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Fri August 15, 2014
Wyoming Looks To Exports For Energy Markets
In the last few years, the United States has undergone a radical transformation, from energy importer to energy exporter. Liquified natural gas terminals that were built to process natural gas from abroad are being converted for export. The first tanker full of unrefined US crude oil to leave our shores in decade set sail from Texas late last month. Coal companies are increasingly relying on foreign markets to pad their balance sheets. Wyoming Public Radio held a forum recently to discuss how increased foreign exports could affect the state. Energy reporter Stephanie Joyce hosted the forum and joins us now to talk to about it.
Bob: Why is this a conversation now?
Stephanie: Well, I think it boils down to basically fracking. The technology unleased a huge supply of cheap, abundant natural gas, which caused the price of natural gas to go down. That natural gas is being used to replace a lot of coal and so now we have cheap natural gas, we have coal that isn’t being consumed and they're looking for other markets for both of those. Exporting natural gas would boost its price. Exporting coal would make up for some of those production cuts that are being made as domestic coal consumption declines.
Bob: Who did you invite to the forum?
Stephanie: Speaker of the House, Tom Lubnau, who recently visited China, Shawn Reese, who is the head of the Wyoming Business Council, and as such, charged with helping the state find markets for its products, and Roger Coupal, who’s an economist at the University of Wyoming who is helping write a report on coal for the Wyoming Infrastructure Authority.
Bob: What did Representative Lubnau have to say about what’s happening on the ground in China?
Stephanie: That China is really innovating with what it does, particularly with coal. That it’s figuring out how to turn coal into plastics and other things. That it’s pushing the boundaries of advanced carbon capture technology. Basically, he painted a picture of a place that’s way ahead of us when it comes to figuring out what do with coal other than just burn it. He was adamant that we need to take note, saying basically, if we don’t catch up, we’re going to be China’s resource colony in a few decades.
Bob: That’s a pretty interesting opinion. What did the other panelists have to say about that?
Stephanie: Well, they agreed that Wyoming needs to innovate with coal, instead of just shipping it overseas but at least Dr. Coupal wasn’t very optimistic about that happening. He said there’s just too much political inertia. We also talked about whether exporting raw commodities is really the best way to get Wyoming on the track to innovating -- whether for coal or natural gas. Both Shawn Reese and Rep. Lubnau said it is -- that the export revenues are needed in order to pay for the innovations -- but I think it’s worth looking back at coal industry’s track record there. They haven’t done a lot to innovate in the last few decades, and if there’s a profitable market for the raw commodity elsewhere, I’m not sure why they would in the next few. Of course, the state could choose to invest the money it gets from exports back into innovation.
Bob: But will the state be getting as much money from exporting coal overseas as it gets right now? Hasn’t the federal royalty system been criticized for not taking exports into account?
Stephanie: Well, I actually asked the panelists that, because, yes, the system has been criticized. Basically the accusation is that coal companies are selling their coal for domestic prices, which are around $15 a ton, to a middle-man company that they own and paying royalties on that low price, to the state and federal government, and then that middle-man is turning around and selling it abroad for, you know, five times as much. Representative Lubnau’s response to my question about whether that system needs to be fixed, so that the royalties are on the higher-priced exports was basically: “I don’t know about that issue.” Which I thought was interesting, since it’s been something of a hot topic.
Reese’s take was that so little coal is being exported right now -- just a few percent of what’s mined in the Powder River Basin every year that it’s really not a big enough deal to worry about. Of course, if the coal companies can get the port capacity to export more, it’s pretty clear that they’re going to. Just last week, Cloud Peak, which has been the most aggressive company in its pursuit of exports announced it purchased more dock space in Vancouver, Canada to export Powder River Basin coal, and that it is planning to buy more as it becomes available.
Bob: You bring up Canada. There’s been quite a bit of pushback from people in the Pacific Northwest to the export terminals both for natural gas and coal and so companies have been looking elsewhere. Could that shut down Wyoming’s ability to export energy?
Stephanie: General consensus: it will just go elsewhere if it can’t make it out of Seattle or Portland. Coupal pointed out that particularly for natural gas, the economics are there. Coal is a little iffier. But the bigger concern, in Coupal’s opinion, is that Asian countries are getting really worried about pollution and greenhouse gases. Following up after the forum, he said it would be a mistake for Wyoming politicians to ignore that. Representative Lubnau had a bit of a different take on it -- one that’s become a popular refrain in the last six months, since Peabody Coal launched a PR campaign called “Advanced Energy For Life.” That campaign promotes the idea that it’s morally reprehensible to deny developing companies like China access to the same cheap coal that fueled our industrial revolution. Lubnau gave a bit of a twist on that, saying that as China lifts millions out of poverty, it will need coal, and Wyoming’s is cleaner than most.
Bob: And did you talk at all about how people in Wyoming feel about the coal mined here and the gas drilled here being shipped to China?
Stephanie: We did. I brought up the fact that Wyoming has always prided itself on fueling the country and I asked if the panelists thought people might feel differently about having a gas well in their backyard or coal mine nearby if they knew that gas was going to South Korea or China. Reese said that is something that should be considered but that he thinks Wyomingites always adapt to changed circumstances and this won’t be any different. Lubnau was punchier. His reply was that we’ve been drilling in Wyoming since before Butch Cassidy was robbing banks, and that no one would particularly mind more development, even if it is for foreign markets.
Natural Resources & Energy