Exports in limbo, Usibelli gains customer with Healy 2 restart

Alaska’s Usibelli Coal Mine Inc. has ceased coal exports for the balance of 2015 due to soft markets in the Pacific rim, but the company’s market in Interior Alaska is stable and will even strengthen a bit when Golden Valley Electric Association’s Healy 2 power plant becomes fully operational, which is planned for 2016.

Healy 2, a 50-megawatt coal plant built in 1999 but then mothballed, has been restarted and is currently producing 40 megawatts.

It will purchase about 200,000 tons of coal yearly from Usibelli’s mine, according to Lorali Simon, Usibelli’s vice presidents for external affairs.

The coal mine is also in Healy. 

Simon spoke Oct. 15 at a Resource Development Council breakfast meeting in Anchorage.

An offset to the Healy 2 restart, however, is that the U.S. Air Force is phasing out its coal-fired power plant at Clear Air Force Station, a ballistic missile early warning radar at Clear, which is between Healy and Nenana.

Clear has been purchasing about 55,000 tons of coal per year, Simon told the RDC, but is switching this year to purchasing power from Golden Valley, the regional utility, while heating the base with fuel oil, Simon said.

Simon is critical of the Air Force decision to shut down the coal power plant at Clear.

“This makes no economic sense because it will raise energy costs substantially,” she said. “However, it is part of an Air Force plan to reduce carbon emissions across all of its installations. The orders from this came from higher levels.”

Usibelli will have a net increase of 145,000 tons annually when the loss of coal sales to Clear is subtracted from the increased sales to Golden Valley for the Healy 2 plant.

The halt to Usibelli’s 2015 exports, however, has caused the state’s only coal export terminal at Seward, a south Alaska port, to be put into mothball status until markets pick up, Simon said.

Five employees at the terminal have been laid off but three are kept on to provide needed maintenance. The state-owned Alaska Railroad Corp. owns the terminal but it is operated by Aurora Energy Services, a Usibelli subsidiary.

At the height of Usibelli’s export sales in 2011 there were 24 people employed by Aurora Energy at the terminal.

“We’re not abandoning the export market but we have met all of our supply commitments to 2015,” Simon said.

In 2015 Usibelli shipped coal only to Japan, exporting about 150,000 tons. In previous years the company also shipped to South Korea and Chile, with test shipments sent to China, but all of those stopped in 2014.

Usibelli supplies coal to six power plants in Interior Alaska including three plants serving military installations, one serving the University of Alaska campus in Fairbanks, one that is owned by Usibelli subsidiary Aurora that services local Fairbanks community with power and steam heat, and Healy 1, a 25-megawatt coal power plant at Healy that is adjacent to Healy 2, the plant being restarted.

Both Healy power plants are owned and operated by Golden Valley Electric. 

Usibelli will produce about 1.2 million tons in 2015 to serve the power plants and with the export customers in Japan included in this, but if there are no export sales in 2016 production could drop to 1 million tons.

The outlook for any resumed exports in 2016 or 2017 is uncertain, she said.

Problems in the export market are mainly an increasing supply of inexpensive coal from Indonesia and Australia in South Korea and a large new coal mine in Chile that supplies customers there without the transportation costs of Alaskan coal.

“Korea’s new coal import tax has also hit lower-BTU coals, like ours, very hard,” Simon said.

A big factor is the strong U.S. dollar, which makes Alaska coal exports more expensive compared with coals from competing producers, she said.

“We’ve seen a 37 percent decrease in the U.S. dollar price in recent years, and that seems to match up with a 37 percent increase in the value of the U.S. dollar against Australian dollars,” she said.

That explains the adverse effect of the currency relationship, Simon said.

Meanwhile, Usibelli feels confident that it can retain its Interior coal power plant customers even if natural gas is supplied to the Fairbanks area, which is being planned.

“The price of coal-fired energy beats the price of gas-fired energy hands down,” Simon said.

This was documented in a McDowell Group research report compiled in 2013, she said.

Usibelli was formed and started mining coal in Interior Alaska in 1943 to meet wartime needs of Alaska military bases. The company, which is family-owned, has had three generations of Usibelli family management, Simon said.

Coal reserves on Usibelli’s state coal leases near Healy are sufficient to last for 1,000 years at the current rate of mining, she said.

11/24/2016 - 3:10pm