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Goldman Sachs says coal-export terminals are a bad investment

Posted on July 30, 2013
By David Roberts

No less an investor than the mighty Warren Buffett has proclaimed that the decline of coal in the U.S. will be gradual but inevitable. Given flat demand for electricity, cheap natural gas, burgeoning renewables, rising efficiency, and future carbon regulations, new coal-fired power plants are bad bet, which is why they aren’t getting built.

To save their bacon, U.S. coal mining companies want to export their coal to hungrier markets, mainly Asian markets. OK, mainly China. Demand for coal in China is a crucial justification for the export infrastructure coal companies want to build in the Pacific Northwest — export terminals in Oregon and Washington that would handle coal shipped by train from the Powder River Basin in Wyoming and Montana. (Activists are battling those plans, with some success. A similar fight is happening in British Columbia.)

But overseas demand for thermal coal — the kind used in power plants — has been overestimated. New investments in thermal coal infrastructure, unless they come online quickly, will miss a rapidly closing window for profitability. In coming years, there won’t be enough demand growth to justify such investments.

That’s the explosive conclusion of a report recently issued by analysts at Goldman Sachs. (It’s not public, so I can’t link to it.) The implication for coal-export projects in the Pacific Northwest is clear: They are bum investments. You don’t need to share concerns over climate change to see it. Just economics.