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.

I was in China last month, as part of an environmental exchange program through the University of Montana's Maureen and Mike Mansfield Center. During my travels in Guizhou Province, in southwestern China, where there are about 1,000 coal mines, I headed out on a seven-hour drive that was shortened to four because a new highway had opened the day before. In Guiyang, the capital of Guizhou, the government has spent billions to construct a new city to the northwest, partly intended to house city government. A cluster of more than a dozen nearly identical skyscrapers at the same stage of construction rises from otherwise rural ground.

The incredible pace of China's growth, and the energy it demands, underscores the relative insignificance of one or a few Montana coal mines feeding China's power plants. Montana currently produces about 44 million tons of coal per year (Wyoming's production is about 10 times that), and Otter Creek would produce about 30 million tons annually.

"We're not even a drop in the barrel," says Schweitzer.

But the development of Otter Creek could matter in terms of climate change, says Steve Running, a University of Montana professor of forest ecology and member of the Intergovern-mental Panel on Climate Change. Running calculates the combustion of Otter Creek coal would result in about 2.5 billion tons of carbon dioxide emissions over the life of the mine. That's 50 times Montana's annual emissions.

click to enlarge The path of the proposed Tongue River Railroad. Billionaire Forrest E. Mars acquired a third of the railroad to prevent the roughly 50-mile section south of O’Dell Creek Road, near where he owns property, from being built. - MAP BY JONATHAN MARQUIS
  • Map by Jonathan Marquis
  • The path of the proposed Tongue River Railroad. Billionaire Forrest E. Mars acquired a third of the railroad to prevent the roughly 50-mile section south of O’Dell Creek Road, near where he owns property, from being built.

"I know we're doomed to using coal for the next number of years," Running says. "You hope it's no more than five or 10 years. But for God sakes, we shouldn't be writing new leases like they are at Otter Creek. I mean, that is, to me, obligating coal use far, far into the future in exactly the way we should not be doing."

The mine's estimated life is 40 years. "We better the hell be off of coal in 40 years or it's game over," Running says. "It really is."

Running says atmospheric CO2 has reached 394 parts per million. He says he doesn't know what number represents a tipping point, beyond which feedback loops—like polar ice caps melting into water that absorbs more heat, thereby melting more ice caps—make it impossible to reverse the trend. "The reality is, it's not impossible that we've passed a tipping point already, or we may be a good ways away." In any case, he says that of the ways people can generate power, "coal is the dirtiest, least efficient way to do it of anything ever devised."

"Every way you slice and dice the issue, coal loses," Running adds—"except for cheap. The only thing it has going for it is cheap. And it's cheap because of this artifact, that we're letting (people) use the atmosphere as a free garbage can."

Climate change also happens to be at the center of a legal challenge to the state's decision, in March 2010, to lease Otter Creek coal tracts to Arch. Two months later, the Montana Environmental Information Center and the Sierra Club filed suit alleging that the Montana Land Board, made up of the state's top five elected officials (currently all Democrats), failed to consider the mine's potential effect on climate change when it approved the lease by a vote of 3-2. In January, Montana District Judge Joe Hegel rejected an attempt by the state and Arch to dismiss the case, and questioned whether the lease should have been awarded prior to an environmental review under the Montana Environmental Policy Act.

The case was complicated earlier this year when the Montana Legislature amended MEPA to limit consideration of an action's impacts to within Montana's borders. That narrows the extent to which the state can consider Otter Creek's impact on global climate change. If MEIC and the Sierra Club prevail in the case, forcing the state to cancel the Otter Creek lease and go through the MEPA process, it's unclear which version of MEPA would apply. What could also be at issue is whether the new MEPA complies with Montanans' constitutional right to a "clean and healthful environment."

click to enlarge Gov. Brian Schweitzer addresses a coal gasification conference in Beijing on June 8.
  • Gov. Brian Schweitzer addresses a coal gasification conference in Beijing on June 8.

"I don't know how you implement the right to a clean and healthy environment if you exclude consideration of the greatest impact we've ever known," says MEIC's Anne Hedges. "It seems to make a mockery of MEPA and our constitution. That is going to be an issue that's surely going to be before the courts, and it is going to be before the courts, my guess is, on this case."

Hegel has scheduled oral arguments on the summary judgment motion for Sept. 27, in Broadus. A decision will likely not come for months.

Hedge's objections to shipping Montana coal to Asia extend far beyond exacerbating climate change. She points to the irony in those ships returning to the U.S. stocked with renewable energy technologies. China leads the world in the manufacturing of solar panels and wind turbines.

"We get the pollution," she says. "They get our cheap coal products. We get the water pollution. We get the permanent scars on our landscape. We get the ruining of a lot of our ag heritage, and for what? To sell them cheap coal...What's fair about that trade?" The only ones making money off it, she says, are the coal companies. "The rest of us are being sacrificed."

'It's kind of ridiculous.'

At dusk, south of Miles City, Mark Fix and I ride around his ranch on his red side-by-side four-wheeler, kicking up an occasional northern flicker or pheasant from the high grass. We keep our hands over our mouths while talking to keep any more gnats from entering. His feisty Pomeranian, its torso shaved for the summer, runs behind, trying to keep up. The north-flowing Tongue River, with cottonwoods along its banks, winds through his 9,700-acre property. The soft-spoken Fix keeps a couple hundred head of cattle here, and grows, this year, alfalfa and barley.

Fix drives on a wooden bridge over the Tongue, through a floodplain that earned its name this spring, and up onto the backside of a butte overlooking the Tongue River and his house and barns. This butte is part of the proposed path of the Tongue River Railroad. Fix says it would come over the butte and continue along his land to the south and then follow the river in the same direction. About 60 miles from here the spur line would connect to the Otter Creek tracts.

"When it goes across the place, it would just form a wall for the cattle," says Fix, his tanned face shaded by a tattered cap. "Right now the cattle come to water to drink, but they'd have that wall, and if there's a road there, too, it'll have to be a fenced corridor. I'll have to figure out how to move cattle back and forth across it...It's kind of ridiculous."

Fix is still getting his head around how the railroad would change his land. He hasn't quite made sense of how the Asian coal market could be responsible for bringing it here. Months ago he read about Arch investing in coal export terminals, "and I'm saying, 'What the hell? They're going to take this coal to China?' How can that be cost effective, to take the coal from Otter Creek, go across all those mountain passes, and put it on a boat and ship it? That doesn't make any sense at all."

click to enlarge Mark Fix ranches south of Miles City, along the Tongue River. A proposed railroad to get Montana coal to market would cut through his property. - PHOTO BY MATTHEW FRANK
  • Photo by Matthew Frank
  • Mark Fix ranches south of Miles City, along the Tongue River. A proposed railroad to get Montana coal to market would cut through his property.

Here's Gov. Schweitzer's rough math: Coal plants in China are paying about $115 a ton, delivered, for sub-bituminous coal, the kind under the Otter Creek Valley. That coal is worth about $15 a ton in Montana. The freight cost on the rails would run about $35 or $40 a ton, and across the Pacific about $50 to $70. "So the way it stacks right now, it works," Schweitzer says. "It would compare economically with the coal they're bringing in from Australia and Indonesia."

The other part of the equation is that the coal China imports is cleaner than the coal they mine in the south and east of their territory. Their higher-quality coal lies in Inner Mongolia and other provinces to the north and west, but there's no railroad connecting those coal reserves to where the huge demand is along China's coasts.

The math in Montana doesn't pencil out without the Tongue River Railroad. It was first proposed in the early 1980s, when it was intended to connect to the Montco coal mine near Ashland and mines to the south in Wyoming. Montco was permitted but never developed. Meanwhile, the effort to build the railroad has quietly proceeded. The first stretch was approved in 1986, the second in 1996 and the third in 2007. Together the three sections make up today's proposed coal route.

Fix bought his property in 1991. A year or two later, he says, land men from the railroad came to him and said they had the power to take part of his ranch under eminent domain. He's been fending off the railroad ever since. The battle intensified last year when the land board leased the Otter Creek tracts. A few months later, the Northern Plains Resource Council and Fix, who serves on the organization's board of directors, petitioned the Surface Transportation Board to re-open the environmental impact statement process, claiming that it didn't consider the cumulative impacts of the railroad and Otter Creek coal development.

The panel rejected the petition last month. Last week, Northern Plains filed a motion for the STB to reconsider that decision. A 9th circuit panel heard oral arguments in Portland, Ore., two weeks ago on a separate legal challenge to the railroad dating back to 1997.

click to enlarge More than a billion tons of coal in Otter Creek Valley could be mined and shipped to Asia. - PHOTO BY MATTHEW FRANK
  • Photo by Matthew Frank
  • More than a billion tons of coal in Otter Creek Valley could be mined and shipped to Asia.

The Tongue River Railroad's counsel, Betty Jo Christian, used to serve as a commissioner on the defunct Interstate Commerce Commission, whose functions were transferred, in 1995, to the STB—that bespeaks "the incredibly cozy relationship between the regulated community and the regulators," says Northern Plains attorney and UM law professor Jack Tuholske.

The railroad needs a total of 2,675 acres of right-of-way. Mike Gustafson, owner of Billings-based Wesco Resources, and of the railroad permit before Arch and BNSF acquired the Tongue River Railroad Company a month ago, says of the effect on private landowners: "That is what it is."

"What we've attempted to do from the Tongue River Railroad's point of view, over those years that we were involved, is follow the guidelines that were set forth by the STB," Gustafson says. "There was a very extensive [environmental review process], we encouraged participation and comment...Most of what we're hearing today [from opponents] is all in the record, it was all considered by the agencies, and it was taken into consideration in the designs."

Gustafson says the full length of the railroad would cross the property of 55 private landowners. He adamantly refutes the allegation that his company has ever threatened to take land by eminent domain. "In fact, we haven't even started negotiations with the private landowners down there," he says. "That's the facts." He adds that he believes the railroad will be able to "negotiate a resolution" with most of the affected landowners.

Fix can't imagine any agreeable resolution that involves a train barreling through his property. "When you're out here you forget that the rest of the world exists," he says. "Not with a railroad running through."

Those railcars would head west on the state's northern or southern rail routes, or both. University of Montana economist Tom Power calculates that if the coal export terminals on the West Coast realize an export capacity of 140 million tons per year, as some estimate, it would require about 30 loaded coal trains, 125 cars long, to cross the state every day. Then they'd come back. That's 60 trains a day. If the trains were split evenly between the northern and southern routes, the coal trains would pass through Missoula—and every other town along the routes—about once every hour.

"We do have opponents out there," Gustafson says of landowners like Fix. "On the other hand, I can introduce you to a lot of people in Otter Creek, introduce you to a lot of people between Ashland and Birney, who would tell you they're very supportive of it. And so it's a mix."

I went to Birney, also along the Tongue River, and talked with rancher Terry Punt, who confirmed that sentiments surrounding Otter Creek and the Tongue River Railroad vary.

"Everybody's got their reasons," said Punt, sitting at his kitchen table. "They think they're going to get a job, or their son or daughter will. I hate to argue with anyone on those kinds of issues because if I needed a job, I might be more open to having Otter Creek; or if my kids were starving and needed a job, I might change my tune."

The Tongue River Railroad was slated to run through Punt and his wife Jeanie Alderson's 8,000-acre Bones Brothers Ranch, which Alderson's family homesteaded in the 1880s. Punt also lamented that the railroad would bring more people and forever change their rural way of life. But it appears their ranch will be spared.

Steve Running, a University of Montana professor and member of the Intergovern-mental Panel on Climate Change, calculates the combustion of Otter Creek coal would result in about 2.5 billion tons of carbon dioxide emissions over the life of the mine. That’s 50 times Montana’s annual emissions. - PHOTO COURTESY STEVE RUNNING
  • Photo courtesy Steve Running
  • Steve Running, a University of Montana professor and member of the Intergovern-mental Panel on Climate Change, calculates the combustion of Otter Creek coal would result in about 2.5 billion tons of carbon dioxide emissions over the life of the mine. That’s 50 times Montana’s annual emissions.

Last Thursday, news broke that Forrest E. Mars Jr., the candy bar and pet food mogul who owns an 82,000-acre ranch in the area, was the private investor who teamed with Arch and BNSF earlier this month to buy the Tongue River Railroad Company. Mars had been an opponent of the railroad, helping Northern Plains fund litigation. Buying a share of the railroad allows him to nix the southern portion of the railroad that would have crossed his land. That section is about 50 miles long, between Decker and O'Dell Creek Road, about six miles northeast of Birney. The rest of the project would move forward with Mars's full backing. "I will not be helping you fund the current appeal or any future litigation on these issues," Mars wrote in a letter, dated July 18, to Northern Plains Resource Council.

"For us on the lower end of the river," Fix says, "we're still in their gunsights."

The Cheyenne have a say

In the debate over Otter Creek, the way of life and property rights of ranchers along the Tongue River and in the Otter Creek Valley, damage to the landscape, and the implications of increased CO2 emissions are weighed against an economic windfall for the state and job opportunities for eastern Montanans. But there's another important consideration: the Northern Cheyenne Nation.

The Otter Creek coal tracts lie to the east of the Tongue River. To the west, on the Northern Cheyenne Reservation, lies a coal deposit called Logging Creek that's nearly as large, containing about 1.2 billion tons. It represents a much-needed economic opportunity to the tribe, which has an unemployment rate of over 60 percent.

But the tribe doesn't own all of the mineral rights to the deposit. Houston, Texas-based Great Northern Properties owns about 5,000 acres' worth. It acquired the rights in 1992 from Burlington Northern Railroad, which had inherited them from the Northern Pacific Railway. The mineral rights should have been turned over from Northern Pacific to the tribe in 1900, when the reservation was expanded, but they weren't, due to, in the words of Montana Rep. Denny Rehberg, "the federal government's surveying errors."

To correct this century-old mistake, Rehberg and Montana Sen. Max Baucus introduced legislation in March to give those mineral rights to the tribe. In exchange, Great Northern Properties would receive rights to about 232 million tons of federal coal near Ashland and Roundup. That's almost twice as much coal as the tribe would receive in the deal, although not all of it could be mined.

Northern Cheyenne President Leroy Spang says the swap is in the tribe's economic best interest.

"We have to bring some money into this tribe and I think responsible coal development is one of our best bets," Spang wrote in a recent tribal newsletter.

During a June 22 hearing on Rehberg's Montana Mineral Conveyance Act before the House Subcommittee on Indian and Alaska Native Affairs. Interior Department Deputy Assistant Secretary Jodi Gillette said an appraisal is needed to ensure the two sides receive equal value.

click to enlarge Birney rancher Terry Punt feared the Tongue River Railroad would bisect his property—until billionaire Forrest E. Mars Jr. bought a third of the railroad in order to shorten it and keep his own land from being crossed. - PHOTO BY MATTHEW FRANK
  • Photo by Matthew Frank
  • Birney rancher Terry Punt feared the Tongue River Railroad would bisect his property—until billionaire Forrest E. Mars Jr. bought a third of the railroad in order to shorten it and keep his own land from being crossed.

Even if the tonnage doesn't match, the tribe stands to receive 40 percent of royalties on sales of the coal acquired by Great Northern, which creates an incentive for the tribe to support off-reservation coal development, whereas the Northern Cheyenne have historically been reluctant to tap even their own vast coal reserves.

Says Punt: "The thing I don't like about it, and the thing Northern Plains Resource Council doesn't like about it as a group, is that it pits the Cheyenne, who have always been our allies, against us in a way they've never been pitted against us before."

That would appear to make two former allies in the fight against coal development in eastern Montana—the other being the billionaire Forrest Mars—who are shifting sides.

A small hurdle was cleared last Wednesday, when the House subcommittee unanimously passed the Montana Mineral Conveyance Act. "We'll finally give the Northern Cheyenne control of their own resources and the associated revenue while creating good jobs for the people of Montana," Rehberg said.

The biggest hurdle remains the approval of Arch Coal's Otter Creek Mine permit. If that succeeds, the Tongue River Railroad would be next, and the mining of the Northern Cheyenne's Logging Creek could follow.

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