Tuesday, June 5, 2012

Columbia River Gateways Ponder New Cargoes

The Columbia River has long been a conduit for bulk cargoes in the Pacific Northwest, principally grain, but it is now being targeted once again for coal. The first coal boom took place three decades ago when nearly every port on the river drew up plans for a deepwater coal export terminal. The Port of Portland was the only port to go through with a project but ended up seeing most of its equipment sold off and the terminal site converted to another commodity when the boom when bust.

The driver of the 1980s boom was “the Asian market,” principally Japan. The driver of the most recent market is China, now the world’s manufacturing giant. As might be expected, regional ports are leery of this second “boom” and three – Vancouver, Portland and Kalama – have already said “no” to coal terminal development but that hasn’t put off potential investors. Sites at Boardman, Oregon and Longview, Washington are still in the running, with St. Helens, Oregon selected to serve as a barge-to-ship transshipment site for movements out of Boardman. And although coal is currently the hot topic along the river other commodities are making an impact, with the nation’s newest grain export terminal now operating at Longview and logs once more moving out of several river gateways.

Even containers have been on the increase, with the Port of Portland reporting a 9 percent jump in box traffic last year while German giants Hamburg Süd and Hapag-Lloyd have recently launched a new joint service connecting the Oregon port to the Mediterranean.

Will Coal be King?
The concern over potential future coal exports was highlighted in April when Oregon Governor John Kitzhaber sent a letter to federal officials asking them to study the environmental impacts of exporting Rocky Mountain coal via West Coast gateways and burning it in Asia. To date three export locations have been targeted by developers along the lower and upper Columbia. Australia’s Ambre Energy has created its Morrow Pacific project around the potential construction of a rail-to-barge transloading facility at Boardman, Oregon, which would load barges for direct discharge to ocean-going ships at St. Helens, Oregon using a floating transloader. It has already approached two Portland-based barge builders, Gunderson and Vigor Industrial, concerning the construction of the 20 covered barges needed for the project.

The barges, expected to cost about $70 million to build, would load at Boardman’s Port of Morrow and off-load at St. Helens’ Port Westward using a Siwertell transloader. In detailing the project, Ambre said it envisions shipping about 3.5 million tons of coal per  year through Boardman, with capacity eventually building to 8.8 million tons. This would mean the arrival of 11 unit trains per week and 12 weekly barge trips down the Columbia where up to three Panamax bulk carriers would be loaded every seven to ten days.

St. Helens - Longview 
Ambre Energy is also the lead partner in the Millennium Bulk Terminals - Longview LLC (MBTL) project at Longview. Washington, in which St. Louis-based Arch Coal Inc holds a 38 percent stake. Last year MBTL acquired the assets of Chinook Ventures Inc (CVI) at Longview, including buildings and equipment, and simultaneously entered into a long-term ground lease agreement covering the required property with Alcoa. The latter, now joined by Millennium, is responsible for cleaning up industrial contamination left in the ground at the site from decades of aluminum smelting by former owner Reynolds. The 416-acre property includes 1.5 miles of river frontage and a deepwater dock capable of handling Panamax-size ships.

Although Millennium originally applied for permits to build a 5.7 million-tons-per-annum coal export facility at the site in 2010 it later withdrew those plans and applied for permits to export a much larger volume of coal per annum last year. Its most recent plan encompasses the construction of a $643 million facility that would be capable of exporting 44 million tons of coal annually at full build-out in 2018. The terminal would be completed in two phases over a five-year period with enough capacity to accept as many as 16 coal unit trains per day and load two ships simultaneously.

Texas-based Kinder Morgan Terminals (KMT), which operates a soda ash exporting facility at Portland, has also shown interest in developing a $150- to $200 million coal terminal at Port Westward but has disclosed few details.

LNG – Import to Export
Sparking the sudden interest in coal exports to some degree is the new domestic wealth in natural gas spawned by hydraulic fracturing (fracking) technologies. This has seen a decline take place in the use of coal for domestic power production as more utilities switch to gas. The shift has been dramatic, with the Union Pacific railroad, a primary coal hauler, suffering an 8 percent drop in its energy related carloads in just the first quarter of this year. The company’s CFO, Rob Knight, has since stated that the energy volume percentage will likely drop “in the low-to-mid-teens” through the second quarter. The shift has also seen a reversal take place in proposed liquid natural gas (LNG) facilities that were once designed for importing but are now being redesigned for exporting.

At the mouth of the Columbia River, near Warrenton, Oregon, two companies are collaborating on plans to export Canadian natural gas to Asia through a terminal originally proposed for imports. Oregon LNG and Oregon Pipeline are applying for permits to ship up to 9 million tons of LNG per year through an export terminal that will essentially fit on the same footprint as the originally proposed importing facility. The $6 billion project, which includes the construction of an 86-mile gas pipeline that would cross the Columbia River near Woodland, Washington, is projected to be completed by 2018 but faces the same environmental and resident opposition as the proposed coal terminals face.

Vancouver Expansion
While coal and LNG exports are still in the future – if the projects now on the table are allowed to jell – other commodities are seeing more near-term action. At the Port of Vancouver USA an $80 million expansion and modernization of grain exporting facilities is being completed by United Grain Corporation (UGC). The construction of new storage silos and the addition of modern machinery is increasing capacity at the UGC complex, owned by Japan’s Mitsui, by another 2 million tons, principally for corn and soybeans going to Asia. Port management is also continuing its negotiations with Australia’s BHP Billiton concerning a long-term lease agreement that would see an export complex for potash established on a portion of the port’s 218-acre Terminal 5, the site of a former Alcoa aluminum smelter. The property has already been equipped with a new loop track and BHP Billiton has indicated it would like to have its export operation up and running by 2015.

Although Vancouver has been one of the key gateways on the Columbia for the handling of wind energy components, which grew to 106,000 metric tons last year, outgoing port director Larry Paulson noted in April that a decline can be expected after this year as federal tax credits end for developers of renewable energy projects. Paulson, who has been executive director at the Washington port since 1999, has since turned the reins over to Todd Coleman, the port’s former deputy executive director, who will now lead the port as it continues with its involvement in the $150 million West Vancouver Freight Access project, due to be completed in 2017.

Longview’s Long Look
Another Columbia River port losing a long-time port director this year is the Port of Longview, Washington where Executive Director Ken O’Hollaren will be stepping down in December after 25 years of service. Like Vancouver USA, Longview has seen a significant investment in grain handling capacity recently, with the $200 million EGT export elevator loading its first ship in February after the settlement of a long-running dispute with the International Longshore and Warehouse Union (see Pacific Maritime Magazine, March 2012). However, the new terminal has suffered some teething problems, with a fire taking place in the facility’s conveyor system tower on April 7 while the 68,636-dwt bulker Navios Gemini S was loading. During the three-hour fight to control the fire some burning debris fell on the Panama-registered vessel, but there was no damage to the ship or injuries reported in the incident. EGT says it expects to load 150 to 200 ships annually with wheat, corn and soybeans now that its labor problems have been settled.

Looking farther ahead, Port of Longview commissioners hope to have a new 20-year master plan ready for the port by this summer after hiring HDR Engineering of Portland to design the plan’s first phase last year. That firm’s recommendations included the dismantlement of the port’s obsolete and unused grain elevator at Berth 4 and the building of a new multi-purpose dock with expanded rail capacity. The port has since hired the Beckett Group of Gig Harbor, Washington to finalize the plan.

More Capacity at Kalama
Another Washington port that is looking at an increase in grain handling capacity is the Port of Kalama where CHS Inc, the largest US grain-marketing cooperative, is planning to expand its elevator capacity as part of its Temco joint venture with Cargill Inc. Temco was originally formed around a single export elevator at Tacoma, Washington but now includes the CHS elevator at Kalama, formerly operated by United Harvest, a joint venture between CHS and Japan’s Mitsui that was dissolved last year, as well as a Cargill facility in Portland.

The Kalama elevator, built in the 1960s, is expected to receive major work to both modernize grain handling and expand storage capacity, with completion of the project slated for early 2014. Kalama’s other grain elevator, operated by Kalama Export LLC, has already undergone a $36 million modernization that added a new grain cleaning building, loading belt and eight shipping silos which boosted terminal capacity by 21,000 tons. The two Kalama elevators combined ship about 11 million metric tons of grain a year, with about 2.75 million tons moving out of the Temco elevator.

Kalama Export LLC is owned by the Gavilon Group, which has recently become an acquisition target of several large commodity trading companies, including Bunge, Wilmar, Mitsui, Mitsubishi, Marubeni and Glencore. The latter company has already agreed to buy Canada’s Viterra for C$6.1 billion.

Portland Eyes Autos
On the Oregon side of the river the Port of Portland, which handled 13.4 million tons of cargo in 2011, a 2 percent increase over the previous year, has entered the auto export business. Over the past several months ships have been loading Ford vehicles at Portland for carriage to South Korea. Although only 10,000 units are expected to be exported this year port officials feel there is good potential for growth in the trade with Asian companies, such as Toyota, planning to export more American-assembled vehicles to Asia as a way to counteract the rising value of the yen against the dollar. “We’re starting to see more demand for American-made products: vehicles, machinery, higher-value cargo,” said Port of Portland spokesman Josh Thomas, who noted that the ships arriving with inbound vehicles from Asia usually have the space to accept exports as backhaul.

Portland is currently the West Coast leader in vehicle imports, handling about 250,000 units annually, but imports have been declining since 2007 when nearly 450,000 vehicles were imported. Last year the port suffered a major 11.5 percent decline in its auto import business, the result of Japan’s devastating tsunami plus several months of flooding in Thailand.

While auto imports at Portland have been on the decline containers have been moving up, a trend that is expected to be accelerated following a decision by German carriers Hamburg Süd and Hapag-Lloyd to partner in an expanded weekly service between Portland and the Mediterranean. Last year, the first full year of operation of the port’s container terminal by ICTSI Oregon, Inc, a subsidiary of Manila’s International Container Terminal Services Inc (ICTSI), box volumes grew by 9 percent to nearly 200,000 TEUs.