Effect of Coal and Competition on Railroading Industry

While the environmentalists may jeer, railroad interests should cheer as Westward shipments of Wyoming coal start moving forth for export to Asia. Lest we forget, even if their Central Government is starting to have environmental awareness, the Chinese economy remains largely dependent on coal - and Wyoming coal is cleaner than any of their domestic coal.

I honestly thought that Warren had made a bad bet when he acquired BNSF; drawbar, draftgear, and C-44. While the 'jury's still out' regarding the post-PANAMAX shipping world, i.e. will the West Coast ports and their resulting favorable transcontinental line hauls remain in place or will the East Coast ports, many of which are getting ready to 'throw a post-PANAMAX party', result in cut-throat competition benefiting neither rails nor maritime companies?, that coal was on the way out, and that handling 'Train 1267's', i,e, crude, were a temporary bubble until pipelines were built, neither of the latter is proving to be the case.

The New York Times reports Today on developments regarding handling coal through the 'environmental conscious' Pacific Northwest:

http://www.nytimes.com/2013/08/20/us/wi ... image.html" onclick="window.open(this.href);return false;

Brief passage:

• Mile-long trains from the coal mines of Wyoming already run daily, and the load could more than double if three big proposed export terminals gain approval and financing.
  
  The expected outrage has ensued.
  
  The proposals “do violence to many Northwesterners’ concept of their place and what it stands for,” Alan Durning, the founder and executive director of the Sightline Institute, an environmental research group in Seattle, said in an e-mail.
  
  Environmental groups led by the Sierra Club have filed a federal lawsuit accusing the BNSF Railway, which dominates the freight system, of violating the federal Clean Water Act by letting coal spill into waterways from its tracks. The State of Washington, in assessing the permit application of a proposed coal terminal near Bellingham, said in July that it would take a macro-environmental approach, looking at impacts of the project along the entire length of the coal transit route, including the burning of the coal in China.
  

Two railfan notes; first is that the trailing C-44 pictured appears to be ex-ATSF (low engine #), and I think The Times should have been a bit more discrete with the Spokane City Councilman standing in the middle of tracks.

Gilbert,

I agree with you completely.

As long as we can sell this coal to China without dangerously depleting our own supply, we should do it.

It also seems to me that bituminous coal is a naturally occurring sedimentary rock. Rivers flow through deposits of the stuff all over the country without harm.
It is the "powder" in the Powder River.

Les

It is difficult to read this report appearing in Saturday's New York Times without considering such as 'troubling' to any party involved with the extraction, distribution, and marketing of coal as a long term source of energy:

http://www.nytimes.com/2013/09/13/world ... ution.html" onclick="window.open(this.href);return false;

Brief passage:

• BEIJING — The Chinese government announced an ambitious plan on Thursday to curb air pollution across the nation, including setting some limits on burning coal and taking high-polluting vehicles off the roads to ensure a drop in the concentration of particulate matter in cities.
  
  The plan, released by the State Council, China’s cabinet, filled in a broad outline that the government had issued this year. It represents the most concrete response yet by the Communist Party and the government to growing criticism over allowing the country’s air, soil and water to degrade to abysmal levels because of corruption and unchecked economic growth.
  
  The criticism has been especially pronounced in some of China’s largest cities, where anxious residents grapple with choking smog that can persist for days and even weeks. In January, the concentration of fine particulate matter in Beijing reached 40 times the exposure limit recommended by the World Health Organization.

While environmental interests may hail the Chinese government (possibly the Chinese people themselves, depending upon to what extent the government wishes to respond to their concerns on this matter) for their awakening to 'we have a problem', coal exporting interests, not only the railroads but also investors in the transloading facilities being built along the Columbia River to handle this traffic, will be adversely affected.

Even though almost three months after Megantic, it appears that Crude Oil traffic will be unaffected by that disaster, there is PANAMAX on the horizon. Even though it is doubtful that neither BNSF not UP as well as the West Coast ports that provide the lucrative Transcontinental line hauls to such, will 'roll over and die' (such as some may have thought during the Dark Ages when I was with the industry), it will not be a case of exploring new traffic sources, but rather an effort to simply 'hang on to what we got'.

Ken W2KB wrote:Environmental considerations aside, the abundance of cheap natural gas is forecast to displace coal in virtually all new electric generation to be constructed. It is also economic for many existing coal-fired stations to convert to natural gas. The carbon issue might add urgency, but ultimately economics will dictate the decline of coal use in the USA.

Yes, they will be economic. The question is where the economic incentives come from. When we have some sort of actual plan for reducing CO2 emissions, it's going to be something like cap and trade or a carbon tax, and those are both economic incentives that will kill coal, oil, and natural gas, basically in that order.

The bottom line is that we as a civilization cannot keep burning fossil fuels, and coal is the worst of the worst, putting out the most pollution and CO2 per unit of energy extracted. However, this is not doom for the railroads. Quite to the contrary. Met coal is likely to be used for quite a while, I don't have much knowledge of steelmaking, so I'm not sure what else you could substitute, but I know it's not as easy as power generation, where there are a myriad of clean technologies ranging from large-scale nuclear plants to wind turbines to geothermal, thermal solar, wave, tidal, photovoltaic solar, etc, etc that can be dropped in to replace steaming coal.

In terms of the railroads hauling coal, yes they do make money off of it, but if you look at the profits, they're not very good compared to intermodal and other freight, as the rates are low per ton, and coal beats up the track like nothing else. Replacing coal traffic with a small fraction of the tonnage of intermodal would yield the same profits. However, that's not the whole story. When the US enacts a carbon cap and trade or carbon tax, there will be a BOOM in renewable fuels, particularly a new type of biofuel called drop-in biofuels, in addition to ethanol and biodiesel. There is technology that will soon become commonplace to produce actual gasoline, diesel, and jet fuel (not ethanol or biodiesel) from biomass feed stocks. This will cause a fast boom in production, as the fuel will be able to be "dropped in" the same planes, trucks, cars, and everything else that uses regular gasoline and diesel. Since this will be a new industry, some parts of it won't be near existing pipeline infrastructure, and it will also need a feed stock. With large domestic production likely to occur in the middle of the country, this positions rail perfectly to haul massive amounts of the stuff out to the coasts, with far greater possibilities for rail than coal or especially oil. Add in construction materials for nuclear and renewable power sources, and other energy-related loads, and the railroads won't be missing coal one bit. Also, as soon as carbon regulation is enacted, the already quick pace of truck freight switching to rail will happen even faster.

Export coal will eventually drop as well. China in particular realizes more than us the threat that the climate crisis poses, and they are taking it seriously. They are positioning themselves to be the builders of green energy technology around the world, and to make themselves rich doing it. Although their rapid growth necessitated hundreds of pulverized coal plants, they are also aggressively building renewable energy and nuclear energy sources.

The bottom line is that railroads have a very, very bright future, and in a green economy in the future, not only will the whole economy be more prosperous, which is good for the railroads, but rail freight lines will be busier than ever.

I don't see coal going out completely in U.S. as there are still plenty of coal burning plants in Oklahoma and in other parts of the Midwest that are vary much still active from what I can see. There are at leased 2 power plants near Tulsa alone that get a coal train every 2-3 weeks. There is also a train that pass threw Tulsa every 3 weeks bound for Texas Utilities all the time as well on BNSF.

scharnhorst wrote:I don't see coal going out completely in U.S. as there are still plenty of coal burning plants in Oklahoma and in other parts of the Midwest that are vary much still active from what I can see. There are at leased 2 power plants near Tulsa alone that get a coal train every 2-3 weeks. There is also a train that pass threw Tulsa every 3 weeks bound for Texas Utilities all the time as well on BNSF.

It depends on the economics. Once some or all of the negative externalities are priced into the production of energy, the economics of coal will cause it to collapse fairly quickly. Coal is going away, it's just a matter of when. Because of a combination of siting problems, pollution regulations, and the low cost of natural gas, coal recently went from something like 52% of U.S. energy production to just under 40%. That's still a huge amount of coal.

I must wonder when the last preceding post was made to this topic did any of us who follow industry affairs know that it would come to the point that questions are being raised in the financial media if either CSX or NS can continue as going concerns.

Over at the Amtrak Forum, there are reports that CSX could reduce the FRA Class of their Tidewater to coal fields line to such extent that it would be impractical to operate a passenger train over such. They have already made their former Clinchfield RR into a "one a day" branch line, and have posted job abolishments at their Russell KY facility.

The NS reportedly has made the former VGN into a branch line as well.

And finally today in The New York Times is an article addressing the fate of Hotchkiss, CO - a mining town located along the D&RGW on a branch line connecting with the main line at Grand Junction:

http://mobile.nytimes.com/2016/03/24/us ... juana.html" onclick="window.open(this.href);return false;

I haven't seen any reports but I had wondered the same especially given the dependence on coal by NS.

The "Cardinal Crisis" thread in Amtrak references a Trains article where the esteemed Mr. Frailey (do I have that right?) brings up the very same issue, and it's potential to affect three LD trains in particular: the Zephyr, the Star, and the Cardinal. If anyone wants to link and fair-use it here for discussion I would be appreciative. Maybe NS should change their minds on CP?

I don't think CP is going to be in any better of a position. If NS really is going down the tubes then I don't think they would want to take on a boat anchor that could sink them as well. Fair questions all around though.

I think that people are overreacting. The railroads have been in this kind of situation before, where a major traffic shift seemed to upend the industry. And they survived. Now that they have the power to easily rationalize their networks and have the leeway to make rate/strategy decisions without cumbersome regulation, they'll do fine. Think of when they lost LCL traffic, or when the massive wave of factory closings in the 80s hit, or the last recession, or the great depression. They survived all of them, and as long as they can hold their customer service game high, they can survive this one too.
That's my .02

Jeff Smith wrote:The "Cardinal Crisis" thread in Amtrak references a Trains article where the esteemed Mr. Frailey (do I have that right?) brings up the very same issue, and it's potential to affect three LD trains in particular: the Zephyr, the Star, and the Cardinal. If anyone wants to link and fair-use it here for discussion I would be appreciative. Maybe NS should change their minds on CP?

http://cs.trains.com/trn/b/fred-frailey ... pardy.aspx" onclick="window.open(this.href);return false;
"Now CSX and NS are being drawn into that same struggle, thanks to the collapse of their lucrative coal markets. Both railroads appear to see the intermodal business as their salvation. But at the same time, these railroads must also rationalize their networks or drown in avoidable capital and operating costs. For instance, what is the excuse for having two mostly double-tracked railroads crossing Virginia on an east-west axis? (Out west, BNSF Railway and Union Pacific have stranded assets of their own.)"

I have a comment in there as "solar", also my original Railroad.Net handle, some 15-17 years ago. Maybe it wasnt quite that long ago, Mr Norman ???

Bad news:

The New York Times reports today that a Saskatchewan "Clean Coal" power plant located on the CP's line interchanging with the SOO at Portal, has "issues":

http://nytimes.com/2016/03/30/business/ ... ctice.html" onclick="window.open(this.href);return false;

Fair Use:

OTTAWA — An electrical plant on the Saskatchewan prairie was the great hope for industries that burn coal.

In the first large-scale project of its kind, the plant was equipped with a technology that promised to pluck carbon out of the utility’s exhaust and bury it underground, transforming coal into a cleaner power source. In the months after opening, the utility and the provincial government declared the project an unqualified success.

But the $1.1 billion project is now looking like a green dream.

Known as SaskPower’s Boundary Dam 3, the project has been plagued by multiple shutdowns, has fallen way short of its emissions targets, and faces an unresolved problem with its core technology. The costs, too, have soared, requiring tens of millions of dollars in new equipment and repairs.

Somehow, if the world were not awash with "cheap" petroleum products, there would be greater incentive to "make it work", but such simply is not there at this time.

Gilbert B Norman wrote:Bad news:

http://nytimes.com/2016/03/30/business/ ... ctice.html" onclick="window.open(this.href);return false;

I think the best idea of this type for caputring carbon is high carbon absorbing plants in a glass house type arrangement fed from the smoke stack . But any solution will be expensive , and so out of the question with cureent natural gas prices.

Let's not get too far ahead of ourselves. First, all comodity markets fluctuate. Who knows how long natural gas prices will stay low. Right now the new wells are coming online due to fracking. That itself is a green community hornets nest. Who knows how long until the environmentalists ramp this issue to the max. The market will change. Just watch the market factors do their thing.

One big concern is the next election. I'll admit that industry has done some careless damage to the environment. We do need to keep the planet clean. On the other hand, we will need some type of fossil fuel for quit some time. Technology has not yet found a new energy, which is abundant, and economical enough to fill our needs. Hopefully the new officials will strike a realistic balance between the need for energy, and environmental hygiene.

The technology for gas power plants has been viable for ever. Hopefully there will not be a huge permanent change, as in the demise of the anthracite market. If that was so, we wouldn't have had coal plants built within the last 50+ years.

The last point is that there needs to be more of a concentrated effort against all or nothing environmentalism. Who wants to go back to the stone age? Coal mines, utilities, railroads, labor, and general public need to unite to keep environmentalists in check.