Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, April 17, 1994 TAG: 9404130134
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: HOPE KELLER LANDMARK NEWS SERVICE
DATELINE: LENGTH: Long
On a Saturday morning last month, a coal ship named the Atlantic Express steamed through the Virginia Capes on its way to a terminal in Newport News.
A coal ship arriving at a coal terminal generally attracts no notice in Hampton Roads, the biggest coal port in the world. Hundreds of vessels call each year at the harbor's three terminals to load coal bound for ports on the East Coast and overseas.
But this ship wasn't docking to take on a load of the mineral, much of which moves from Western Virginia and West Virginia through Roanoke.
This time the collier was unloading. The Atlantic Express carried the first load of import coal that anyone on the Hampton Roads waterfront can remember, barring one small shipment destined for Virginia Power nine years ago.
The shipment is more than just an anomaly: It could represent the tip of a trend away from U.S. utilities' reliance on domestic steam coal. While it seems strange to buy coal from abroad when there's so much of it at home, foreign coal - like so many other things produced overseas - has the unavoidable allure of being cheaper.
Last month's shipment, bound for a power plant in New Jersey, caused some head-shaking in the Tidewater's maritime community.
"It's new for us," said Edward A. Barham III, vice president for operations at T. Parker Host Inc., Norfolk ship agents. "It doesn't say much for our economy. It's kind of hard to believe it's cheaper to come from overseas than from our own back yard."
Imports might be appealing to utilities, but they're a cause for concern to U.S. coal producers and to railroads, which depend on coal for a large chunk of their revenues. Indeed, several developments - not just in the U.S. economy, but the world - have merged harmoniously to make import coal attractive, even if they're not music to everyone's ears.
They include:
A recent increase in U.S. rail rates and a decrease in ocean-freight rates, which lowered the "delivered" price of foreign coal.
Increased production of high-quality, low-sulfur coal by mines in South America; for example, output from Colombia's mines increased 90 percent between 1986 and 1992, according to data from the Coal Exporters Association in Washington.
Efforts by U.S. electric utilities to cut costs as they face the 1995 imposition of Clean Air Act provisions, which mandate strict sulfur-emission limits and expensive penalties if they're exceeded.
"Utilities are as cost-conscious as any other business these days," said John Castagna, spokesman for the Washington-based Edison Electric Institute, which represents 180 investor-owned utilities.
"When you look for supplies of fuel, you look to wherever they exist. And if in some cases the best deals come from outside our borders, utilities are going to take advantage of that."
So far, neither producers nor railroads are being seriously squeezed by imports - which account for only about 1 percent of the nation's 1 billion-ton total supply - but they're keeping close watch on the inflow of offshore coal.
As long as imports stay below 5 percent of total supply, "I don't think U.S. producers are going to get too concerned," said B. Sam Lewis, head of international marketing for Ashland Coal Inc., in Huntington, W. Va.
But if gets above that level, he warned, "it could become a political issue."
The Newport News shipment - 22,500 tons of Colombian coal - was destined for a power plant on the Hudson River in Jersey City. Because the Newport News pier, like the Hampton Roads ports' other terminals, is equipped only to load coal, the ship had to be unloaded by one of its own cranes. The coal was lifted onto three barges, which were then towed up to the Jersey plant, owned by Public Service Electric & Gas.
Paul J. Hacker, the utility's fossil fuel planning and supply manager, said the Colombian coal's biggest draw wasn't so much its price at the mine but the low cost of shipping it.
Paying ocean-freight rates instead of rail rates "are where the economics are achieved," he said.
An East Coast coal broker, who asked not to be named, said U.S. railroads charge between $14 and $16 per ton to ship coal, which costs about $24 per ton at mines in the eastern United States. Total price: about $39 per ton.
Compare that with $31, which the Department of Energy lists as the total price per ton for imported Colombian coal. That includes the cost of ocean freight, which the broker said hovers around $6.50 per ton.
Multiply the $8-per-ton savings by tens of thousands of tons, and a utility has saved considerable change on a shipment.
Railroad executives acknowledge the competitiveness of import coal - that is, of ocean-freight rates - but say utilities gamble when they rely on foreign markets.
Most coal imported into the United States comes from Colombia, with lesser amounts coming from Venezuela, Canada and Indonesia.
"I think there are other issues" besides price when deciding where to buy coal, said Marshall W. Bowen, director of utility coal at CSX Transportation in Jacksonville, Fla. CSX delivers coal to the two terminals in Newport News.
Bowen cited unreliable supply and civic unrest as potential problems in foreign coal-producing nations. "I think the United States is viewed as a more stable supplier than any of the foreign countries," he said.
However, a seven-month miners' strike last year reduced U.S. production levels and contributed to a 28 percent drop in U.S. coal exports from 1992.
Thomas E. Rappold, assistant vice president for international coal and ore traffic at Norfolk Southern Corp., said it's unavoidable that coal mined by low-paid Colombian workers, and shipped on foreign-flagged vessels, is cheaper than U.S. coal.
Many foreign-flagged ships employ Third World sailors, who receive very little pay. U.S. vessels must employ seafarers paid higher, union wages.
The railroad officials and coal brokers emphasized that the United States always has imported some coal, albeit a minuscule amount. Power plants in the Southern states - Florida especially - and in New England have been the major receivers.
Coal brokers say imported coal makes sense for Florida utilities because they're a long way from the Northern coal fields; it makes sense for New England plants because, since railroads don't run north-south, utilities must bring their coal in by sea anyway.
Tampa, Fla., is the biggest coal-receiving port in the United States, with 1.6 million tons unloaded in the first nine months of 1993, according to Department of Energy data. The coal, all from Colombia, accounted for 36 percent of the 4.5 million tons imported into the country in that time.
Total U.S. imports in the first nine months of 1993 were 71 percent higher than those of the year-earlier period.
Although no one expects imports to seriously challenge U.S. coal, it is likely that they will increase - and that a Hampton Roads coal terminal will unload other colliers.
Of last month's shipment to Pier IX, utility analyst Gary Hovis, of Argus Securities in New York, said: "It's a bellwether."
by CNB