Coal on a Roll
When Warren Buffett and his fellow Berkshire Hathaway director Bill Gates visited the Black Thunder coal mine last November, they did their best to keep a low profile. This is not an easy thing to do, however, when a fleet of nine private aircraft touches down at a small county airport like the one in Gillette, Wyoming, which bills itself, not without reason, as the Energy Capital of the Nation.
In the age of Twitter and Facebook, nothing stays secret for long. Even as the two famous visitors were putting on their hard-hats, miners were spreading the word, forcing the Oracle of Omaha to face the local press. All he would say was that the visit had been "fascinating."
Investment analysts say that fascinating is Buffett-speak for a really, really big deal, and that his visit to Wyoming’s Powder River Basin, which produces almost 40 percent of the nation’s coal, cannot be seen in isolation. Just a year earlier, Buffett had wrapped up the $44 billion purchase of the Burlington Northern Santa Fe Railway, his biggest acquisition ever. Coal accounts for more than a quarter of the company’s revenues, and 90 percent of the coal it hauls is from the Powder River Basin. Ever since the nineteenth century, coal and railroads have thrived on this symbiotic relationship: a recent issue of Trains magazine called coal "railroading’s ultimate commodity and the industry’s best friend from start to now." Buffett’s holdings also include 90 percent of MidAmerican Energy, a utility that operates four coal-fired power plants in Wyoming. Now he was taking a firsthand look at the biggest coal mine in the country. Join up the dots. In particular, join up the dots that lead north from Black Thunder along the railroad tracks to Donkey Creek Junction, 10 miles or so east of Gillette. Most of the coal trains turn to the right here, headed for power plants in the heartland, from Michigan to Texas. But if what Buffett calls his "all-in wager" on railroads and coal pays off, more and more of them will turn to the left, headed for ports in the Pacific Northwest, and from there to Asia. It’s a grotesque idea on the face of it, digging up Wyoming to provide Asia’s booming economies with the dirtiest of all fossil fuels. But will the plan come to fruition? And if it does, how high will it rank in the hierarchy of environmental crimes?
Going to Extremes
The Eagle Butte mine, which belongs to Alpha Natural Resources, is barely a mile north of the Gillette airport. It is one of a trio of virtually suburban mines that make up the northernmost of the three distinct mining clusters in the Powder River Basin. I arranged to take a tour of Eagle Butte, meeting my guide at the Flying J truck stop in downtown Gillette. She was a chipper junior high school P.E. teacher named Shannon, who said she had been working for Alpha for the past eight summers. It’s the third-biggest coal company in the nation, she told me proudly. (Peabody Energy is number one; Arch Coal is second.) She promised lots of other "fun facts," most of which seemed to involve extremes of size, weight, and volume.
Our first stop was a fenced overlook just off the highway. Below us was the huge west pit of the Eagle Butte mine. Brobdingnagian electric shovels had already scooped out about 250 feet of overburden -- the layer of dirt and rock that has to be removed to get at the coal seam -- and were now dumping bucketfuls of coal into red-and-gray haul trucks of formidable dimensions. When full, each truck lumbered off with its 240-ton load, grinding its way at walking pace up an incline that led to the railhead, a mile or so distant.
Standing upright by the wire fence was a tire from a LeTourneau loader: 13 feet high, six and a half tons, $38,000. A few yards away was a shovel bucket. You could have brought one of Shannon’s P.E. classes here on a field trip and fit them all comfortably inside, with room to spare for the teacher and a couple of parents. "That’s the baby bucket," she said. "The ones we use now are much bigger; they can scoop up 140 tons at a time."
We drove off to see the rest of the mine. More trucks were dumping their loads into an underground crusher, which reduces the lumps of coal to pebble size. From there the coal passes to a conveyor belt that slants upward at a 30-degree angle to feed a towering storage silo. The silo is 210 feet tall, Shannon said, continuing with the fun facts. A train was inching its way through a gap in the base of the silo, loading up. Each car carries about 117 tons of coal, she said. A "unit train" can have as many as 140 cars, hauling more than 16,000 tons in all. Between 70 and 85 of these mile-and-a-half-long centipedes leave the Powder River Basin each day, carrying enough coal to supply almost a quarter of the nation’s electricity. The words China and India never passed her lips.
Commitment to "Clean Coal"
Last December, barely a month after their trip to Black Thunder, Buffett and Gates met privately with President Obama. The White House said they discussed the economy, few details given. A month later Obama gave his State of the Union address, in which he laid out a global energy strategy that some call "all of the above." Nestled among wind, solar, nuclear, and natural gas was that uniquely slippery phrase "clean coal" (better to think of it as "slightly less filthy coal"). Then, in March, Secretary of the Interior Ken Salazar flew to Wyoming to announce that the Bureau of Land Management (BLM) would hold four "competitive" sales for new leases on 758 million tons of Powder River Basin coal. These would be the first of a dozen such auctions over the next three years, with as much as 3.7 billion tons of coal eventually up for grabs.
Very little of this, however, would be for domestic consumption. Although worldwide energy-related CO2 emissions rose more last year than at any time since 1969, and the use of coal grew faster than that of any other fossil fuel, U.S. demand has actually flatlined. In 2000 coal accounted for just over half of our electricity supply. By 2010 it was down to 45 percent. Large banks and insurance companies, uncertain about a future carbon-constrained world, are increasingly reluctant to underwrite the huge investment -- as much as $3 billion -- required to build a new coal-fired power plant, which can have a lifespan of 50 years.
Asia is a different matter. Historically, the global coal market has been famously volatile. But companies like Peabody and Arch Coal are convinced that Asian demand has triggered a "supercycle" that will last at least 20 years, and talk in the industry is of exporting more than 100 million tons annually. The pivotal moment came in 2008, when China, which now uses almost half of all the coal burned on the planet, became a net importer for the first time. Demand in India, though starting at a much lower point, is rising even more rapidly and is likely to go on rising long after China’s appetite for coal levels off, which is predicted to happen sometime after 2030.
To many people, Obama’s "all of the above" sounded like a capitulation to King Coal after climate legislation came to grief last year in Congress. But the strategy has deeper roots. First of all, the federal bureaucracy is notoriously prone to inertia, and the wheels of the BLM, which is responsible for granting mining leases, grind more slowly than most. The leases announced in March were not a new idea: the coal companies had applied for them at least five years ago. So the Obama administration didn’t push the plan forward; it simply chose not to pull it back.
Nor is the commitment to "clean coal" anything new. In 2009, when the Nobel Prize-winning clean-energy guru Steven Chu was nominated to be secretary of energy, there was great excitement at his statement that coal was his "worst nightmare." This eminently quotable phrase sat well with environmentalists, but the corollary did not. Given coal’s abundance, Chu went on, India, China, the United States, and other major consumers were not going to stop burning the stuff any time soon. And so, he said, "it is imperative that we figure out a way to use coal as cleanly as possible." That means working closely with China (and increasingly with India, too) to minimize the harm done by burning coal that is going to be burned anyway.
One quirk of this story is that Warren Buffett has no more love for coal than does Steven Chu. What appeals to him about railroads, he told Charlie Rose a week after buying BNSF, is that they are so environmentally friendly -- "far, far more attractive in terms of global warming than using trucks." But what about all the coal they carry? Rose asked. "We will wean ourselves off coal over time," Buffett answered. "We can’t change that next week or next month or next year, but we will reduce it over time, and we should reduce it over time."
An odd set of stars have come into alignment here, in other words, and the muscle power of those involved is formidable: the federal government, which sees coal as an unpleasant but inescapable reality; the country’s leading investor, sitting on assets of $372 billion, who dislikes coal but won’t turn up his nose at a 20-year windfall for his shareholders; the big coal companies, which want to sell as much of their product as they can; and the world’s two most populous countries, which also happen to be the world’s two fastest-growing economies.