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IEEFA Update: Lacking Customers, PacRim Bails Out of Its Alaska Coal Project

April 04, 2017
Tom Sanzillo

Word out of Alaska this morning that investors have pulled out of the proposed Chuitna Coal Project near Alaska’s Cook Inlet was presaged by the fast-moving global transition in electricity generation.

Research we published two years ago—and that we outlined in an August 2015 letter to the Alaska Department of Natural Resources—pointed to where Delaware-based PacRim Coal Co. (owned by a pair of Texas billionaires) was likely to end up with Chuitna.

Here’s the headline today in the (Kenai) Peninsula Clarion: “Chuitna Coal No Longer Seeking Permits.” Here’s the (Anchorage) Alaska Dispatch: “Controversial Chuitna Coal Mine ‘Shelved’ After Investor Backs Out.”

PacRim seems to have heeded a warning we sounded then that holds true today:

“Global coal markets are oversupplied and there is no evidence that an Alaskan mine with no product advantage would succeed as a new entrant in the global thermal market place.”

On that “no product advantage” angle, we questioned in particular PacRim’s bold claim that Chuitna would magically produce better coal than that of competitors:

“PacRim touts the coal that would come out of Chuitna for its superior low-sulfur content, when in fact its sulfur content is no different from that found in coal produced in the Powder River Basin in the Lower 48. This is worth emphasizing because all of the Powder River Basin coal producers today are struggling to find export markets for their product. Chuitna coal would face a similar uphill battle, and market forecasts see little demand growth for U.S. coal exports into the foreseeable future.

PacRim would also face competition from non-U.S. coal producers. Indonesian and Russian coal products are of similar low-sulfur content and similar heat content. Coal produced in each of those countries more often than not has a distinct transport-cost advantage because it is mined closer to China, India, Taiwan, Japan and Korea, which is where the coal-import action—such as it is—can be found. The entire market is oversupplied and coal producers from South Africa, Australia and Colombia are also looking to ship coal to already crowded Asian markets.”

We explained further, in an April 2015 letter to the Department of Natural Resources, that structural changes in global coal markets signaled no end in sight for a worldwide shift in energy markets that spelled little hope for a new mine:

“The Chuitna coal project would serve little purpose in this shrinking market over the next several decades. There is no need for the mine and no price structure to support it.”

The bottom of the seaborne thermal coal trade has simply fallen out since PacRim first floated the Chuitna proposal back in 2016, and the long-term prospects for U.S. coal producers across the board are dim, as we described several weeks ago in our 2017 outlook.

The industry is saddled with a fundamental problem that it has failed to address even after having been riddled with bankruptcies: Too many companies are mining too much coal for too few customers.

Tom Sanzillo is IEEFA’s director of finance.


Building a New Coal Mine in Alaska Is as Crazy as It Sounds

Export-Market Downturn Spells Trouble for Proposed Alaska Coal Mine

IEEFA U.S. Coal Outlook 2017: Short-Term Gains Muted by Prevailing Weaknesses in Fundamentals

Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures. He also examines such areas as community and shareholder activism, institutional investment, public subsidies and Puerto Rico’s energy economics.

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