Ottawa's lump of coal: Search for buyer of Ridley terminal drags on

February 15, 2015 Globe and Mail

February 15, 2015
By: Brent Jang

In late 2012, Ottawa placed a prized coal export terminal up for sale in anticipation of fetching a huge sum for the federal asset in northwestern British Columbia.

While coal prices had softened from record highs in 2011, Ridley Terminals Inc.’s business prospects looked solid, with forecasts for years of rising supplies transported by train from coal producers in northeastern B.C.

But what seemed like a jewel of a Crown corporation valued at more than $1-billion by industry experts 26 months ago looks more like a lump of coal today.

Ridley is struggling through an industry slump that has seen coal prices collapse, hurt by slower-than-expected demand in Asia and a global supply glut. The terminal is expected to suffer a hefty drop in shipments from the West Coast this year.

Ottawa, through Canada Development Investment Corp., is still looking for a buyer. The federal government’s quest to sell comes as coal prices languish at multiyear lows while northeastern B.C. producers have halted production.

Ridley is expected to export as little as 4.6 million tonnes, or roughly one-quarter of capacity, of commodities in 2015 from the Port of Prince Rupert, according to two sources familiar with the northwestern B.C. terminal. Those shipments would include 3.5 million tonnes of coal and 1.1 million tonnes of petroleum coke.

Barring any surprise new contracts, Ridley will be running at roughly one-quarter of its export capacity of 18 million tonnes in 2015.

Benchmark Asian prices for steel-making coking (or metallurgical) coal have declined to a seven-year low of $117 (U.S.) a tonne, down 65 per cent from their 2011 peak. Benchmark Asian prices for thermal coal used to generate electricity are mired at $62 a tonne, a plunge of 70 per cent since 2008.

Ridley’s exports of coal and petroleum coke totalled a record 12.1 million tonnes in 2013, but tumbled to 7.1 million tonnes in 2014.

Coal Valley Resources Inc., owned by Colorado-based Westmoreland Coal Co., runs an Alberta thermal coal mine that will be the largest exporter through Ridley in 2015. If Coal Valley hadn’t made decisions that resulted in the company agreeing to send 2.5 million tonnes this year through Ridley, the 31-year-old B.C. terminal would be facing even bleaker times in 2015.

Industry sources say Vancouver-based Teck Resources Ltd. is expected to send between 800,000 tonnes and one million tonnes of coking coal through the Prince Rupert terminal this year, originating from the producer’s Cardinal River mine in Alberta.

Two firms that own northeastern B.C. mines – Birmingham, Ala.-based Walter Energy Inc. and London-based Anglo American PLC – were major shippers in recent years. But their coking coal exports from Ridley in 2015 will be only a fraction of what they shipped last year. Anglo American, which sent 50,000 tonnes from its coal stockpiles in January, doesn’t have any exports planned in the remaining 11 months of this year, commodity observers say.

Over the past couple of years, Walter halted production at three mines and Anglo American suspended output at two sites in northeastern B.C., leaving the region without any operating coal mines. A sixth northeastern B.C. project, Teck’s Quintette property near Tumbler Ridge, planned to restart in 2014 but remains mothballed.

Teck, a diversified miner, produces coking coal at five mines in southeastern B.C. and one in Alberta.

Jean-Jacques Ruest, Canadian National Railway Co.’s chief marketing officer, said the freight carrier is well-diversified with cargo shipments across North America, but he cautioned that CN’s revenue from shipments to Ridley will be sharply lower in 2015 because of the terminal’s reduced exports.

“The terminal that is suffering is Ridley,” Mr. Ruest said in a recent interview at the Cargo Logistics Canada conference in Vancouver.

CN’s West Coast export revenue from transporting coking and thermal coal will be $100-million (Canadian) lower in 2015 than in 2014. The railway garnered $740-million in revenue from Canadian and U.S. coal shipments last year.

Ridley officials didn’t return calls for comment.

Last fall, the terminal indefinitely delayed the second phase of its expansion. Ridley had a slim $524,000 operating profit in the third quarter, but posted an $11.1-million net loss for the period after charges mostly related to coal inventory.

There remain ample coal supplies globally because many producers are locked into long-term contracts, said Joe Aldina, a coal analyst with Wood Mackenzie in New York.

China, Japan, India, South Korea and Taiwan are major coal importers. Coal production within China slipped an estimated 2.5 per cent last year and the country also imported less coking and thermal coal.

In North America, there is weakened demand for thermal coal for power generation amid tighter pollution rules on carbon emissions, placing pressure on producers to export, said Clark Williams-Derry, deputy director of Sightline Institute, a Seattle-based environmental think tank.

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