A coal export terminal south of Vancouver will no longer be able to avoid the fallout from low prices for the commodity.
Westshore Terminals Investment Corp. had dodged much of the impact of depressed coal prices because it enjoyed long-term contracts with customers. Industry analysts marvelled at how the export facility weathered the economic storm through the first nine months of 2015.
But then the reality of languishing coal markets finally hit Westshore, which said recently that it expects to ship 24 million to 24.5 million tonnes of coal in 2016, down almost one-fifth from the company's original forecast.
Westshore's largest customer is Teck Resources Ltd., but the lower export volumes will be due to reduced shipments of U.S. thermal coal.
Low prices for thermal coal forced Wyoming-based Cloud Peak Energy Logistics LLC to announce in October that it will halt its exports through Westshore, agreeing to pay a series of penalties for opting out of shipments from 2016 through 2018.
Global Coal Sales Group LLC, which markets thermal coal produced by Montana-based Signal Peak Energy LLC, said in December that it will scale back its exports through Westshore from 2016 through 2018.
In North America, there is weakened demand for thermal coal for power generation amid tighter pollution rules on carbon emissions.
This places pressure on coal producers to export overseas instead. But the price coal is fetching makes that economically unattractive.
"Global prices are now so low that coal companies would rather pay penalties than ship coal," said Clark Williams-Derry, deputy director of Sightline Institute, a Seattle-based environmental think tank.
Benchmark prices for steel-making metallurgical coal hovered in late 2015 at $75 (U.S.) a tonne, down 75 per cent from their 2011 peak of more than $300 a tonne. Benchmark prices for thermal coal, used to generate electricity, tumbled 63 per cent to $55 a tonne over the same period.
Westshore shipped 30.6 million tonnes of coal in 2014, or 92.7 per cent of its capacity of 33 million tonnes. The facility originally thought it might export a record 32 million tonnes of coal in 2015, though this year's total is shaping up to be about 30 million tonnes. Before the Cloud Peak and Global Coal announcements, Westshore believed it would export 30 million tonnes in 2016.
Teck, which runs five metallurgical (or coking) coal mines in southeast British Columbia and one in Alberta, committed in 2013 to sending 19 million tonnes annually of coal through Westshore until March 31, 2021.
The coal market has been sliding since 2011, with some industry experts warning that the slump could last at least another year.
Westshore shares are down sharply from their peak of $38.02 (Canadian) in February, 2014. The firm's fourth-quarter dividend will be 16 cents a share, compared with 33 cents in the third quarter.
Westshore's largest shareholder is Vancouver billionaire Jim Pattison, who recently held a 23-per-cent stake. The Vancouver-based terminal company's board of directors includes former B.C. NDP premier Glen Clark, now president at Jim Pattison Group.
The operation at Roberts Bank, 35 kilometres south of Vancouver, has been slated to undergo a $270-million expansion to increase annual capacity to 36 million tonnes by the first half of 2019. But in a statement in December, Westshore cautioned that it might scale back its growth strategy and reduce the capital spending to $225-million.
Westshore handles coal deliveries transported mainly by Calgary-based Canadian Pacific Railway Ltd. and BNSF Railway Co. of Fort Worth, Tex.
Over the years, Westshore has shipped mostly metallurgical coal. Thermal coal exports, however, were strong in 2014 and 2015, including shipments transported by train from the Powder River Basin in Wyoming and Montana.
The coal picture is already bleak in northern British Columbia. In northwestern B.C., federally owned Ridley Terminals Inc. is headed for another disappointing year in 2016. Ridley operated at roughly one-quarter of its 18 million tonnes of capacity for coal and petroleum coke in 2015.
Ridley has indefinitely delayed the second phase of its expansion that would have given it the ability to handle 25 million tonnes annually of metallurgical coal, thermal coal and petroleum coke.
In northeastern B.C., five coal mines are shut down and a sixth that planned to restart remains mothballed.
Neptune Bulk Terminals (Canada) Ltd. in North Vancouver ran at an estimated 50 per cent of its coal capacity in 2015. Teck owns 46 per cent of Neptune and is the sole shipper of coal through the site.
While Neptune intends to expand its annual capacity to 18.5 million tonnes from 12.5 million tonnes, the timing for the expansion plan is uncertain.
Neptune's timetable for growth hinges on whether Teck ramps up production at its mines, so unless Teck dramatically increases coal output, Neptune doesn't have a strong case to expand, industry observers say. Still, having extra capacity at Neptune gives Teck greater flexibility in export options, they say.