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.