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Usibelli Coal Mine battles changing market, low rank coal resource State's only operating coal mine loses largest single customer because of price, looks for new markets for Interior coal in western U.S., Mexico Patricia Jones PNA Contributing Writer
Alaska’s only operating coal mine suffered a major setback this year, losing a long-term sales contract in South Korea, which resulted in a 30 percent workforce reduction this month at the Usibelli Coal Mine near Healy.
According to Steve Denton, general manager at Usibelli, the mine cut about 30 jobs from its work force, either through voluntary severance offers or layoffs. Final employment cuts were made in early June.
“A few were in Fairbanks, but most of the jobs were in Healy,” he said. “We’ve been downsizing for quite some time.”
That’s because Usibelli lost a major customer at the beginning of the year, Denton said, and needed to adjust operating costs accordingly.
A customer since 1984, the South Korean electric power utility plant purchased about 40 percent of the coal mine’s annual production, Denton said.
“The contract terminated at the first of the year, and we continued to ship coal left over, but there’s been no new contract or an extension on the old contract,” he said. “We’ve not given up completely but we have reached an impasse in our negotiations, basically because of price.” Market change in 17 years Dynamics of supply and demand have changed greatly since Usibelli first landed the Korean coal contract in 1984, Denton said.
Back then, major coal supplies came from South Africa, Australia and Canada. Alaska’s proximity to the Asian end user played a major advantage then.
But in recent years, Indonesia and China have entered the coal supply market. In addition to their geographical advantage, Denton said the new coal suppliers have also cut prices on the energy source.
“These underdeveloped nations are driving the price down,” he said. “They’re virtually using slave labor to produce their coal and that fundamentally changes the Pacific Rim market.”
In addition, the recent economic crisis in Asia has caused a shift in ownership of such utility sources in South Korea, Denton said.
“One of the components of their bailout is that they decentralize their major industries and move towards privatization,” he said. “Things such as stability of supply and political reasons for doing business with a certain country don’t mean as much, when it’s private versus government owned.” Customer loss felt The loss of that single Asian utility customer ripples beyond the family-owned coal mining company and the small community of Healy, home base for Usibelli Coal Mine.
With Usibelli’s annual production at 1.5 million tons in 2001, almost 700,000 tons were exported through the Port of Seward to Korea, according to the state’s Mineral Industry report.
State estimates put the value of 2001 coal production at Usibelli at $48 million. A loss of 40 percent of those annual sales translates to nearly a $20 million reduction in the state’s mine production figures.
The state-owned Alaska Railroad transported that coal from Healy to Seward. In 2001, the nearly 700,000 tons shipped poured a little over $3 million in freight revenue into the Alaska Railroad, said spokesman Patrick Flynn. That’s about 4 percent of the railroad’s annual freight revenues, he said.
“It’s not a huge hit, but it’s certainly a significant one,” he said. “It’s a matter of no small concern around here.”
The railroad anticipates that no jobs will be cut, directly linked to the reduction in coal shipping, he said. Usibelli looks for other customers While the coal mining company’s sales force continues to work to regain a toehold in the Asian power market, new sources for coal sales are being evaluated.
“There may be some totally new markets that could come up,” Denton said. “Mexico is starting to look more and more at putting power plants in the West Coast and shipping coal, so there may be some things there opening up.”
Additional coal power plants could be built in the western part of the United States, he added, providing a new source for Alaska coal.
Usibelli sits in a position to provide that energy resource. The mine has 30 years worth of underground coal reserves permitted by governmental regulators that can be extracted.
“We have at least 100 additional years of reserves on our leases that are very much conventional coal reserves,” Denton added. “It would not take any real changes in technology to produce them.” Markets needed Despite losing the Korean contract, Usibelli still supplies coal to electric generation utilities in the Interior. Those include plants at Clear Air Force Base, Fort Wainwright and Eielson Air Force Base, and the former city-owned power plant in downtown Fairbanks, now owned and operated as a subsidiary of Usibelli Coal Mine.
Two additional coal-fired power plants are located in Healy, one owned and operated by Golden Valley Electric Association, and the other, a mothballed experimental clean coal plant developed by the Alaska Industrial Development and Export Authority.
Nearly $300 million in state and federal funds have been spent on the Healy Clean Coal Project, with construction starting in 1995 and completing about two years later.
In addition to testing new technologies for burning coal with fewer emissions, the plant was designed to utilize “low rank” or waste coal produced by Usibelli.
“Some of the features (of the Healy Clean Coal Project) meshed real well with low rank coal,” Denton said.
Now, that market for low rank coal seems uncertain, as AIDEA struggles with options to utilize the shuttered clean coal plant.
“The vast majority of coal that’s within the Southcentral or developed regions of Alaska which have reasonable access are all low rank coals,” Denton said. “We’re looking at ways of overcoming some of the market hurdles associated with (low rank coal’s) low heating values and high moisture content and low grindability.”
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