WCI Speakers Debate Future Of Coal On Waterways
The Waterways Journal
14 October 2013
By David Murray
As was to be expected, the pending WRRDA bill was much on the
minds of attendees at the 10th Annual Waterways Symposium and
Annual Meeting of the Waterways Council Inc. in Memphis, Tenn.,
which WCI chairman of the board Matt Woodruff said was “the most
diverse crowd in WCI history.” The bill still has to be approved
in the full house, then go into conference and be signed by the
president, but most speakers were cautiously optimistic that an
acceptable WRRDA would pass.
For that, WCI itself deserves much of the credit. Woodruff said
its efforts have “significantly raised the profile of ports and
waterways” in the general media. A particular highlight, mentioned
by more than one WCI speaker, was an appearance of President Obama
on the Jay Leno show during which he used the phrase “ports and
inland waterways” for the first time.
Slow But Steady Growth
Memphis is the headquarters of Informa Economics Inc., and this
year’s meeting featured a roster of Informa speakers. Informa
chief executive officer and chairman of the board Bruce Scherr
kicked off the conference by presenting a relatively optimistic
macroeconomic outlook projecting “slow U.S. growth with
headwinds.” What’s significant is that the U.S. economy is
growing, he said; that it’s growing at 2 to 2.5 percent instead of
the desired 4.6 percent is a matter of expectations that can cause
undue gloom.
Scherr said he believed the government shutdown would soon be
resolved, and the debt limit negotiations were a bigger concern.
Scherr presented figures showing the economy is actually doing
better than the popular media represents.
“The world economy, centered on the U.S. economy, is growing
synchronously,” he said, though not as fast as anyone would like.
The U.S. and the Eurozone are leading the way, with China a
“distant third.” Informa’s current projection of 2.8 percent
growth in the U.S. economy for 2014 “could be low” he said, with
growth perhaps reaching 3 or 3.5 percent. A dollar that continues
to be relatively weak would be good for U.S. exports, but if it
rebounds against the Euro, the export outlook would be tougher.
But if emerging economies again focus on building
infrastructure—thus stimulating demand for steel, concrete, and
chemicals—that could offset the effects of a stronger currency.
Not to be overlooked is a significant reduction in the federal
deficit, due to both increased tax revenues and sequestration.
However, sequestration means that the cuts that are helping to
reduce the deficit are taking effect in a “scattershot” way,
without planning.
The private sector has been generating 165,000 to 170,000 jobs a
month—again, not as many as some would like. Informa expects that
figure to hit 250,000 by next year. Housing starts have modestly
rebounded to about a million units, up from half that during the
depths of the recession but still down from the “unsustainable”
2.3 million at the height of the housing bubble.
Spending Rebounding
During the past 12 months, Scherr said, “good news has been bad
news and vice versa.” Federal Reserve Chairman Ben Bernanke will
likely continue his “stimulative path” of quantitative easing, or
generating new fiat credit, but “entitled” equity players like the
security of that policy. “No one would believe Bernanke if he said
the economy was stronger and cut back QE.”
The Eurozone is in a poor position to stimulate its economies,
said Scherr, since its members have been cutting back with
austerity measures. Stimulus spending must grow the economy, said
Scherr—though again, not as much as anyone wants.
Another stimulative boost is coming because of low inventories of
fixed assets and equipment that will need to be replaced soon—at
least 7 percent, according to Informa’s figures, including the
high-tech equipment that drives the U.S. economy more than some
others.
Scherr was sanguine about unemployment figures, speculating that
perhaps 5 to 6 percent unemployment might be a permanent feature
of the new economy representing “unemployables.”
Energy Effects
On the consumer side, Scherr foresees a return of car-buying to
about 16 million units a year, near the bubble high of about 17
million units, and up from the recessionary level of only about 10
million units. He called pent-up vehicle demand the “booster
rocket” of the economy.
On the other hand, gas consumption has declined more than anyone
anticipated, due to both the recession and to changes in
consumption and driving that could be long-lasting. When the
Renewable Fuels Act went into effect 10 years ago, experts
predicted we would be using 160 billion gallons a year by now;
instead, we’re using 130 billion. But the money consumers are
saving on gas is being spent elsewhere, helping to further
stimulate the economy, of which consumer spending makes up about
70 percent.
The fracking revolution is contributing to further “dramatic”
energy savings, with northeast states like Connecticut,
traditionally a high consumer of winter heating oil, converting
its plants to burn natural gas. But high demand from other parts
of the world, especially China and India, mean that world oil
prices may not decline, Scherr said.
Although the outlook is relatively hopeful, Scherr concluded, the
situation in Washington is a wild card, since “the idiots in
Washington could undermine the extraordinary potential of the next
five years.”
Washington Dysfunction Could Help WRRDA
Jim Wiesemeyer, now a senior vice president at Informa, gave
his roundup of Washington politics, a familiar feature of many
past waterways conferences. Wiesemeyer said he believed that
Speaker of the House John Boehner was “letting the Tea Party rip”
in order to get it out of the GOP’s system. He said this shutdown
differs from earlier ones because it involves differences not just
over spending in general, but over policy. There are also powerful
factions in each party working against negotiation. The shutdown’s
impact on the American economy has been estimated, he said, at 0.1
percent of GDP for one day, 0.3 percent for one week, and 0.7
percent if it extends for one month.
Wiesemeyer said the Republicans were “overreaching” with their
budget showdown tactics, and Democrats may bank on the budget
tactics proving unpopular in their strategy to retake the House.
This strategy includes easing the path to citizenship for illegal
immigrants, who are then expected to vote Democratic. As many as
60 percent of all agricultural workers are thought to be here
illegally, Wiesemeyer said.
But he does not believe many Republicans will be threatened at the
polls. He said there are only 66 potentially competitive seat up
for election in the House in 2014. In the last Congressional
redistricting process, the Republicans in charge in most states
were able to gerrymander a large number of “safe” seats for their
colleagues. This increases ideological divides, since holders of
safe seats must play to their most committed base.
Wiesemeyer noted that President Obama’s approval rating in a
recent poll was 86 percent “satisfactory” among Democrats and only
10 percent among Republicans, a 76-point spread that is the
largest in the history of polling this question. Unlike during the
1980s, he said, there is little political incentive for bipartisan
deal-making in general. Also, the end of earmarks has removed a
powerful tool formerly used by Republican leadership to “whip”
congressional votes into line. Wiesemeyer believes that North
Carolina will determine the Senate’s future in the next election
cycle.
But paradoxically, said Wiesemeyer, Washington’s current
dysfunction could actually work to the benefit of the Water
Resources and Reform Development Act, which does have bipartisan
support, because in the wake of the shutdown and the showdown over
the debt limit, both parties will be anxious to prove that that
they can get bills passed. The path forward for WRRDA is to get
through the shutdown, get through the possible amending of the
bill in conference between the House and Senate versions, and get
President Obama to sign it by Christmas. The waterways industry
may not get everything it wants in the WRRDA, he said, but it is
likely to be an acceptable bill.
Echoing other speakers, Wisemeyer said WCI did a great job of
educating politicians about the importance of the waterways; the
next goal should be to get President Obama to utter the words
“inland waterways” in a policy speech instead of just on a talk
show.
Wireless Waterways Innovation In Pittsburgh
James McCarville, executive director of the Port of Pittsburgh
Commission, next spoke on his port’s innovative efforts to set up
a broadband network that potentially has many other uses beyond
the waterways—an effort that was necessary because of the lack of
tech leadership for ports and inland waterways, he said. He noted
that about 70 percent of the nation’s waterways are in areas
poorly served by existing broadband networks. McCarville had just
returned from the sixth SmartRivers Conference in Belgium—an event
that Pittsburgh began, he pointed out.
The port has set up a separate entity, Pittsburgh Port
Technologies Inc., to facilitate the broadband effort. McCarville
showed an x-y coordinate graph illustrating the small percentage
of bandwidth used by the Coast Guard-mandated AIS navigation
system, which occupied only a tiny corner of the graph. PPT has
set up a Wireless Waterways Interoperability Test Bed that
McCarville hopes will attract testers from around the world to
invent applications. The first Test Bed exercises were held in
June. McCarville’s goal for this system is ambitious: to “take
inefficiencies out of the entire transportation system
intermodally.”
One of the innovations being pursued is called Argos, which would
make available a feed of real-time river soundings from devices
attached to “water drones,” small craft continuously
criss-crossing the rivers. Other information streams envisioned by
McCarville and his partners include real-time monitoring of locks
and dams, improving the Corps of Engineers’ ability to monitor its
equipment. As its website proclaims, the Wireless Waterways
project “is envisioned to become a self-sustaining business
venture blanketing the entire Port of Pittsburgh district and well
beyond throughout the U.S. inland waterway system.”
McCarville reported that many non-navigation interests are
studying the project as well—including “two major corporations” he
wasn’t ready to name publicly. He and his partners in the venture
are continuing to pursue grant opportunities and to acquire
further partners. Eventually, the goal is for the venture to
become a stand-alone public-private partnership.
In response to a question about how the system would become
self-supporting, McCarville said it’s saving satellite costs in
areas where that’s the only way of accessing broadband now. The
system will also reduce the costs of data collection and
collation.
Bipartisan WRRDA
The lunch speaker was former Sen. Blanche Lincoln, the youngest
woman elected to the Senate (in 1998), a co-founder of the
so-called Blue Dog Democrats, and the first woman to chair the
Senate Committee on Agriculture and Forestry, who now consults on
farm issues after a 16-year career in Congress. Lincoln also
lamented the decline of bipartisanship in Congress, noting that
the first thing she did after her first election was to contact
all the members of districts contiguous to hers—of both parties.
After an hour-long conversation, the Missouri Republican Rep. Bill
Emerson told her, “I’ve spoken with you longer just now than I
spoke to your predecessor during the 20 years he was in office.”
Lincoln noted that Sens. Barbara Boxer (D-Calif.) and David Vitter
(R-La.) worked closely together on this year’s WRRDA.
Future Of Domestic Coal
After lunch, attendees heard from Nick Akins, president and
chief executive officer of American Electric Power, the largest
coal consumer in the U.S. with 5.3 million customers in 11 states
and the country’s largest power transmission system‑ ‑ and the
parent company of AEP River Operations. Akin’s wide-ranging talk
on the prospects for coal movement stressed that coal is going to
remain part of the U.S.’s energy portfolio for the foreseeable
future. This message has been repeated in recent days by U.S.
Energy Secretary Ernest Moniz (who published an influential paper
10 years ago called “The Future of Coal”), and even by EPA
Administrator Gina McCarthy, who testified before a committee of
Congress in September, “The rule will provide certainty for the
future of new coal moving forward, and in terms of existing
facilities, coal will continue to represent a significant source
of energy for decades to come.”
Although Akin praised President Obama for working well with
industry on issues like post-Sandy cleanup, he said overregulation
remains an obstacle; he spoke of one transmission line that took
two years to build, but 15 years before that to permit, for a
total of 17 years. In contrast, AEP’s Clinch River coal-fired
generation plant, the world’s largest at the time, took only seven
months from conception to complete build-out in the 1940s. (The
Clinch River plant is switching to natural gas, AEP announced in
May, at a cost of about $65 million, to meet environmental
regulations.)
AEP has retired 7,100 megawatts of coal-fired generation capacity
recently. As new EPA mercury emissions rules take effect in 2014
and 2015, shutting older plants, the effects will be felt by local
schools and fire districts that will lose tax revenues. Akin noted
that EPA predicted these rules would only affect about 10,000
megawatts of generating capacity, when in fact they will affect up
to 80,000 megawatts. The effects on the power industry’s
“black-start capability”—the reserve units that can start up
quickly in case of a black-out—could be serious.
In response to a question, Akin said that although EPA mandates
carbon-capture technology for new plants, it costs too much and is
not available commercially. Therefore, new coal-burning units are
“off the table.”
The coal industry lost 17 percent of its industrial load during
the economic downturn, but returned almost to 2007 levels before
dropping last year, Akin said. Although energy-saving practices
have reduced the load somewhat, Akin said power companies need to
be ready to exploit pent-up demand. He estimated that utilities
need to spend about $2 trillion over the next 20 years just to
maintain the grid.
Commodities Panel
The afternoon program featured a Commodities Panel. Speakers
included Informa’s senior vice president Ken Eriksen; Chris
Stringer, a senior merchant with CHS Inc.; Jacob Williams, vice
president of global energy analytics for Peabody Energy; and Jim
Scharner, director of transportation for the David J. Joseph
Company, a leading scrap recycler.
Eriksen began by noting that the Corps of Engineers sometimes
doesn’t realize that when it makes an announcement that affects
commodity flows, “the world takes notice. During last year’s low
water, “the world stopped coming to the U.S.” for some
commodities. Eriksen used a medical term for what happened on the
waterways: “hysteresis,” a stoppage that introduces permanent
changes into the system. Eriksen said that because the coal
environment is “horrendous,” he foresees no expansion in the dry
bulk barge fleet.
The tank barge fleet, on the other hand, is “surging.” Two hundred
recent new builds have brought it to about 3,500. The average age
of a tank barge now is about 20 years, down from 25 years just a
few years ago. The average trip length of a tank barge was about
250 miles not too long ago, Eriksen said, but now trips of 350 or
400 miles are not uncommon. After surging, railcar loadings of
crude oil are beginning to “stagnate,” he said.
Rebuilding Corn Exports
Stringer spoke on the “global change” in how export corn is being
treated by the rest of the world. The big question from customers
of U.S. corn, he said, is, “Is our port capacity adequate?”
Because U.S. corn exports of the 2012-13 exporting season were the
lowest in decades, due to the drought, “we’ve encouraged the rest
of the world to grow corn.” The U.S. share of corn exports will
take some time to rebuild. Even Gulf coast chicken processors used
almost all South American corn last year, he said.
China is expected to be buying about 20 million tons of corn a
year by 2020, he said, mostly for feed.
Coal: Fastest-Growing Energy Source
Williams gave one of the most interesting discussions on coal,
one that contradicted some common assumptions. Not only is coal
the fastest growing energy source in the world—with a growth rate
of 56 percent in the past 10 years alone‑ ‑ but its use has
actually rebounded in the U.S. as well, he said. Within the next
four years, coal will become the world’s single largest energy
source, surpassing oil sometime between 2017 and 2020. This is
largely because of the demands of developing economies, for which
coal remains the cheapest energy source per BTU. By about 2020,
India’s coal use alone will surpass that of the U.S. Williams
estimates an additional demand of 210 million seaborne tons in the
next few years.
Williams said the low coal use of the past year in the U.S. simply
reflected the mildest winter in 60 years, rather than any global
trend. Furthermore, cheap U.S. natural gas prices will rise after
export terminals now in construction are completed, he said. Right
now, the world price for natural gas per BTU is about $16, while
in the U.S. it is only $4. But when more North American natural
gas becomes available for export, its price will more closely
align with world prices—and coal will again become more
competitive in price. States that rely mostly on coal still have
the lowest electricity prices, he said. This remains important,
because the price of all energy has doubled over the past 10
years, while household income has not.
Williams also brought perspective to stories about coal plants
closing due to EPA regulations. Because of the mild winter, only
about 55 percent of the coal-fired fleet was in use. Even with
closures, enough reserve capacity will remain to handle expected
increases in demand as the economy starts to grow again.
Furthermore, he noted, most of the plants that are closing in the
eastern U.S. are rail-served, not barge-served. Williams said
there is currently a five-year window during which plant closures
will not result in a net reduction in generating capacity.
However, most of the increase in domestic demand will be picked up
by cleaner-burning Powder River and Illinois Basin coal, he said,
while West Virginia’s dirtier coal industry will probably shrivel.
In response to a question, Williams said West Virginia coal would
decline from about 120 million tons moved this year to perhaps
half that within two years. Illinois Basin coal has the lowest
cost structure when transportation is factored in, he said.
Williams also noted environmentalist opposition to coal export
facilities on the West coast, saying it would be a “very bad
precedent” if they succeed in stopping them. Since the 1970s,
clean coal plants have achieved a 90 percent reduction in
emissions of NOX and CO2. Proposed EPA regulation of CO2 as a
pollutant, though, could be a “kill shot” for the coal industry,
he said.
Steel And Waterways
Scharner spoke on steel, noting that since the 1990s, all of
the U.S.’s new steelmaking capacity has been built on or near the
inland waterways. His company, with origins dating to 1863, is now
a subsidiary of Nucor, North America’s largest steel processor.
Nucor is building a new reduced iron plant in St. James Parish,
La., that will use direct reduced iron (DRI) from the island of
Trinidad; but “everything leaving the facility will leave by
barge,” he said.
Nucor produces about 95 million tons a year domestically; between
15 and 25 percent of its business involves barge traffic. The
steel industry operates at about 77 percent of capacity today, so
Scharner sees no expansion in the immediate future. Steel shippers
are always concerned with waterways issues, since one foot of
river draft equals 200 tons of cargo.
Dredging Agenda
After a presentation on the morning of October 3 by Memphis
port director Randy Richardson on the history of the Port of
Memphis and a brief greeting from Memphis Mayor S. E. Wharton, who
touted the new Mississippi Rivers mayors’ group, Jim Walker,
director of navigation and logistics for the American Association
of Port Authorities, spoke on legislative efforts to get dredging
moving again.
During his six years at AAPA’s headquarters, he said, his personal
goal was to get President Obama to mention the world “navigation”
in a major speech. During his tenure, the president visited three
ports and a Maryland dredging contractor, and Vice President Biden
also visited three ports. What finally got the president’s
attention, he said, was last year’s emergency over rock pinnacles
in the Middle Mississippi River during the low water.
The government shutdown meant that most Corps of Engineers and
Coast Guard personnel were not free to travel to conferences like
this, but Gretchen Benjamin, program director for large rivers at
The Nature Conservancy, spoke about dredging and conservation in
the Upper Mississippi River. The group is working with the Corps
to turn disused channel structures into habitat for a variety of
wildlife. Benjamin mentioned that about 40 percent of sand dredged
from the Mississippi River near St. Paul is “perfect” for
fracking.