Stiles: Alaska coal competes with gas

Alaska's main rival in the international coal market is Indonesia, developer and rocket scientist Bob Stiles told an Anchorage audience at a myth-busting session Feb. 3. Stiles' goal in speaking to the World Affairs Council was to put to rest common misconceptions about coal, which is too often lumped in with other energy resources by economists and the general public. As development manager for PacRim Coal, Stiles hopes to build a mine at the Beluga coal field in Southcentral Alaska.

There are two main types of coal: metallurgical coal, which is used for steel making, and thermal coal, used in power plants.

Indonesia was the world's leading exporter of thermal coal last year, and that country's coal is also mostly sub-bituminous, like Alaska's.

So Indonesia and Alaska are competing for the same customers.

Indonesia's cost of production is lower than Alaska's, and the cost of transportation is also lower in certain markets, Stiles said.

For example, it is cheaper for Indonesia to export coal to Taiwan, but Alaska may be able to reach markets north of Taiwan more easily - on both sides of the Pacific - and even down to Chile, which currently imports coal all the way from Indonesia and Australia, and has received test shipments from Alaska already.

Another advantage that Alaska has over Indonesia is political stability. "You have to remember that a utility executive wears a belt and suspenders to make sure his pants don't fall down," Stiles said. "And the reason is because of his customers. When you go over and flip the light switch on, you expect the lights to come on, not to get a message saying, well, we've had this little problem in Indonesia with some political instability and the coal didn't get here today, so you guys are just without power. ... You always get what you pay for."

Transportation cost separate

Unlike oil, where the cost of delivery is factored into the price per barrel, the price of coal does not include the cost of transportation, which can vary. This cost soared in mid-2003 when China cut back on its coal exports to meet increasing domestic demand. Charter rates for vessels saw a seven-fold or eight-fold increase as a result, because markets such as Korea, Japan and Taiwan had to import coal from Australia instead of China. Now the trip tied up a 120,000-ton vessel for 21 days instead of three days, reducing the overall transportation capacity and charter rates (not including fuel) leapt from $12,000 a day to $100,000 a day.

"Oftentimes the marine freight rates account for 50 percent of the delivered price of coal," Stiles said. "The secondary impact on the transportation side is China was importing all the iron ore they could possibly get their hands on for steel manufacturing. So they were sucking up a whole lot of the capacity of the larger ships." Another factor that pushed up the price of coal recently was the decline of the U.S. dollar in relation to other major currencies, as all international coal transactions are U.S. dollar-denominated. It is a myth that the price of coal matches the price of oil, Stiles emphasized. In fact, the price of coal has declined again in the past few months.

Oil is also not a commodity that directly competes with coal, because they are not interchangeable fuels.

"If you don't like the price that you're paying for gasoline, you can't put coal in your car," Stiles said.

Few power plants in the world are oil-fired.

But customers do have to choose between liquefied natural gas-fired plants and coal-fired plants.

Countries can use LNG-fired plants to provide power when demand is peaking and coal-fired plants for base-load power because coal-fired plants are most efficient if they are in operation 90 percent of the time, while gas turbines can be powered up and down as needed.

Coal must go into a boiler in a power plant at about one-half to one-third of the price per million Btu that natural gas goes into a turbine in order for coal to be economical, Stiles added.

Alaska has only one mine

Alaska's only coal mine at present is Usibelli coal mine in Healy, south of Fairbanks.

Stiles plans to develop the Beluga coal field near Anchorage for export markets, but he would also like to see a mine-mouth power plant built at the site.

A 130 megawatt single-unit plant or a 260 MW double-unit plant could potentially be more economical than gas-fired plants elsewhere.

"If you begin to look at all of the gas-fired generation in this state, it's number one, highly inefficient, inefficient in the sense that the heat rate for those units is extremely high, not nearly as thermally efficient as a coal-fired plant, nor nearly as thermally efficient as a next-generation gas-fired plant," Stiles said.

"Plus, all those units are pretty close to the end of their service life and most of them are beyond it, so what you're faced with in a gas choice is that you're going to have to go back through and re-power almost all of those turbines that are out there now."

A relatively small increase in Alaska's coal production could make a big difference to the state's economy. "As far as a coal province I think Alaska has a reasonably positive future. ... We're always going to be out beyond a decimal place in terms of supplying the world," Stiles said. "There are mines in Wyoming, for example, a single mine that produces 100 million tons a year. If we got up to - out of the province - 15 million tons a year, we've got a pretty fat hog."