Orient Express 

Will Montana become a coal colony?

With the heavy spring rains, the Otter Creek Valley, in southeastern Montana, glows green in early July, dotted with sage and bright patches of yellow clover and wild mustard. Ranchland rises gently toward rugged hills and buttes. Otter Creek twists a narrow channel through the middle, reflecting clouds. Otter Creek Road follows the creek. Few pickups pass between the unincorporated community of Otter to the south and the one-gas-station town of Ashland to the north.

A month before and about 6,000 miles away, in Beijing, a city of 20 million, where enveloping smog obscures the surrounding mountains, Montana Gov. Brian Schweitzer spoke of this Montana valley—or, rather, what's beneath it. The governor of the state with the greatest coal reserves keynoted a coal conference sponsored by Peabody Energy, the largest private coal company in the world, with massive operations in northeast Wyoming, just south of Otter. Schweitzer and coal companies such as Peabody see economic opportunity in exporting coal to China and other energy-hungry Asian markets. More than a billion tons of coal beneath the Otter Creek Valley could be shipped and burned there.

Schweitzer addressed a crowd of researchers and coal company reps at the coal gasification conference at the Great Wall Sheraton Hotel. "I talked a little bit about energy security in the U.S. and most of the countries that were represented there, and how we share a concern," Schweitzer told me, speaking recently in his office in Helena. "We've become so dependent on oil from just a few unstable regimes, and the sooner we get to a new energy source that's cleaner, greener, more sustainable, it's better for everybody. Coal can have a future if we have a solution to CO2"—that is, a way to burn coal and contain the greenhouse gas—"or it doesn't have a future if we don't."

But Arch Coal—and every other coal company in the business of making money—isn't waiting for a solution. Arch, the second-largest U.S. coal producer, has paid about $160 million to lease 18,000 Otter Creek acres containing 1.4 billion tons of coal from the state of Montana and Great Northern Properties.

click to enlarge Missoula railyard - PHOTO BY CHAD HARDER

Meanwhile, Arch is arranging a way to ship the coal to Asia. On July 1, Arch, Warren Buffet's BNSF Railway, and billionaire Forrest E. Mars Jr. purchased the Tongue River Railroad Company, which holds a valuable federal permit to build a 121-mile rail link between Miles City and Decker, with a spur connecting to the Otter Creek tracts, at an estimated cost of $550 million. Earlier this year, Arch acquired a 38 percent stake in Millennium Bulk Terminals, which is attempting to build an export terminal in Longview, Washington, the idea being that the coal from Otter Creek could travel by rail to Longview and from there be shipped to Asia. The company also announced a deal to ship coal to Asia through a Canadian port near Prince Rupert, British Columbia. "These options will help us to meet our strategic objective of expanding coal sales from the Powder River Basin and the Western Bituminous Region into the world's largest and fastest-growing coal market," reads Arch's annual report. The Powder River Basin, spanning southeastern Montana and northeastern Wyoming, supplies about 40 percent of the country's coal.

For all his "clean coal" caveats, Schweitzer is on board. In January, he traveled to Longview to encourage the Cowlitz County Board of Commissioners to approve Arch's export terminal. "We have 56 counties in the state of Montana, but the most important county to the people of Montana today is Cowlitz County," Schweitzer reportedly said. In March 2010, Schweitzer tried to force local governments to sign a statement supporting development of Otter Creek coal by holding hostage federal stimulus funds—an ultimately unsuccessful, illegal and somewhat perplexing attempt to link federal funds with the things Montana coal could buy.

If Montana permits Otter Creek, it stands to make a fortune. Schweitzer says royalties would amount to between $5 and $7 billion over 30 years, and as much as $300 million per year for the Montana Legislature to allot.

"We have coal," he says. "It creates a lot of jobs. And if it's not produced here, it'll be produced someplace else. Those boilers in Taiwan or Korea, they're either going to burn Indonesian, Australian or Russian coal, or they're going to burn coal [shipped] from the Pacific Northwest, maybe Montana. And I'd like to create jobs...not just mining it, it's jobs reclaiming it, and it's jobs shipping it. Those are all good jobs."

And it's not just Otter Creek. There are a handful of other proposed coal mines in central and eastern Montana. The state's demonstrated coal reserves amount to about 119 billion tons, almost a quarter of the entire country's proven reserves. For a variety of reasons it hasn't made economic sense to tap most of the trove. Asia's coal demand, a new railroad, and the enticement of, in Schweitzer's words, "a pretty good lump of money" may change that.

China takes. Who gives?

China can't get enough. The world's biggest producer and consumer of coal used about 3.2 billion tons of it in 2010—about three times U.S. consumption. It also has roughly 115 billion tons of proven reserves. In 2009, China imported 126 million tons of coal, a relatively small amount, but in doing so, the country became a net importer for the first time, a shift that Stanford University researchers Richard K. Morse and Gange He, in a 2010 paper, called "one of the most dramatic realignments" the global coal market has ever seen.

click to enlarge A coal truck in China’s Guizhou Province. The lack of rail lines in China has boosted its coal imports. - PHOTO COURTESY ROSS KEOGH
  • Photo courtesy Ross Keogh
  • A coal truck in China’s Guizhou Province. The lack of rail lines in China has boosted its coal imports.

Where some in the U.S. and other nations see dependence on imported energy as a threat to national security, the opposite view is burgeoning in Asia, says Deborah Seligsohn, a Beijing-based senior fellow with the World Resources Institute. "There's a growing view in China that imports of coal improve energy security rather than hurt energy security, because then you have more left at home. So if you need it, you have it."

Coal fuels the world's fastest growing major economy. Home to more than 1.3 billion people, China has seen a more than a tenfold increase in GDP since 1978. The country's construction boom astounds. Consider that it accounted for about 55 percent of worldwide cement consumption last year, according to French bank Société Générale, and the building boom yielded enough homes to house 60 million people.

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