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Coal gaining ground as gas and oil prices soar: Alaska sees growing interest in state's bountiful resource.

As energy prices continue to increase, so does the need for finding alternative, affordable sources of fuel. While coal was once looked upon as a poor second to natural gas and oil, dwindling supplies, rising costs and a growing Asian market have brought renewed interest in mining the plentiful mineral.

"We're definitely seeing an awakening of the market," said Steve Denton, vice president, Business Development for Usibelli Coal Mine Inc. "Energy prices went through the roof about three years ago after being at a level that very few in the industry thought was sustainable. Once prices corrected to what they should be, coal was once again able to take its rightful place as a lower-cost fuel."

This new focus on coal has resulted in several companies expressing interest in establishing new coal mines in Alaska, which possesses roughly half of the nation's coal reserves. Companies are also exploring state-of-the-art technologies that will enable them to utilize coal in innovative ways, such as in coal-gasification plants and coal-to-liquids facilities.


As the only working coal mine in Alaska, Usibelli Coal Mine Inc. provides approximately 1.5 million tons of coal annually for domestic and export use. Of this, roughly 900,000 tons remain in Alaska and is used to supply six Interior Alaska power plants.

"Usibelli supplies coal to the University of Alaska Fairbanks, Aurora Energy in Fairbanks and the Golden Valley Electric Association," explained Bill Brophy, vice president, customer relations. "We also supply coal to Fort Wainwright, Eielson Air Force Base and Clear Air Force Station through a Defense Energy Support Center (DESC) contract."

Approximately 600,000 tons of coal is exported annually to South Korea, and Usibelli also has provided "spot sales," or short-term, single shipments to Chile. "Prior to this year, we were providing Chile with single shipments through Glencore International AG, which is a very large coal-trading company," said Brophy. "In January 2007, we began providing larger quantities for a longer term, which includes shipping 70,000 tons of coal to the country three times a year, which is definitely a step in the right direction."

According to Denton, Usibelli will continue to head in the right direction through its involvement in several coal-related developments. "The two brightest spots on our radar screen are the Agrium coal-gasification facility near Kenai and Matanuska Electric Association's plans for a coal-fired plant in the Mat-Su Valley," he explained. "The Healy Clean Coal plant also seems to be back on track with Homer Electric Association and the Alaska Industrial Development and Export Association (AIDEA) having signed a project-development agreement that could see the plant potentially starting up in 2008."

As these projects come to fruition, Usibelli will provide the coal needed to fuel these facilities. Agrium's coal-gasification plant is expected to require about 3.5 million tons of coal per year, and Usibelli expects to provide roughly 300,000 tons of coal per year to the Healy Clean Coal plant. "It is reasonable to think that we could double or triple capacity out of our Healy mine in the next 20 years," said Denton. "Nationwide, there's no telling how much the coal market will grow--it's like looking into a huge crystal ball."


Because coal is an affordable fuel, a number of companies in Alaska and around the world are beginning to explore new technologies that will enable them to create value-added products from the raw mineral. Agrium, which produces and exports fertilizer from its nitrogen facility on the Kenai Peninsula, is now considering using coal to provide its factory with the feedstock it needs.

Agrium's Kenai Blue Sky project would result in a world-class gasifier and power generation plant being constructed adjacent to its Kenai Nitrogen Operations (KNO) facility. The gasifier would utilize coal from nearly reserves as its carbon source to produce hydrogen, nitrogen, steam and carbon dioxide. The end result is that Agrium would get the feedstock it needs, continue to produce ammonia and urea, generate power to run equipment and make excess power that could be sold into the Railbelt power grid. Excess carbon dioxide produced through the process could also be used to recover up to 300 million barrels of oil through enhanced oil recovery in Cook Inlet.

"We are currently finalizing the engineering work, selecting the gasification technology that we will be utilizing, and making refinements on the power block design," said Agrium's government relations manager, Lisa Parker. "We also recently selected an environmental consulting firm to start the permitting process."

Agrium also is working with the Alaska Railroad on bonding and financing possibilities. In May, the Alaska Legislature approved authorizing the railroad to issue $2.9 billion in tax-free bonds for the project, and this fall the railroad will work with the IRS to ensure that the gasification project meets tax-free bond requirements. Funds raised will be used for the gasification facility, to enable the railroad to buy rolling stock and make line improvements, and to help the Mat-Su Borough build a rail extension to Port MacKenzie.

"There are still gates along the way, and places where we need to say 'yay' or 'nay,'" said Parker of the project, which will be built by 2012 if approved by the company. "We're going forward today, but that does not mean we are going forward to completion; we will make a decision this summer on whether to proceed or not.

"Agrium is committed to doing business in Alaska," she added. "As a corporation, we will do everything we can to keep the facility going."

Alaska also may become home to a coal-to-liquids plant, which would produce synthetic fuels and other products from Beluga coal. A $1.5 million preliminary study, funded by the Chinese Petroleum Corp. of Taiwan, AIDEA and Alaska Natural Resources-to-Liquids LLC, is currently under way to determine the feasibility of an 80,000-barrel-per-day plant on the west side of Cook Inlet. If the project proceeds, the plant would be located near the proposed Chuitna Coal Project and is expected to entail capital costs of $5 billion or more.

In November 2006, Homer Electric Association (HEA) signed an agreement with AIDEA to assume the work required to restart the 50-megawatt coal-fired Healy Clean Coal Plant. Following the restart, HEA will operate and maintain the plant, and purchase power from the facility in 2014 when their existing power contract with Chugach Electric expires. "We are in regular negotiations with HEA to move the project ahead," said John Wood, AIDEA project manager. AIDEA is also still in mediation with Golden Valley Electric Association concerning a 2002 settlement agreement.

Matanuska Electric Association is also proposing another coal-fired plant to be built in the Matanuska Valley. Though it has not yet been determined how much coal and gas the facility will require, or how much it will cost to build, MEA believes that generating their own power will allow them to provide a cheaper source of energy to their customers than the power that they currently purchase from Chugach Electric Association. Other factors that may impact the company's progress with the facility include competition for Alaska's allowable mercury pollution credits from the Healy Clean Coal Plant and the Agrium facility.


Companies are also considering opening new mines in order to meet increasing coal demand. The Chuitna Coal Project, located in the Beluga Coal Field of Southcentral Alaska, is currently in the permitting phase, with the possibility of development and construction beginning in 2008. Approximately 300 million tons of coal could be produced from the area over 25 years, with an estimated peak production rate of 12 million tons a year.

The Chuitna development, a project of PacRim Coal LP, consists of the Chuitna Coal Mine, a coal-transport system and export terminal, and supporting infrastructure. The development would be located on the more than 20,000 acres of state leases that PacRim Coal LP holds, with measured reserves of ultra-low sulfur coal in excess of 1 billion tons. "My best guess is that we will receive applications for the mine in mid-to-late June," said Bruce Buzby, coal regulation program manager for the Division of Mining, Land and Water, said in May. "I understand that they completed a number of baseline studies last year, and are doing additional studies this summer. If we receive their application in June, I expect that the project will go to public notice the following January."

There has been vocal opposition to the project, most especially concerning the mine's discharge of water into local streams that serve as tributaries to the Chuitna River, and concerns about airborne coal dust and the impact that increased shipping through Cook Inlet will have on Beluga whales. On the opposing side, proponents of the new coal mine believe that it will spur economic development, providing hundreds of jobs and contributing to the tax base.

Another mine that has met with opposition by area residents is the Chickaloon mine, located off the Glenn Highway north of Sutton. In May 2007, Vancouver-based Full Metal Minerals cited this opposition and technical problems for pulling out of its claim on leases for coal exploration on 23,000 acres of land. To date, the Alaska Mental Health Trust Land Office, which owns the property, is evaluating its options and has not put the leases out to bid again. "I believe the Chickaloon project is more or less dead," said Denton, who said that Usibelli had the opportunity to bid on the leases and chose not to. "That project is not particularly viable anymore."

One other avenue being explored by BHP Billiton Energy Coal is coal located on Arctic Slope Regional Corp. (ASRC) lands approximately 35 miles south of Point Lay. In July 2006, the two companies signed exploration and auxiliary agreements to conduct a five-year coal exploration project. An estimated 4 trillion tons of high-quality bituminous coal lies on Alaska's North Slope. To date, the companies have concentrated their studies on one coal deposit, which so far has shown 68 million tons of measured coal reserves for underground mining, and approximately 23 million tons of coal suitable for surface mining.

With such an abundant resource, and with so many reasons to mine it, it is no wonder that companies are showing more interest in Alaska's mineral wealth.
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Comment:Coal gaining ground as gas and oil prices soar: Alaska sees growing interest in state's bountiful resource.
Author:Orr, Vanessa
Publication:Alaska Business Monthly
Date:Jul 1, 2007
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