Cleantech Market Intelligence
As Rail Congestion Crimps Coal Supplies, Calls for Expansion Grow Louder
Even as power plant operators are warning of coal supply shortages come winter, the U.S. government has predicted that congestion on the nation’s railways is likely to get much worse in coming years.
Increased freight traffic traveling by rail – particularly crude oil from the Great Plains and grain from a bumper crop this year – has led to significant bottlenecks across the railway network, the Government Accountability Office (GAO) said in a report issued in September. Rail traffic has reached the levels last seen in 2007, before the global recession, and “recent trends in freight flows, if they continue as expected, may exacerbate congestion issues in communities, particularly along certain corridors,” the GAO concluded.
Sounding a more dire warning, Hunter Harrison, the CEO of Canadian Pacific, said during a recent analyst briefing that the entire North American railway system is headed toward a cliff. “We’re quickly approaching a time where none of this works,” Harrison said, according to the Financial Times. “We cannot continue to go down the road that we’re going down and be successful and not have gridlock beyond anything we’ve experienced before.”
On to Chicago, Slowly
Like a slow train spotted in the distance, this fall’s tie-up of train traffic has been anticipated for years. The domestic oil & gas boom, centered in the Bakken formation in North Dakota, has had ripple effects across the upper Midwest, the Rocky Mountains, and the Pacific Northwest. Chicago, where all seven of the Class I railroad companies have major yards, is one of the biggest bottlenecks. Rail transport is relatively low-cost and emits less CO2 than shipping by plane or truck, but investment in rail infrastructure has been slow. Producers and consumers of coal, in particular, have traditionally been trapped in exclusive contracts that give them little leverage in negotiations with rail providers. In September, Democratic Senator Jay Rockefeller of West Virginia introduced the Surface Transportation Board Reauthorization Act, which would increase the authority of the Surface Transportation Board, which regulates railroads, to force them to remedy service delays and justify rate hikes. Lawmakers chided rail executives at a September 10 hearing in Washington for their failure to anticipate and keep up with increased demands on the railway system.
The problem is especially acute for mines in Wyoming’s Powder River Basin trying to ship coal to customers. Big coal-burning utilities have already begun running coal plants at below capacity in order to conserve coal stocks.
Ship Gas, Not Coal
Some of this alarm is likely overstated; no one has suggested that coal plants are actually in danger of running out of fuel this winter. And despite the transport constriction, the price of Powder River Basin coal remains stubbornly low; the price of a ton has dropped 8%, to $10.80, according to Bloomberg. As a matter of national policy, it makes sense to reduce shipments of dirty coal by diesel-burning trains to supply aging power plants that are quickly becoming uneconomical anyway. Meanwhile, tight coal supplies will inevitably lead to louder calls for other types of energy transport infrastructure: namely, natural gas pipelines.
There are good reasons to invest in expanding the nation’s railway infrastructure; shipping more coal is probably not one of them.