20-year period.The economic rate of return on the investment in coal production would be about 17 percent per year. In summary,the economic analysis indicates that the benefits of using coal are greater than the costs,even at this relatively low level of production, and that the project is economically viable with crude o71 at a price of $20 per barrel.With a discount rate of 5 percent per year,the cost of using coal is still less than the cost of petroleum products,at a price of $15.50 per barrel for crude oil.The conclusion is that the project is economically viable,from the viewpoint of the region and the state as a whole,as long as crude oil]prices are above about $15.00 per barrel.At demand levels greater than 50,000 tpy,the economic price would be significantly lower. C022 arctic slopeconsultingengineers 313 E Street,Suite 2 Anchorage,Alaska 99501 Telephone:(907)276-0517