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Fraser Surrey Docks LP, located on the Fraser River in the Vancouver suburb of Surrey, will be the new home of a facility for coal exports destined for Asia.

Fraser Surrey Docks LP

There is more than enough capacity in Pacific Northwest coal ports to meet demand, making expansion plans – including a proposed new export terminal at Fraser Surrey Docks – ill-conceived, says a report by a U.S. energy research group.

"The global [coal] markets are currently oversupplied," Tom Sanzillo, finance director for the Institute for Energy Economics and Financial Analysis (IEEFA) and author of the report, said Wednesday in a conference call.

"That's true here in the United States, it's true around the world – and as it relates to port issues, there's simply too much port capacity in the U.S., and there's not enough demand for it."

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The IEEFA is a U.S.-based group that promotes reduced dependence on coal and other non-renewable energy resources.

Its newest report, released Wednesday, focuses primarily on proposed coal port expansions in Washington State, including the Gateway Pacific Terminal in Bellingham, a more than $600-million (U.S.) bulk-commodity facility with a proposed capacity of up to 54 million tonnes per year.

The report also touches on a proposal for a much smaller coal export facility at Fraser Surrey Docks, a Fraser River terminal that currently handles goods including logs and wood pulp.

The Fraser Surrey Docks proposal is subject to the same headwinds that are buffeting U.S. projects, Mr. Sanzillo said, including changing market conditions in China, which in recent years has driven the demand for thermal coal – used to produce electricity – from U.S. and Canadian mines.

This year, China's coal imports to date are down six per cent from 2013 levels, Mr. Sanzillo said in his report. Benchmark prices for thermal coal are currently about $60 per tonne, down from a peak of $132 per tonne in mid-2011.

Facing declining demand in the U.S., coal producers with operations in Montana and Wyoming have been looking for ways to get their product to export markets through terminals on the West Coast.

Some U.S. coal already comes through ports in B.C., including Ridley Terminals in Prince Rupert and Westshore Terminal on Roberts Bank in the Lower Mainland.

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Producers and investment groups have been pursuing significant additional capacity through projects including the Gateway Pacific Terminal.

Mr. Sanzillo, however, argues that additional capacity is not required, in part because what he calls a global coal glut has given low-cost exporters in Australia, Indonesia and South Africa a significant advantage over U.S. producers that have comparatively low-quality coal and high shipping costs.

Falling coal prices have resulted in the closing of at least one mine in B.C. Thermal-coal shipments through Prince Rupert are down 42 per cent to date this year.

Port Metro Vancouver issued a permit for the Fraser Surrey Docks facility, which would have an initial capacity of four million tonnes a year, in August.

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