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Coal Company Backing Longview Export Terminal Files for Bankruptcy

January 11, 2016

Amid a drop in demand for coal, a key investor in a proposed coal export project on the Columbia River filed for bankruptcy Monday.

Arch Coal is a 38 percent shareholder in the proposed Millennium Bulk Terminals project, which would export 44 million tons of coal annually through a terminal in Longview, Wash. Arch owns mines in Colorado, Wyoming and five other states.

Officials with Arch Coal say the company's mines will stay open and the bankruptcy won't affect its employees.

Millennium CEO Bill Chapman said in a statement Monday that the company is still committed to the export project.

"Millennium remains confident in making this world-class terminal a reality," Chapman said. "We have not seen a change in commitment from our majority shareholder, Lighthouse Resources, or our minority shareholder, Arch Coal, following its recent announcement."

The Millennium project is still undergoing state and federal environmental reviews in a lengthy permitting process.

Meanwhile, coal production in the U.S. has been declining since 2008 and last year reached its lowest level since 1986, according to the U.S. Energy Information Administration.

The coal industry is struggling to compete with cheaper and cleaner-burning natural gas — especially as environmental regulations raise the cost of running coal-fired power plants. U.S. coal exports also declined last year, and two other coal companies, Alpha Natural Resources, Inc. and Patriot Coal Corp have also filed for bankruptcy protection.

Andrew Moore, managing editor of the market analysis publication Platts Coal Trader, said it's possible Arch Coal could emerge unscathed from Chapter 11 bankruptcy and continue pursuing the Millennium project.

"Basically, the unsecured creditors will take the hit and the company will be able to get rid of its unsecured debt," he said.

Moore said the coal industry has suffered a double-whammy with cheap natural gas driving down demand for coal in the U.S. while a surge in global coal production since 2008 has driven down overseas prices.

When coal prices peaked in 2008, he said, Arch Coal took on a significant debt load to buy another coal producer: International Coal Group. The company couldn't sustain that debt as natural gas prices plummeted and coal demand dropped off. Other companies face the same predicament, he said.

"The writing has been on the wall for Arch for quite some time," Moore said. "While the debt load has been pretty unsustainable due to low coal demand and low coal prices, those companies will certainly attempt to reorganize and come out leaner."

Moore said global demand for coal is expected to grow in the next several years — especially in Asia with the development of new coal-fired power plants. So, he said, even though coal exports don't make financial sense right now, that could change.

"A lot of U.S. producers are hoping coal exports will be sort of a lifeline for them given that U.S. demand for coal has declined," he said. "But it's several years out before we'll see any material increase in coal export demand."

Ross McFarlane, an opponent of coal exports with the environmental group Climate Solutions, said it's going to be hard for Arch and Millennium to finance an export terminal given the downturn in global demand for coal.

"They'll say, 'Oh, this isn't going to do anything. We're in bankruptcy protection. We'll continue operations, continue mining,'" McFarlane said. "That on one level is true, but what is covered up in that is they no longer have any confidence from lenders of the financial community to engage in the infrastructure projects they were hoping to do, which Millennium is a prime example of."

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File photo of a coal mining operation in Wyoming. Government officials there want to use state money to help finance construction of shipping terminals in the Northwest to export Wyoming coal to Asia.

Michael Werner/KCTS9

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