New Brunswick

Soaring coal prices not a problem for now, N.B. Power claims

A sudden and dramatic escalation in the international price of coal will not incinerate N.B. Power's finances this winter or require a switch away from the fuel at least in the short term, according to the utility.

Coal is up 300 per cent but utility says it has price protections until 2024

International coal prices were trading above $230 US per ton this week, four times what NB Power paid for the fuel last year. (Jacques Poitras/CBC)

A sudden and dramatic escalation in the international price of coal will not incinerate N.B. Power's finances this winter or require a switch away from the fuel, at least in the short term, according to the utility.

N.B. Power imports up to 1 million tons of coal a year and mixes it with petroleum coke to burn at the generating station in Belledune.   

In the past it has said a $1 US per ton change in international coal prices has the potential to lift or lower its annual profit by $1 million, but over the past year coal prices have shot up by a ruinous $200 US per ton. (Coal is traded internationally using the imperial weight measurement of ton) 

Still the utility is not worried yet because it has protected itself against soaring prices for at least the next two years, according to company communications specialist Marc Belliveau.

"The rise in coal prices will have no discernible effect on us for the foreseeable future as we have a fixed contract on supply until 2024." Belliveau wrote in an email to CBC News.

Coal pricing is a significant issue for NB Power because of the volumes it consumes. 

A woman carrying a child and belongings wades through floodwaters in Zhengzhou China in late July. Dozens of coal mines north of the city were overrun by unprecedented flooding, helping to send international coal prices soaring. (Aly Song/Reuters)

It imports the fuel by ship, mostly from Colombia. According to its most recent annual report, the utility paid an average price of $55.53 US per ton during the last fiscal year. 

But two weeks ago, coal prices shattered records by hitting $269.50 US per ton following serious flooding in China that shut several dozen coal mines.   Prices have drifted downward since but remain well above normal, ending trading on Tuesday at $239.35 US per ton.

Were it not for contracts it has already locked in, coal prices at those levels would instantly make electricity generated at Belledune uncompetitive and heighten N.B. Power's significant financial problems. 

How it would deal with that if higher than normal prices last is unclear.

NB Power's thermal generating station in Belledune has fixed price contracts for coal until 2024 that shelter it from current price spikes according to the utility. (Jacques Poitras/CBC)

Earlier this year, the utility said it considered spikes in coal prices so unlikely it didn't bother to model what would happen if they shot up

"Coal is a low-cost fuel," N.B. Power wrote in its Integrated Resource Plan (IRP), the utility's master planning document,

"Significant price increases are unlikely due to greenhouse gas regulation. Coal prices are expected to remain stable and no new coal stations were considered in the development of the IRP. Because of this, a sensitivity focused solely on coal prices was not considered necessary."

However, prior to the flooding crises in China, coal prices had already been climbing and could pose problems if they persist at elevated levels into 2024, when N.B. Power's current fixed price contracts conclude.   

NB Power is hoping to win permission to burn coal in Belledune's furnaces until 2040 but will need prices for the fuel far below where they currently are. (Jacques Poitras/CBC)

Belledune is a cornerstone generator for N.B. Power and is scheduled to operate at least until 2030, when federal climate change regulations require coal fired stations to be shut down.   

However,  it is hoping to win an extension to 2040 through an "equivalency agreement" with Ottawa.  That would allow it to operate intermittently and spread nine full years of carbon dioxide emissions it has left over 19 partial years instead. 

But that plan assumes long term coal prices at traditional levels, about 75 per cent below where they are now.

 

ABOUT THE AUTHOR

Robert Jones

Reporter

Robert Jones has been a reporter and producer with CBC New Brunswick since 1990. His investigative reports on petroleum pricing in New Brunswick won several regional and national awards and led to the adoption of price regulation in 2006.

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