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Weekly UpdatesThree years ago, Alaska's only commercially producing coal mine lost its only overseas supply contract for ultra-low sulfur coal mined near Healy. The resulting effects echoed throughout Usibelli Coal Mine, a third-generation family owned Alaska business.
Impacts were also felt statewide, as the loss of the South Korean coal contract impacted freight traffic on the Alaska Railroad and viability of the shipping terminal port in Seward.
But things can change quickly in today's business environment. In a little more than a year's time, thanks to some federal financial assistance and dynamic moves in the global coal market, Usibelli was able to ink a two-year contract to resume those overseas shipments to South Korea.
GOOD NEWS
Currently, Usibelli ships at least 400,000 tons of coal per year to those Asian power plants. The contract includes a provision that allows the buyer to take or reduce its shipments by up to 20 percent a year.
"We're hoping that each year they exercise the right to take an additional 10 percent or 20 percent," said Joe Usibelli Jr., the third generation of the mining family to run the Interior Alaska coal supply company.
The Korean coal contract expires later this year, although discussions have already started to consider extending the agreement, according to Steve Denton, vice president of business development at Usibelli Coal Mine. "I don't see anything at this point to keep us from making a deal for an extension," he said.
Recent increases in coal prices also benefited Usibelli coal in other markets. In addition to the South Korean contract, the Healy based coal mine has completed in recent months four test shipments of coal to Chilean power plant operators, Denton said. Roughly 200,000 tons of Usibelli coal has been shipped to Chile to three different customers, he said.
BUSINESS IS BUSINESS
"At this point, we don't have any long-term contracts--they're still spot sales," Denton said in mid-June. "But three out of the four utilities that consume coal in Chile have taken shipments and that is a good sign that it might lead to some long-term business."
That's despite a geographical hurdle to overcome-transporting a heavy, raw energy product thousands of miles from its port of origin. "We're probably not in the best position geographically to compete," Denton said.
In the past, Usibelli has sent test shipments of coal to Taiwan and Russia, ranging in size from 20,000 to 70,000 tons, Denton said. This series of test shipments is the first to customers on the eastern Pacific Rim.
"We think that with all those power plants on the West Coast of the U.S., in Mexico, Nicaragua, Peru-all along the West Coast of North and South America-maybe someone will take notice of coal from Alaska going by," Denton said. "We're a lot closer to them than many other suppliers."
AN ATTRACTIVE OPTION
A near-doubling of coal prices in the Pacific Rito in the last two years has made Usibelli coal more attractive. In addition, it offers a cleaner-burning coal, averaging about .17 percent, whereas the normal range is 1 percent to 2 percent, even higher in some cases.
"Usibelli coal is among the lowest sulfur coal produced in the world and noted as the lowest sulfur coal in the nation by the Environmental Protection Agency," the company said on its Web site. "Other environmental benefits include low nitrogen content, high calcium content and excellent performance characteristics in equipment designed to clean exhaust gas emissions."
Healy coal's main drawback is a high moisture content, averaging about 25 percent. That means that for every four tons of coal shipped, one ton is water. Raw, untreated Healy coal averages about 7,800 Btu, on the lower end of the spectrum, although that energy content bumps up considerably when it is dried.
Usibelli's coal is also difficult to grind, Denton said, a factor that is being considered and evaluated during test burns in Chile.
EXPANDING OPERATIONS
With more than 100 years worth of reserves on its coal leases in Interior Alaska, Usibelli has long looked to expand its business. In addition to exports, Usibelli has actively sought new customers within Alaska.
Currently, Usibelli provides coal that can be used to generate about 100 megawatts of commercial electric power generation throughout Alaska. Another 60 to 75 megawatts of coal-fired power generation exists at the three military bases in the Interior, power plants that may be privatized in the future.
In all, coal provides only 5 percent of the state's Railbelt electric power generation, despite its abundance and its mid-state mine location. Resumption of power generation at the long-shuttered Healy Clean Coal Project would bump coal-fired electric generation in Alaska's Railbelt to a double-digit level.
The 50-megawatt power plant completed in the late 1990s in Healy is designed to burn low rank, or lower quality, coal, mixed with the average grade of coal mined and sold by Usibelli Coal Mine.
DIVERSIFICATION
Power generation at the Healy Clean Coal Project would allow Usibelli to increase its domestic sales of coal. But more importantly, Denton said, it would also diversify the Interior's power generation sources, helping to protect electric consumers from increasing costs due to price spikes in petroleum-based products.
"Coal provides a very good risk management strategy," he said. "Adding a sizeable amount of coal to the mix reduces risk."
The fate of the Healy Clean Coal Project, built with state and federal funds in the 1990s, still remains uncertain. Yet Alaska's electric consumers could benefit from other coal-fired power plants on the Railbelt, according to an energy study released almost two years ago.
The Railbelt Energy Study recommended building new, large-scale coal-fired plants in either Fairbanks of Anchorage, of possibly near both urban areas, to meet future growth in electric demand.
Taking that study one step further, Usibelli has suggested to Alaska's electric providers the construction of a large mine-mouth coal-fired power plant at Healy. Called the Emma Creek Energy Project, the plan calls for a 200-megawatt plant to be built near a new coal resource northeast of Usibelli's current open-pit coal mine operation.
Such a project would require an estimated $421 million for construction, producing electricity at a cost of $41 per megawatt hour. About hall of the cost would be for debt service and the other hall for operating costs, according to Usibelli's analysis.
"Our intent was for utilities to see it as a model for the size of plant and its economics-to create a model for people to look at," Denton said. "The jury is still out on where that plant needs to be located."
Currently, Matanuska Electric is considering the benefits of such a large coal-fired power plant, located within the Southcentral Alaska service area. The power provider has discussed that project with Usibelli, Denton said-talks considered an outgrowth of the coal mine's conceptional Emma Creek project.
Usibelli hasn't limited itself or its future growth to just coal. The company applied for eight leases under the state's now-defunct shallow gas-leasing program, and is in the process of converting those to conventional gas exploration licenses, Denton said.
In addition, Usibelli recently-joined forces with two other Alaska companies and an Outside-based gas exploration company to complete the first seismic survey within the Nenana Basin in Interior Alaska.
PARTNERSHIPS
Andex Resources, a Houston- and Denver-based exploration firm, secured in 2002 a state exploration license for 482,942 acres of land located southwest of Fairbanks and west of the Parks Highway community of Nenana.
Since then, Andex formed partnerships with Usibelli, Doyon Ltd. and the Arctic Slope Regional Corp. to complete the estimated $3 million seismic program, targeting natural gas occurrences, conducted in early 2005.
Anchorage-based PGS Onshore completed the field work, despite an early spring breakup, Denton said. "The quality of the data is good," he said. "Obviously, we can't talk about the results, but we got good data."
The winter exploration program planned to complete up to 215 line miles of two-dimensional seismic surveys, located within a roughly 415-square-mile area in the Nenana Basin, west of the Parks Highway.
The under-explored basin, believed to have good potential for coalbed methane and conventional gas, extends north to include a portion of the Minto Flats State Game Refuge, while the southern border extends south to Dune Lake. Some Native lands, owned by Doyon, Seth de Ya-Ah Corp. (the Minto village corporation), and Toghottehle Corp. (the Nenana village corporation), are also located within the license area.
Andex announced during a public meeting in Nenana in 2004 plans to spend $3 million on the winter seismic program, and up to $12 million to drill exploration wells.
"We're all anticipating something beyond the seismic ... for the following year," Denton said. "It all depends on what we have with the seismic ... we would not be taking this leap if we did not think we had a good chance of success."
A final decision to drill is still being discussed, as the seismic data is evaluated, he added.
Only two shallow exploration wells have been previously drilled in the study area, located in the central and southern portion. Unocal drilled Nenana No. 1 in 1962, located due west of Nenana. That 3,062-foot hole produced coal seam gas shows, according to a state report. Arco drilled the Totek Hills No. 1 well in 1984, also producing coal seam gas shows in the 3,590-foot hole.
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