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Additional West Coast coal export capacity unlikely in near term, experts say

Proposed West Coast coal export terminals made little headway in 2019, and two experts recently said they did not expect additional capacity to open in the near term.

Two planned western coal terminals have been tied up in various legal battles with local or state governments as well as environmental groups. Coal producers are seeking to sell their fuel to Asian demand centers, though thermal coal export prices have dropped considerably since 2018. In California, the Richmond City Council is expected to vote in January 2020 on whether to ban coal shipments through its port after delaying a vote in early December, the San Francisco Chronicle reported.

Lighthouse Resources Inc. is seeking to build a coal export terminal in Longview, Wash., through its Millennium Bulk Terminals-Longview LLC subsidiary. The state government denied a critical water quality permit for the project and the developers sued, alleging the denial was preempted by federal law.

There are four court cases related to the terminal in various stages of judicial proceedings, according to Kristen Boyles, a staff attorney leading environmental nonprofit Earthjustice's legal efforts against the proposed facility.

The overarching federal case pertaining to constitutional issues was stayed until cases in lower courts were decided. The developers have since appealed the stay and certain court rulings, and the parties are briefing their arguments for the 9th Circuit Court of Appeals, Boyles said in an interview.

"Every single permit they need for this project has been denied by two different state agencies. ... I'm not sure why they think this project has a future," she said.

Wyoming Gov. Mark Gordon has reportedly considered suing Washington state over the project. Environmental groups are not concerned about the possibility given that Wyoming may not have legal claims to add to the case beyond the ones already argued by Lighthouse and Millennium, Boyles said.

The case may not wrap up until 2021 at the earliest, but there is always the possibility of further appeals down the line, she noted.

Lighthouse and Millennium did not respond to requests for comment.

Another terminal project in Oakland, Calif., is also under litigation. The city granted developers of the Oakland Bulk and Oversized Terminal, or OBOT, a lease to build a terminal, later instituting a ban on shipping and storing coal in the city. OBOT sued and a federal judge ruled that the coal ban breached the city's development agreement with project backers. The city is appealing.

The city and attorneys from environmental organizations asked the Ninth Circuit Court of Appeals to prevent the developer from handling coal at the terminal in mid-November, according to a newsletter from Oakland City Attorney Barbara Parker. The city is not certain when the court will issue a ruling on the appeal.

There is also a case in state court that deals with the city's alleged breach of its master ground lease with OBOT, according to David Smith, legal counsel and spokesperson for the project.

"Unfortunately, it's sort of just tied down in legalities at the moment," Smith said.

Robert Godby, an economist at the University of Wyoming, said the odds are long that coal export capacity on the West Coast will increase any time soon. The global thermal coal market is also quite volatile, he said, and U.S. producers continue to serve as a swing supplier in the market.

Given the drop in Powder River Basin coal production over the last few years, Godby did not think the Millennium terminal, which is likely closer to Montana and Wyoming producers, would do much to slow the decline.

"It's not clear that that capacity at the end of the day really staves off the longer-term decline of the coal industry in, say, the Powder River Basin," he said. "The longer that times goes on without even a clear path to development, I think, the harder it gets to build those terminals because the uncertainties just continue to mount."

Wood Mackenzie does not expect the Millennium terminal to move forward and has more confidence in the Oakland project, according to Gregory Marmon, a senior research analyst with the group. But seaborne coal prices have declined so much that it might be tough for western producers to even fill existing capacity, he said.

"At the moment we don't really see any new increase in our port development," Marmon added.

Marmon expects the Powder River Basin producers to continue exporting coal through ports in Canada. Teck Resources Ltd.'s contract with Westshore Terminals Investment Corp.'s limited partner, Westshore Terminals LP, ends in the first quarter of 2021. The coal producer plans to shift much of its tonnage to Neptune Bulk Terminals (Canada) Ltd., freeing up capacity that could be used by Powder River Basin producers, Marmon said.

Wood Mackenzie expects Powder River coal exports to total about 6.1 million tons in 2019 and drop to 5 million tons in 2020, declining from 10.7 million tons in 2018.