Goldman Sachs withdrawal from Carrix is another sign of the dim outlook for US coal export proposals
January 8, 2014
© Greenpeace / Tim Aubry
2013 was a miserable year for coal export terminal backers. Proposed terminals in the Pacific Northwest faced unprecedented public opposition, in the form of packed hearing rooms, mass protests, and hundreds of thousands of public comments. Coal companies failed to obtain a single necessary permit. Meanwhile, the business case for new coal export terminals unraveled with the collapse of the Pacific seaborne coal market, sparking headlines such as Coals future darkens across the globe.Coal companies hoping for sunnier days shouldn't hold their breath. It looks like 2014 is off to a rocky start. In a deal that closed Tuesday, Goldman Sachs Infrastructure Partners subsidiarysold its 49% ownership in Carrix, the company behind the Gateway Pacific Terminal proposal near Bellingham, Washington. Goldman Sachs had been urged to quit this coal export proposal by the Rainforest Action Network and thousands of citizens. Its departure is the latest signal of diminishing confidence in the US coal industry's efforts to expand exports to Asian markets. Since 2012, three of the six originally proposed coal export terminals in Washington and Oregon have been cancelled or tabled amidfalling global coal prices and uncertain Chinese demand, as well as determined opposition throughout the region. The International Energy Agency's annual outlook for the global coal industry,released last month,highlighted this dim outlook for US coal export proposals: "Uncertainties surrounding future demand in China and actions by environmental and anti-coal groups will also hamper the growth of US coal exports, despite the existence of promising low-cost production areas, including the Illinois and Powder River basins."
Goldman Sachs' own analysts published areport in July 2013, "The window for thermal coal investment is closing." Chinas appetite for coal is cooling, as the country tackles its air pollution crisis and rampant overcapacity in industrial sectors. As with any commodity, coal has gone through boom and bust cycles; however, the rapid transformation taking place in China is locking in long-term structural declines in coal consumption, which will keep seaborne coal prices low.
The emerging Wall Street consensus is that coals best days are over. Similar reports about the declining outlook for the global seaborne coal market have been published by Citi, Deutsche Bank, andmore.
The two proposed coal export terminals along the Columbia River have also faced financial setbacks in recent months. Investors in Ambre Energy, the lead backer of the proposed Millennium Bulk and Morrow Pacific Terminals, recently approved adeal that would allow the private equity firm Resource Capital Funds (RCF) to take majority interest in the company. An independent auditor described the deal as "not fair" but reasonable, given the risk of insolvency if Ambre refused the deal and RCF demanded repayment of its $110 million loan. In its much-delayed2012 annual report, Ambre Energy revealed losses of $30 million since its previous financial statement, prompting an auditors warning that "there exists a material uncertainty whether Ambre Energy Limited would be able to continue as a going concern."
It remains to be seen how decisions on the remaining coal export terminal proposals proceed with new investors in the mix. Goldman Sachs share of Carrix was picked up by Fernando Chico Pardo, a well-known Mexican businessman. Resource Capital Funds control of Ambre will be managed by Ross Bhappu, who became famous after making big money for RCF by betting on a start-up rare earth minerals mining company and selling right before the bubble crashed. Note any parallels?
The combination of unprecedented public opposition and a shrinking seaborne coal market is proving too risky for Wall Street financial players like Goldman Sachs. The US coal industry is struggling, and the smart money is getting out of coal exports. What remains is largely a mix of desperate coal companies facing an existential crisis in the wake of a shrinking domestic market and venture (or vulture) capitalists looking to make some cash on a knowingly risky bet. These arent the companies Northwest communities are likely to trust with their health and ecological resources.