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Proposal to export gas, coal from US military bases faces major obstacles


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Proposal to export gas, coal from US military bases faces major obstacles

A proposal being considered by the Trump administration to use U.S. West Coast military installations for exporting coal and liquefied natural gas would face significant bureaucratic, economic and national security obstacles before it could become a reality.

Even if it cleared those obstacles, the proposal would likely fail in its aim to circumvent environmental opposition in Western states, according to numerous experts.

"It doesn't seem to make sense from a business perspective, from a permitting perspective, and from a national security perspective," said Tom Hicks, a former acting undersecretary of the U.S. Navy who is now a principal at the Mabus Group, a firm that consults on matters including energy. "... You just wouldn't do it for all kinds of reasons."

U.S. Interior Secretary Ryan Zinke described the proposal in a recent interview with the Associated Press as a way to advance national security by boosting exports of U.S. fuels to Asian markets.

"I respect the state of Washington and Oregon and California," Zinke said, according to AP. "But also, it's in our interest for national security and our allies to make sure that they have access to affordable energy commodities."

That could require using "some of our naval facilities, some of our federal facilities on the West Coast," Zinke said. He offered one potential site, a former Navy base on a remote island in Alaska, for gas. He did not name any potential locations for coal ports.

However, a move to site export facilities on military bases would require government agencies and developers to address security and safety concerns, including concentrations of people, the presence of ammunition depots, and critical infrastructure and assets such as nuclear-powered aircraft carriers.

Closed military bases are usually turned over to the state or the local community, Hicks said. And while there could be commercial applications for some federal property, such as the Long Beach Naval Shipyard in California that closed in 1997, most of the West Coast military bases "are just too valuable to risk," he said.

Experts were also skeptical about how much red tape the idea would actually cut, because developing export facilities would still require state and federal approvals that opponents could contest.

"If you are looking at exports off the West Coast, whether it's LNG or coal or oil or any other energy commodity, you are just going to get resistance from the local population," Bob Ineson, executive director of global LNG research at IHS Markit, said about the Trump administration proposal. "And I'm not sure that using a federal site is going to change that. You've still got to go through the approval process. You've still got to get rail or pipe in there."

Washington state Gov. Jay Inslee, whose Democratic administration denied a key permit needed for a proposed coal terminal in his state, derided Zinke's suggestion.

"This reckless, harebrained proposal undermines national security instead of increasing it, and it undermines states' rights to enforce necessary health, safety and environmental protections in their communities," Inslee said in an Oct. 15 statement. He said Washington state officials had been left in the dark.

Another effort to aid coal

The U.S. Department of the Interior did not respond to questions about the proposal. A spokesperson for the U.S. Department of Defense referred questions to Interior.

But the policy that Zinke floated continued a Trump administration practice of using national security concerns to help the economically struggling coal industry. The U.S. Department of Energy has also proposed an idea to rescue vulnerable coal and nuclear plants by invoking national security concerns, over opposition from advisers on the National Security Council and National Economic Council.

"Both efforts are a long shot, and it's questionable what impacts both efforts would have on actual coal markets," said Joe Aldina, director of U.S. coal research for S&P Global Platts.

Any coal export site would require a port with access to deep water and enough room to accommodate train cars and storage areas. It is unclear if there are any suitable facilities on federal land along the West Coast, Aldina said.

"This push for West Coast terminal capacity has been ongoing for years now," Aldina said, "and I think if there were those sorts of sites that were suitable, we probably would have heard about it."

But some in the coal industry said they welcomed the effort to expand West Coast port capacity to better access Asian markets, seen as a primary growth avenue for producers in the Powder River Basin such as Cloud Peak Energy Inc. and Lighthouse Resources Inc. Those companies are unlikely to grow their production and business otherwise because Powder River Basin coal "is expected to taper off in the long term," Aldina said.

Barry Worthington, executive director of the U.S. Energy Association, said he disagrees with the notion that exports "will be a short-term phenomenon." He said the U.S. has proved to be a low-cost, reliable option for Asian markets seeking high-quality coal.

"Opening up West Coast port access for coal supplies is certainly going to be a positive step in the right direction," he said, in "whatever manner that manifests itself."

Lighthouse Resources, the parent company of Millennium Bulk Terminals-Longview LLC, which is backing the coal export terminal in Washington state, wrote in a statement that it "applauds efforts to unlock this bottleneck."

The Lighthouse Resources export venture is one of several coal export terminal projects proposed for the West Coast in recent years, but all have stopped or became tied up in the court system after objections from local and state governments and environmental groups, which have cited health and environmental impacts.

A decline in U.S. coal production, despite a pause in 2017, will likely continue without better access to the Pacific market, said Ian Lange, director of the Colorado School of Mines' mineral and energy economics program. But even if the federal government agrees with the idea of a coal port on federal lands, environmentalists and other opposition groups could continue to argue against the project, Lange said.

Proposed LNG site in Alaska

West Coast LNG projects also face regulatory headwinds as they struggle to reach a final investment decision amid environmental opposition and difficulty lining up long-term contracts used to finance the multibillion-dollar projects.

The one military installation that Zinke specified as a possibility for a gas export site is the former Adak Naval Air Facility in the Aleutian Islands of Alaska, where military missions ended in 1997.

"It's a harsh environment — deep water — and it's going to be a challenge," Hicks said. "You have to have undersea piping to do that. Going through the business lens first, it doesn't seem like that's going to pencil out because of the costs involved."

S&P Global Platts and S&P Global Market Intelligence are both owned by S&P Global Inc.