Amid crisis, coal remains a bright spot in exporting

Usibelli Coal Mine Inc. experiences upturn in coal exports in 2008

Posted: Monday, February 16, 2009

Even amid a global recession, one Alaska resource commodity is doing well in export markets. Surprisingly, it is coal.

Usibelli Coal Mine Inc. experienced a strong upturn in coal exports in 2008 from its mine in Healy, located south of Fairbanks. So far, sales for 2009 are looking pretty good, according to Steve Denton, Usibelli's vice president for business development.

"We exported about half a million tons last year in eight shipments. It was a lot better than we expected," he said. "We have six shipments scheduled for 2009 so far, which is the strongest position we've been in at the start of the year for a long time."

Export shipments were to power plants in South America and Asia. Usibelli also produces about 800,000 to 1 million tons a coal per year for its Interior power plant customers.

The company also supplies coal-fired power plants in Interior Alaska.

Denton said coal prices haven't strengthened Usibelli's export marketing position - those have gone down like all energy prices - but the cost of shipping coal has dropped sharply, mainly thanks to plummeting oil prices.

Even though the market price of coal is lower, the netback value to Usibelli from coal sales has remained stable, he said.

"Pacific coal prices have fallen off like all commodities. They are about half what they were six months ago. But the cost of freighting the coal has dropped by five times, to about 20 percent what they were last summer. The net effect of this is that the value of our coal has remained steady," Denton said.

Usibelli ships its export coal by rail from the mine to Seward, where it is loaded on bulk ocean carriers. The Alaska Railroad Corp. owns the coal terminal, but Usibelli operates it under a contract with the railroad.

Alaska Railroad President Pat Gamble said the coal exports have been good business for the railroad as well as Usibelli.

"They have proven to be very profitable and it was almost like a full contract year for exports, but because most of them were sold as spot cargos, they are difficult to predict," Gamble said. "We would like to tie them down in long-term contracts so we can do the capital expenditures needed to make the operation more efficient."

Coal from the Usibelli mine is classed as sub-bituminous, which has a lower energy content than bituminous and other higher-grade coals. Its major advantage, though, is that the coal has an extremely low sulfur content, which means there is less air pollution when the coal is burned.

That has made Usibelli coal attractive to Pacific Rim coal buyers, who often combine it with coal from other places that contains higher sulfur, in an effort to meet local air quality rules.

Usibelli began coal exports in 1984, shipping about 700,000 tons a year to Korea Electric Power Corp.'s coal-fired power plant in Honam, South Korea.

The Alaska coal producer is now marketing much of its export sales through Glencore Ltd., an international brokerage firm specializing in commodities. Glencore facilitated the first test shipments of Alaska coal to power plants in Chile in 2004 and shipments have continued since.

The ocean shipping distances to Chile from Alaska are about the same as the shipping distance from the nearest competing coal mines in Indonesia, Denton said. Shipping distances to Korea are also about the same as from Indonesia. For customers in Japan, however, Alaska has an advantage in a shorter shipping distance, he said.

Usibelli is set to get another big order for its coal if the Healy Clean Coal Project, a 50-megawatt coal plant that has been shut down for 10 years, is restarted. Denton said the plant would require about 300,000 to 350,000 tons of coal a year.

In January, the Alaska Industrial Development and Export Authority, which owns the plant, reached an agreement with Golden Valley Electric Association of Fairbanks that would allow GVEA to purchase and reopen the plant. The agreement is to be finalized in mid-February.



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