The Durango Herald 02/07/2008, Page B01
Desert Rock dims by the day

We’ve not heard much from Sithe Global and the other backers of the masÂsive Desert Rock coalÂburning power plant proÂposed near Shiprock, N.M., recently. Perhaps it’s time for a quick checkup on Desert Rock’s vitals.

Desert Rock backers abanÂdoned efforts this year to pocket $85 million in subÂsidies from New Mexico taxpayers.
Gov. Bill Richardson made clear his lack of enthuÂsiasm for Desert Rock while on the presidential camÂpaign trail last summer. ComÂbined with last year’s defeat of a similar tax rebate request, Sithe Global apparently read the handwriting on the wall and pulled the plug on its lobbying efforts.

The Wall Street Journal this week reported more bad news for Desert Rock on the financial front. Three huge Wall Street investment banks – Citigroup, J.P. Morgan and Morgan StanÂley – adopted new financial standards to require plant proÂponents like Sithe Global prove the plants will be economically viable even under potentially stringent federal caps on carbon dioxide. As one of the bankers noted, “What is earth-shakingly different between now and two years ago is the focus on CO 2 .”

The financial squeeze is parÂticularly tough on Desert Rock because its costs keep balloonÂing. Sithe Global now figures the plant will cost at least $3.6 billion, up 20 percent in just the last couple of years, and already twice the original cost touted when the plant was first proÂposed. Throw in another $400 million for the new transmisÂsion line needed to carry Desert Rock’s electricity to distant marÂkets in Arizona and Nevada, and we’re starting to talk real money at a time when Wall Street bankers are ever more skeptical of coal plants like Desert Rock.

Sithe Global generated an amusing piece of news recently when its lawyers at Bracewell & Giuiani sent a piquish letter to the Environmental Protection Agency threatening a lawsuit if the EPA didn’t promptly issue Desert Rock its necessary air pollution permit. Sithe’s attorÂney at Giuliani’s law firm is one Jeffrey R. Holmstead. Before his job represent ing Sithe GlobÂal, Holmstead was in charge of all of the EPA’s air programs, including global warming, where he was the chief architect of the EPA’s now discredited approach that it lacked the auÂthority to regulate global-warmÂing pollution under the Clean Air Act. Holmstead’s erroneous legal views were rejected by the U.S. Supreme Court last April when the court ruled that the EPA may in fact regulate carÂbon dioxide just like any other pollutant.

One experienced air-quality advocate described HolmÂstead’s tenure at the EPA as “deny, delay, obstruct” any acÂtion to address global warming. Now, here he is representing the largest new source of globÂal warming-causing pollution planned for the Southwest U.S., and insisting that EPA hurry up and issue a permit rather than consider the conseÂquences of 12 million tons of carbon dioxide spewed into the atmosphere each year.

I’ll almost be sorry when Desert Rock bites the dust in the not-so-distant future.

Where else can one find so much fine entertainment proÂvided by its army of spokesÂpeople, lawyers, public relaÂtions staff and investors?

mpearson@frontier.net Mark Pearson is director of the San Juan Citizens Alliance.

Source: http://www.forbes.com/2008/02/05/coal-supply-pressures-markets-comm-cx_vk_0205markets01.html?partner=email
Vivian Wai-yin Kwok, 02.05.08, 4:13 AM ET

HONG KONG -

The devastating snowstorms in China plus floods in Queensland, Australia, further compounded by power crises in South Africa, may lead to world coal prices doubling in 2008-2009.

Primarily because of the amplifying supply-side pressure in the coal sector, Citigroup forecast that the annual contract price for thermal coal will reach $100 per metric ton in the 2008-2009 financial year, up from $55 per ton now, while the price of coking coal may also mount to $200 per ton from $95.

The tightening of the coal market, already squeezed by slower growth in Indonesian and Australian exports and stronger demand from Asia, has been further hit by bad weather in producing areas, which paralyzed processing and shipment from major coal mines.

Recent heavy rain and record flooding across central Queensland have resulted in substantial short-term disruptions to operations. At the Ensham mine, the 8 million metric ton per year thermal coal producer, the pit was flooded. Two million metric tons of thermal coal production will be lost.

Coking coal production is likely to be even more severely affected, with many producers such as BHP Mitsubishi Alliance, a joint venture of BHP Billiton (nyse: BBL - news - people ) and Mitsubishi (other-otc: MSBHF - news - people ) Development, warning that coal deliveries will be delayed and declaring force majeure on supply contracts. Citigroup estimated 4 to 5 million metric tons of coking coal output will be lost.

In South Africa a coincidence of peak seasonal demand, maintenance shutdowns and wet weather hampering coal deliveries forced state-owned electricity provider Eskom to resort to load shedding--shutting down 4 gigawatts of power generation to prevent a system overload--curtailing energy supply to mines and other heavy industries. These disruptions have uncovered a deeper problem--lack of investment in electricity generating capacity--which will not be resolved until at least 2012-13.

In China, the biggest snowstorm in 50 years had triggered serious power shortages, leaving 17 provinces facing brownouts and interrupting power supplies to industrial users including smelters. As in the case in South Africa, the current chaos has brought to the surface a problem rooted in power tariff caps, low coal prices, coal production curbs and infrastructure bottlenecks. (See: " Problem In Black And White In China")

Citigroup predicted that the tight supply of thermal coal, the most common and cheapest coal, used in the production of electricity at thermal power stations, will begin to ease from 2010 as port and rail bottlenecks in Australia are removed. However, potential sources of additional supply of coking coal, an important ingredient in the production of steel, are much more difficult to identify, and prices are expected to remain higher for longer term.

Other developments will also boost coal prices, including sharply higher exchange rates in producing countries and cost increases. Production costs have been rising 14% per year, and further cost inflation is expected, if at a slower rate. "As a consequence we have increased our long term prices to $120 per ton for hard coking and $50 per ton for thermal," Citigroup projected.