5
Transport of Coal and Coal Products

Like all fuels, coal must be transported to an end user before it can be used. Specific transportation needs vary—Gulf Coast lignite is generally transported over very short distances to minemouth power plants, Appalachian and Illinois Basin coals are typically transported over somewhat longer distances from mine to market, and coal mined in the Powder River Basin may travel distances ranging from less than 100 miles to more than 1,500 miles before it reaches the user (NCC, 2006). Therefore, growth in coal use depends on having sufficient capacity to deliver increasing amounts of coal reliably and at reasonable prices. Conversely, insufficient capacity, insufficient confidence in reliable delivery, or excessive transportation prices could reduce or eliminate growth in coal use.

With the electric power sector accounting for more than 90 percent of U.S. coal use (Table 5.1), coal transport to the more than 600 coal-burning power plant sites in the nation is especially important. Of these plants, rail transportation serves approximately 58 percent, waterborne transportation serves 17 percent, trucks serve 10 percent, 12 percent are served by multiple modes of transportation (primarily rail and barge), and 3 percent are minemouth plants with conveyor systems (NCC, 2006). In 2004, more than 85 percent of coal shipments were delivered to consumers by either rail (684 million tons), truck (129 million tons), or water (98 million tons) (EIA, 2006g; see Table 5.1). However, Energy Information Administration (EIA) statistics report only the method by which coal was delivered to its final destination and do not describe how many tons may have traveled by other means along the way—almost one-third of all coal delivered to power plants is subject to at least one transloading along the transportation chain (NCC, 2006). For example, the figure for waterborne transport does not include



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Coal Research and Development: to Support National Energy Policy 5 Transport of Coal and Coal Products Like all fuels, coal must be transported to an end user before it can be used. Specific transportation needs vary—Gulf Coast lignite is generally transported over very short distances to minemouth power plants, Appalachian and Illinois Basin coals are typically transported over somewhat longer distances from mine to market, and coal mined in the Powder River Basin may travel distances ranging from less than 100 miles to more than 1,500 miles before it reaches the user (NCC, 2006). Therefore, growth in coal use depends on having sufficient capacity to deliver increasing amounts of coal reliably and at reasonable prices. Conversely, insufficient capacity, insufficient confidence in reliable delivery, or excessive transportation prices could reduce or eliminate growth in coal use. With the electric power sector accounting for more than 90 percent of U.S. coal use (Table 5.1), coal transport to the more than 600 coal-burning power plant sites in the nation is especially important. Of these plants, rail transportation serves approximately 58 percent, waterborne transportation serves 17 percent, trucks serve 10 percent, 12 percent are served by multiple modes of transportation (primarily rail and barge), and 3 percent are minemouth plants with conveyor systems (NCC, 2006). In 2004, more than 85 percent of coal shipments were delivered to consumers by either rail (684 million tons), truck (129 million tons), or water (98 million tons) (EIA, 2006g; see Table 5.1). However, Energy Information Administration (EIA) statistics report only the method by which coal was delivered to its final destination and do not describe how many tons may have traveled by other means along the way—almost one-third of all coal delivered to power plants is subject to at least one transloading along the transportation chain (NCC, 2006). For example, the figure for waterborne transport does not include

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Coal Research and Development: to Support National Energy Policy TABLE 5.1 Tonnage of Coal Delivered to Consumers in 2004 Delivery Method Electricity Generation Coke Plants Industriala(except coke) Residential or Commercial Total Great Lakes 8,644 1,144 1,341 — 11,128 Railroad 625,830 10,414 46,031 1,975 684,249 River 71,062 3,722 7,915 406 83,105 Tidewater piers 3,391 — 530 — 3,936 Tramway, conveyor, and slurry pipeline 79,997 1,014 31,975 — 115,262 Truck 73,441 453 50,266 2,741 128,900 Unknown — — — — 28,005 Total 863,802 17,095 150,309 5,122 1,064,348 NOTE: Figures, in thousand short tons, are for final delivery and do not reflect transloading to or from other modes during transit. aThis category includes coal that is transported to plants that transform it into “synthetic” coal that is then distributed to the final end user—a substantial component goes to electricity generation plants. SOURCE: EIA (2006g). coal that was transloaded to rail, truck, or other transport modes before final delivery, and the U.S. Army Corps of Engineers reported that 223 million tons of domestic coal and coke were carried by water at some point in the transport chain in 2004 (USACE, 2006). Coal transportation, especially by truck and rail, affects communities through which the coal passes. Trucks hauling coal have the potential to damage roads and cause deaths or injuries in accidents. Coal trains crossing local roads temporarily block those roads, adding traffic congestion and potentially delaying or degrading responses by police, fire, and other emergency responders and temporarily cutting off some residents from emergency services (e.g., see TVA, 2005). TRANSPORTATION BY RAIL Coal producers and users depend heavily on rail transportation (see Figure 5.1). In 2004, rail transported 64 percent of U.S. coal shipments to their final domestic destinations and 72 percent of coal delivered to power plants (EIA, 2006g; see Table 5.1). Under the EIA’s reference case forecast (EIA, 2006d), all transportation modes—particularly railroads—will be called on to transport more coal for longer distances to both existing and new markets. This forecast projects that Appalachian coal production will increase slightly (2 percent) between 2004 and 2030, production from the interior will increase by 135 million tons (92 percent), and production from the rail-dependent West will increase by 435 million tons (76 percent). Accordingly, future growth in coal use will depend on the availability of sufficient rail capacity to deliver increasing amounts of coal and on the railroad industry’s ability to do so reliably and at reasonable prices.

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Coal Research and Development: to Support National Energy Policy FIGURE 5.1 Schematic showing coal tonnage transported by rail in 2002 throughout the 48 conterminous states. SOURCE: Courtesy of Bruce Peterson, Center for Transportation Analysis, Oak Ridge National Laboratory. Although continuing technology improvements may help railroads to add capacity and provide reliable delivery at a reasonable cost, it is unlikely that federally sponsored research and development will be significant contributors to such improvements—capacity, reliability, and price are all much more dependent on supply and demand, business practices, the investment climate, and regulatory oversight in the railroad industry. In addition, although the industry faces staffing constraints, worker health and safety concerns, environmental regulation, and community concerns, these issues do not threaten capacity, reliability, or price to an extent that would materially affect projections of future coal use. Rail Capacity Demand for transport of coal by rail has increased markedly in recent years. This is especially the case in the West, where the tonnage of coal transported on the line jointly operated by BNSF Railway Company and Union Pacific Corporation to serve the southern Powder River Basin coal fields (the “Joint Line”) (Figure 5.1) increased from 19 million tons in 1985 to 325 million tons in 2005 (UPC/BNSF, 2006). Increasing rail capacity depends on capital investments for rolling stock and additional track, and such investments require confidence that

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Coal Research and Development: to Support National Energy Policy demand and revenue will remain high over the long term (Hamberger, 2006). The railroads have cited changes in demographics, training requirements, and limits on the availability of qualified personnel as posing a risk to their ability to meet the long-term demand for rail service (BNSF, 2005; UPC, 2006). Rail Reliability Weather and other natural phenomena, such as earthquakes, fires, and floods, have the potential to cause localized line outages that can, in turn, adversely affect an entire rail network. Weather conditions in Wyoming in May 2005 demonstrated this risk when heavy rain and snow, combined with accumulated coal dust in the roadbed, led to track instability on the Joint Line (UPC, 2006). Two coal trains derailed on consecutive days, damaging the line and temporarily putting it out of service (EIA, 2005b). Both Union Pacific and BNSF declared force majeure, beginning with the derailments and continuing until normal operations were restored. Track maintenance and restoration disrupted operations and reduced shipments on the Joint Line throughout most of the rest of 2005 (UPC, 2006). The spot price of Powder River Basin 8,800 Btu (British thermal unit) coal reflected the severity of this disruption, rising from $8.19 per short ton just before the derailments to $16.89 per short ton in October 2005 (EIA, 2005a, 2005c). The terrorist attacks of September 11, 2001, and the more recent attacks on passenger transportation systems in London, Madrid, and Mumbai, have raised concerns about possible terrorist disruptions of freight rail transportation. Even when freight rail infrastructure is not directly the target of a terrorist attack, government efforts to protect against such attacks can slow trains, increase congestion, and adversely affect railroads’ profitability, financial condition, or liquidity (UPC, 2006). State utility regulators have noted increases in uncertainty associated with the availability of rail cars for loading the coal at its point of origin, the availability of locomotive power, and the arrival time at the train destination (NARUC, 2006). Opinions differ about whether or not disruptions in coal delivery reflect a substantial and ongoing problem and about whether the power plant operators or the railroads should modify their activities to respond to these delivery problems (English, 2006; Hamberger, 2006; McLennan, 2006; Mohl, 2006; Wilkes, 2006). The rail networks that transport the nation’s coal—like air traffic control and electric transmission networks—have an inherent fragility and instability common to complex networks. Because concerns about sabotage and terrorism were largely ignored until recently, existing networks were created with potential choke points (see Figure 5.1) that cause vulnerability. The complex and dynamic interactions between societal and environmental factors—as well as the intrinsic dynamics of a system that operates close to its capacity—result in the potential for small-scale issues to become large-scale disruptions.

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Coal Research and Development: to Support National Energy Policy Price The Staggers Rail Act of 1980 removed many regulatory restraints on the railroad industry. The Staggers Act allowed the Interstate Commerce Commission (now succeeded by the Surface Transportation Board) to regulate rates only when competition is not sufficient to keep rates below a statutory threshold expressed as a multiple of the railroad’s variable cost (FRA, 2004). Since the Staggers Act took effect, a long-term decline in railroad market share has been reversed and freight rates (adjusted for inflation) have declined by 1 to 2 percent annually (FRA, 2006). However, developments since 1980 have significantly reduced competition in the industry. More than 40 Class I railroads (a railroad with at least $250 million in operating revenues in 1991 dollars) served North America in 1980, and only 7 remain today. Of these, two railroads in the West (Union Pacific and BNSF) and two in the East (CSX and Norfolk Southern) control more than 95 percent of the rail business. Consequently, each of the coal supply regions—the Powder River Basin, Illinois Basin, and Appalachian regions—is served by only two railroad companies for coal transport to power plants (NARUC, 2006). The combination of reduced rail competition, perceived problems in the delivery of coal by rail, and price increases associated with the 2005 rail disruptions has caused some concern on the part of coal-fired power plant owners about both the reliability and the price of coal delivery. Severe and frequent delivery problems or spikes in prices have the potential to reduce future coal use by affecting the climate for coal-fired power plant investments. TRANSPORTATION BY TRUCK More than 12 percent of the total coal transported in 2004 in the United States—about 129 million tons—was moved by truck (EIA, 2006g). Typical truck haul lengths (one way) are less than 100 miles, averaging about 32 miles. Significant tonnages of coal are trucked in some states, most notably West Virginia (18 million tons shipped annually) and Kentucky (17 million tons trucked annually). Truck shipments are also an important component of multimodal coal transport in Kentucky. The issues associated with truck transport are primarily associated with road maintenance, the generation of noise and dust, and traffic safety. WATERBORNE COAL TRANSPORTATION Transportation on the inland waterways and Great Lakes is an important element of the domestic coal distribution system, carrying approximately 20 percent of U.S. coal tonnage and making 10 percent of deliveries to end-use consumers. The amount of waterborne transported coal, approximately 306 million tons in 2004 (including imports and exports), has remained relatively constant over the

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Coal Research and Development: to Support National Energy Policy last two decades. Coal represents a significant share of shipping on the inland waterways, accounting for approximately 20 percent of total cargo. Barge transportation rates on contract coal shipments are about one-half to two-thirds those of rail haulage on a ton-mile basis, and truck transportation rates are an order of magnitude higher than waterborne transportation rates (EIA, 2006h). Barge traffic is particularly important in the midwestern and eastern states, with 80 percent of shipments originating in states along the Ohio River. This reflects the large number of coal mines and electricity generation facilities that have barge loading and unloading facilities along the Ohio River and its tributaries. Some coal exports from the United States to Canada also move across the Great Lakes. These exports have decreased in recent years, but lake traffic has remained approximately constant because of increased movement of Powder River Basin (PRB) coal shipped between U.S. ports. Like PRB coal, which is transloaded from rail to lake vessel or barge, much waterborne coal is transloaded before final delivery to the ultimate consumer. Although total domestic waterborne coal cargo is about 200 million tons, only about half of that coal (110 million tons) is finally delivered by water to its final customer (Table 5.1), principally to electricity generating facilities. Maintenance of the critical infrastructure along the inland waterways and Great Lakes (i.e., locks and dams, dredging of ports) is the responsibility of the U.S. Army Corp of Engineers (USACE). USACE construction and rehabilitation projects are funded on a 50-50 cost-shared basis from appropriations and from the Inland Waterways Trust Fund, established in 1986, which derives its revenue from a 20-cent-per-gallon tax on fuel used for commercial waterway transportation. Between 1992 and 2001, congressional appropriations were less than Inland Waterways Trust Fund income and therefore the fund balance grew, a situation that began to be reversed in 2005 with greater administration requests and congressional appropriations. The USACE also spends about $500 million per year on operation and maintenance (O&M) of the waterway system, of which $135 million is spent in the Ohio River and Great Lakes Division.1 O&M expenditures for the total system have been essentially level (in constant dollars) since the 1970s, below levels that the industry believes are optimum for the aging system. The use of Inland Waterways Trust Fund money has been a source of considerable concern within the barge and towing industry (Knoy, 2006). Similarly, the operators of commercial shipping on the Great Lakes have warned that inadequate port dredging is hampering the transport of coal from the Powder River Basin (LCA, 2006). The USACE and Congress receive recommendations for the use of the trust fund from the Inland Waterways Users Board (IWUB), an 11-member industry advisory committee, and this body recently warned that 1 Presentation to the committee by John Moran, Waterways Council, Inc., June 2006.

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Coal Research and Development: to Support National Energy Policy deferred maintenance has resulted in serious structural failures (IWUB, 2005). The IWUB identified approximately 20 construction and rehabilitation projects that it believes are critical to the inland waterways systems, with a total price tag to completion of more than $5.4 billion. This would require an annual expenditure of $477 million, about $100 million above the FY 2006 actual appropriation. However, this level of expenditure would not be sustainable with the current trust fund balance and expected future income (IWUB, 2005). Fund income has averaged about $100 million per year over its history, and it would be required to contribute $2.7 billion as its share of the $5.4 billion called for by the IWUB. TRANSPORTATION OF COAL EXPORTS AND IMPORTS Exports of coal from the United States are currently around 50 million tons, a little less than half of the record export tonnages transported in the 1980s. Exports are expected to decrease in the future, primarily due to the anticipated availability of low-cost coal supplies from South America, Asia, and Australia (EIA, 2006d). In fact, the EIA reference scenario predicts that the U.S. share of the total world coal trade will fall from 6 percent in 2003 to 3 percent in 2025. At the same time, U.S. imports of low-sulfur coal are projected to grow, from the current 28 million tons to almost 90 million tons by the year 2030. The potential need to meet tighter emissions targets may make coal imports an attractive option for coal-fired power plants in the Gulf Coast and Atlantic seaboard areas (EIA, 2006d). The national transportation network is not expected to be challenged by these predicted export and import trends. Transloading terminals on the Gulf Coast and the Atlantic seaboard have adequate capabilities for managing such traffic, and they have managed increased volumes in the past. However, reversing or shifting the flow direction from export to import may present logistical and operational problems for the transportation infrastructure, principally the railroads. ELECTRICITY TRANSMISSION Constraints on the delivery of electricity from power plants can reduce the natural competitive advantage that coal-fired power plants have over plants fueled by oil or natural gas that cannot generate electricity as cheaply. Consequently, transmission constraints have the potential to limit future coal use. Coal’s competitive advantage relies on “economic dispatch”2 that theoretically operates in the electricity generation market (DOE, 2005). However, in practice 2 Every power plant has a schedule of production levels and costs. In theory, units are called upon to provide power in “merit order,” in which the least expensive units are dispatched first, with additional units being dispatched in order of increasing costs until electricity needs are met. Factors that could increase the production costs of coal-based plants and thereby alter dispatch order, such as environmental constraints, are discussed in Chapter 6.

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Coal Research and Development: to Support National Energy Policy it is frequently necessary to dispatch units out of merit order because of electric transmission infrastructure limitations, and in some cases this results in higher-cost resources being dispatched in place of lower-cost resources (DOE, 2005). When this happens, some lower-cost generators lose opportunities for sales. Much of the nation’s coal-fired electric generating capacity is located at some distance from the urbanized areas that have the largest and most concentrated demands for electricity. For example, PJM Interconnection LLC operates the world’s largest centrally dispatched transmission grid, stretching from Illinois to New Jersey and extending as far south as Virginia and North Carolina (PJM, 2007). The bulk of the lower-priced coal-fired generation for the PJM grid is located in northern West Virginia, northern Virginia, Maryland, eastern Ohio, and southwestern Pennsylvania. The eastern Mid-Atlantic portion of PJM’s territory, which includes New Jersey, Delaware, southeastern Pennsylvania, and eastern Maryland, has experienced growing customer demand and relatively little new generation capacity. To the extent that transmission capability allows, lower-priced coal-fired generation in the central part of PJM’s territory displaces higher-cost generation in the East. However, both technical (e.g., risk of overheating transmission lines) and operational (e.g., need to maintain voltage at minimum levels) factors limit transmission capability. Significant portions of the country are subject to transmission congestion and the resulting out-of-merit dispatch. Two densely populated and economically vital areas—the Atlantic coastal area from metropolitan New York to northern Virginia, and Southern California—currently have major transmission congestion or are projected to suffer severe congestion effects in the future (DOE, 2006, 2007b). The severity of such effects is linked to the size of the population affected, economic costs, size of the reliability problem, impact of a grid failure on the nation, or some combination of these factors. Four areas of concern were identified in which a large-scale congestion problem exists or may be emerging—New England, the Phoenix-Tucson area, the San Francisco Bay area, and the Seattle-Portland area. This analysis also noted the likely need for significant additional transmission investments to enable increased flows of electricity from midwestern coal-fired plants into the PJM grid and New York (DOE, 2006). Planning for reliable electricity in the areas of greatest demand depends on a combination of local power plants to meet local demand without undue stress on the transmission system; distributed resources such as small on-site generators, energy efficiency and other demand reduction; and new or upgraded transmission infrastructure (NYC, 2004). It is difficult to predict the extent to which particular urbanized regions will endeavor to enhance the reliability of their electricity supply through local generation and transmission or by instituting energy efficiency or other demand reduction measures. If these areas implement alternative ways to increase electricity supply or enhance supply reliability other than by relying on new and upgraded transmission infrastructure, the need for increased coal usage will be diminished.

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Coal Research and Development: to Support National Energy Policy As is the case with rail transportation, the electric transmission system can be vulnerable to initially localized disruptions that ultimately have severe and widespread impacts. For example, the failure to manage tree growth along transmission rights-of-way was cited as the root cause of an August 2003 blackout that affected Ohio, Michigan, Pennsylvania, New York, Vermont, Massachusetts, Connecticut, and Ontario, with estimated costs ranging from $4 billion to $10 billion in the United States alone (DOE/NRC, 2004). TRANSPORT OF COAL-DERIVED PRODUCTS In the future, transport of a range of coal-derived products also may require attention. For example, liquid fuels and substitute natural gas derived from coal are being assessed with increased interest as a result of recent oil and gas price increases and national security concerns. Some of the coal use scenarios described in Chapter 2 include projections for growth in coal-to-liquids and coal-to-gas plants in the post-2020 period. In general, the transport of energy products from such plants would be similar to the pipeline and other distribution systems currently employed at petroleum refineries or gas processing plants. However, should a significant coal-based synthetic fuels industry begin to materialize in future decades, issues related to the transport of energy products from such facilities may require further research. If geological sequestration of CO2 is implemented on a large scale as a greenhouse gas mitigation measure in the future, it will be necessary to transport large quantities of CO2 from their sources to geological storage sites. Ideally, CO2 sequestration would take place at sites in close proximity to the sources of CO2, generally coal-based power plants or other large industrial facilities that capture and compress CO2 for transport and storage. However, not all coal plants are located immediately above or adjacent to geologic storage sites. In such cases, transport of the CO2 by pipeline would likely be the most economical and preferred method, although it is also possible to transport CO2 in road tankers, rail tankers, or ships (in cases where the sequestration site is located far offshore) (IPCC, 2005). The proximity of potential sequestration reservoirs will need to be considered, along with many other factors (e.g., proximity to coal fields, transport costs, electricity delivery costs, availability of water), when sites for power plants are evaluated. An extensive description and analysis of CO2 transport is presented by the Intergovernmental Panel on Climate Change (IPCC, 2005), and the following two paragraphs are derived from that report. Currently, there are more than 2,500 km (~1,500 miles) of long-distance CO2 pipelines operating in the western and southern United States. These pipelines transport more than 40 megatons of CO2 per year,3 primarily from natural CO2 3 This amount compares to approximately 2,000 megatons of CO2 emitted from all U.S. coal-fueled power plants in 2005.

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Coal Research and Development: to Support National Energy Policy wells and from one coal gasification facility, for use in enhanced oil recovery (EOR). The oldest of these pipelines was completed in 1972, and the longest is 808 km (Gale and Davidson, 2004). In the 13 years from 1990 to 2002, there were 10 incidents of leakage involving CO2 pipelines, with no injuries or fatalities (Gale and Davidson, 2004). Existing CO2 pipelines are located in rural areas of low population density and, unlike natural gas pipelines, do not pose a risk of combustion or explosion. The composition of CO2 pipelines and their manufacture, construction, maintenance, and operation are all mature technologies. Most existing pipelines carry reasonably pure CO2, although some also contain impurities (e.g., H2S derived from petroleum refining). Depending on the CO2 source and capture technology, some future sequestration pipelines might contain various amounts of other impurities such as SO2, NOx, oxygen, and nitrogen, possibly requiring some modification to current pipeline design specifications. It is expected, however, that allowable levels of impurities will be determined by future regulatory requirements governing CO2 sequestration. FINDINGS—TRANSPORT OF COAL AND COAL PRODUCTS The issues associated with the transport of coal and coal-derived products are related primarily to the regulatory and business environments, and with the exception of an improved understanding of complex networks, there seems to be little requirement for research activity. Accordingly, the committee finds the following: The greater coal use projected in some of the scenarios discussed in Chapter 2 will be possible only if sufficient transport capacity is available to reliably deliver the increased amounts of coal at reasonable prices. Transport of coal by rail and by waterway will be critical for increased coal use. The capacity, reliability, and price of rail transportation—the dominant mode of coal transport—depend largely on the supply and demand for rail transportation, as well as on prevailing business practices, the investment climate, and the nature of regulatory oversight of the railroad industry. The capacity, reliability, and price of rail transportation of coal depend to a far lesser degree on research and development. Reliable and sufficient waterborne transportation—the second most prevalent method of coal transport—depends on the construction and maintenance of waterway infrastructures, especially lock-and-dam infrastructure and port capacity. Much of the nation's coal-fired electric generating capacity is located at some distance from the urbanized areas that have the largest and most concentrated demands for electricity. Projections of higher coal use depend on sufficient capacity to transmit electricity from coal-based power plants to such areas reliably and at a reasonable cost. Conversely, the projected increases in coal use will

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Coal Research and Development: to Support National Energy Policy diminish if those high-demand areas satisfy much of their growing demand for electricity not by expanding their ability to import electricity from areas where coal is plentiful, but by a combination of energy efficiency, demand response, and local electric generation from sources other than coal. Both the rail transportation and the electric transmission systems are complex networks in which localized disruptions can have severe and widespread impacts. Research is needed to better understand the factors that control these large and complex networks to minimize the risks of cascading system disruptions.