U.S. Opens Spigot for Lock-and-Dam Fixes, Even as Coal Traffic Dwindles

Wall Street Journal
2 February 2016
By Robbie Whelan

CHARLEROI, Pa.—A few years ago, coal barges lined up 20 or 30 deep, waiting their turn for a towboat to shuttle them through the locks near this town along the Monongahela River.

These days it is the towboats that often sit idle. Cheap natural gas, stricter power-plant-emissions rules and a weak steel market have gutted coal demand, and with it traffic on the rivers that have served as the industry’s commercial arteries for over a century.

Nevertheless, river infrastructure is about to be flooded with federal cash. In December, Congress authorized $405 million to improve river locks and dams over the next fiscal year, the most since 2008.

The money follows a multimillion-dollar lobbying effort spearheaded by the Waterways Council Inc., which represents an array of companies including coal producer Murray Energy Corp., utility FirstEnergy Corp. FE -0.63 % , agricultural-commodities trader Cargill Inc. and Marathon Petroleum MPC -6.03 % Corp.

“I want the locks and dams open so I can keep the cost of transportation cheap,” said Michael Somales, president of Murray American Transportation, Murray Energy’s river-shipping arm. “We are forever in Washington, D.C., making sure they spend the dollars to keep the locks and dams up.”

Most of the money Congress approved for river-transport improvements is expected to go toward a few major construction projects in coal country along the Ohio River and its tributaries, including at Charleroi, where infrastructure built before World War II strains to handle even reduced traffic from the mining industry.

The river shipping industry says it hopes shoring up crumbling locks and dams will help the coal industry by keeping transportation costs low, and entice other shippers to transport more of their goods by river. Some critics say the money could be better spent on day-to-day maintenance of river infrastructure and on other waterways, including parts of the Mississippi, where shipments of grain and oil products are rising.

“It’s kind of ironic—we’re spending even more to update and modernize this system when the value and volume of the commodities is diminishing, and coal is something that we as a country are moving away from,” said Steve Ellis, vice president of Taxpayers for Common Sense, a conservative-leaning advocacy group that analyzes infrastructure spending.

The funds would come as a boon to construction companies that have been contracted by the U.S. Army Corps of Engineers to work on the locks and dams, including local companies such as Saxonburg, Pa.-based Brayman Construction Corp., which is working on the Charleroi project, and URS Corp., a unit of engineering giant Aecom, ACM 2.01 % which is handling the largest Corps of Engineers improvement project, on the Illinois and Kentucky border.

Each month, about a million tons of coal and other industrial commodities like sand, salt and chemicals pass through Charleroi’s locks, which help vessels navigate a steep drop in the Monongahela’s water levels.

But when a lock breaks down or is closed for maintenance, barges can sit for hours or even days, a costly inconvenience that is becoming more frequent. On the six lock-and-dam facilities in the area surrounding Pittsburgh, outage time rose 42% between 2014 and 2015, to more than 288 days, according to the regional Corps of Engineers office.

The Corps of Engineers is building a new lock wall out of 46,000-cubic-foot concrete blocks and replacing wobbly 80-year-old timber pilings with steel supports. The project, along with repairs to two other locks nearby, is expected to be completed in 2022 at a total cost $2.7 billion. About $60 million of the fiscal 2016 budget for lock repair is expected to go toward the project.

“This is a county road, when what we need is an interstate,” said Kirk McWilliams, an engineer with the Corps of Engineers who is overseeing the renovation.

Coal shipments have plummeted as utilities shift to cheaper natural gas-fired power plants. China’s economic problems have reduced the country’s demand for steel, which requires coal in its manufacturing process. The U.S. Energy Information Administration reports that coal production fell 10% in 2015, to its lowest level since 1986.

The amount of coal passing through the nearby Port of Pittsburgh fell 21% between 2003 and 2013, the most recent year for which data is available. River shippers say it has fallen even more since then. In December, just before Congress allotted funding for lock repair, DTE Energy DTE -0.23 % said it would close a Pittsburgh steel coking plant responsible for about 5% of coal shipments in the region.

Barge and towboat companies say they have cut their rates to hold on to dwindling coal shipments. Others are looking for alternative cargo, including grain and petrochemicals.

Some in the river-shipping industry remain optimistic that coal will remain a big source of business. Low transportation costs are one of coal’s competitive advantages over natural gas, and rivers remain the cheapest way to move large amounts of the fuel, said Murray American’s Mr. Somales.

In the past two years Murray has bought at least two mines with direct access to the Ohio River so that coal can be shipped by barge to power plants.

Others say the rivers’ future lies away from coal. Campbell Transportation Co. Inc., a Houston, Pa.-based company that operates 600 barges, started converting coal barges to carry grain three years ago. More recently, the company has used towboats to transport barges full of natural gas and materials used in the natural-gas fracking process.

The company generates about half its profit from coal, compared with nearly all seven years ago, said Michael Monahan, Campbell’s president. Mr. Monahan said demand from coal shippers is likely to continue declining.

“There’s a new bottom that we haven’t hit yet,” Mr. Monahan said.

Write to Robbie Whelan at robbie.whelan@wsj.com