On the left: Jason Kenney appears excited about coal mining; on the right: A young man tell him "dude, it's 2021"

Alberta Coal Rush: Who will win and who will lose? (Part 1)

Natasha Brubaker
1 month ago

Coal companies promise that mining in the Eastern Slopes will bring an economic boom. It’s time to sort facts from fiction.

There’s coal in them thar hills! You can hear echoes of the past in the Alberta government’s rush to develop a new coal policy in the name of revitalizing an ailing economy. Rather than responding proactively to global market shifts and new opportunities, the province is doubling down on a retrogressive agenda.

In May 2020, the Alberta government abruptly rescinded the 1976 Land Use Policy, without any public consultation or input. In making the announcement, Alberta Minister of Energy Sonya Savage stated that an updated coal policy would "help attract new investment for an important industry and protect jobs for Albertans."

Behind the scenes, the coal lobby had been aggressively promoting new coal development in the province, as a not-to-be-missed economic diversification opportunity, since 2019.

Coal companies and the Coal Association of Canada have been working hard to convince Albertans, local municipalities, and the federal government that the proposed projects’ benefits outweigh the economic and environmental risks.

But expanding coal mining in Alberta will leave behind only one clear winner: the coal industry.

“Jobs, jobs, jobs”

There are currently eight open-pit metallurgical coal mines proposed on the ecologically sensitive Eastern Slopes. If approved, these projects could industrialize nearly 1,000 square kilometres of the Rockies.

One of the main benefits that these projects promise to deliver is jobs.

Grassy Mountain, the project furthest along in the regulatory process, is poised to be the test case. According to the mine’s owner, Benga Mining Limited (a fully owned subsidiary of Australian company Riversdale Resources), the project would create 500 jobs during construction and 385 permanent jobs during the mine’s expected 23-year operating lifespan.

In its support of Grassy Mountain and the other projects slated for the Eastern Slopes, the Coal Association confidently asserts that every direct coal job would create three more indirect jobs, though it provides no corroborating evidence.

For a region with relatively low-income levels, these economic arguments can be compelling.

But these arguments can also be deceiving.

Will coal mining in the Eastern Slopes be able to deliver on its promises of jobs and revenues? The coal industry says yes. Others, however, dispute their optimistic projections.

The price of coal

Cornelis Kolijn, an independent expert and retired technical marketing engineer for Teck Coal has analyzed the proposed Grassy Mountain, Tent Mountain, and Chinook Mines.

His review of the data paints a very different economic picture.

Kolijn’s blunt summation of Grassy Mountain is that “Benga overstated the quality and market value of the Grassy Mountain project’s coal product.” Only 16% of the coal at Grassy is high-quality metallurgical coal (also known as coking coal).

It’s also not clear just how much market demand there will be for the kind of coal available for extraction at the proposed Grassy Mountain site, according to Willem Langenberg, a geologist and professor at the University of Alberta. Those reserves are small, he says.

Dr. Langenberg also doubts that the Grassy Mountain project will be economically viable for as long as the company predicts. In his submission to the Alberta government, he argues that due to the mine’s low-quality coal there is a strong likelihood that its operator, Benga, will enter bankruptcy after only a decade. The same could apply to other projects proposed nearby.

Complicating matters is how unstable coal prices are on the international market.

Grassy Mountain, for example, bases its revenue projections on sustained demand for metallurgical coal and an average market price of $140 per tonne for the duration of the mine’s 23-year lifespan.

But in March 2021, the price for top-tier metallurgical coal was just $114 per tonne. Grassy Mountain’s coal is not top-tier; so the price it would fetch would be even less.

Kolijn also doubts the economic viability of Montem's Tent Mountain and Chinook Mines for the same reasons: lower grade coal, which will sell for a lower price, and very limited proven reserves.

Furthermore, the fluctuations in coal prices often result in “swing mines.” Rather than operating on a steady basis, these mines open and close in response to coal’s market value.

Other metallurgical coal mines in the Rockies provide a timely and cautionary tale. Repeated closures have plagued Grande Cache. The Willow, Brule, and Wolverine Mines in northeast British Columbia are closed one third of the time due to low market prices and quality issues.

The situation of these mines is conveniently ignored by the coal industry as it makes its case for massive coal development in the Eastern Slopes.

The demand for coal

The stated rationale behind Grassy Mountain Mine and other projects is a strong and growing global demand for metallurgical coal. In its submission to the federal government, the Coal Association highlights the fact that coal demand will increase by 3.85% in 2021 – but it doesn’t include projections beyond this year.

In a recent report, the International Energy Agency states that, “unless there are unforeseen developments that significantly boost coal demand in emerging Asian economies and China, it is likely that global coal demand peaked in 2013.”

Existing direct reduction technology, emerging technologies such as hydrogen-powered steel-making furnaces and Electric Arc Furnaces, and the increased use of scrap metal are all reducing the need for metallurgical coal throughout the steel production process.

Projections up to 2050 are showing that increased global steel production could be met by emerging technologies, while the blast furnace method (the predominant method in use today, which relies heavily on metallurgical coal), is expected to gradually decline.

The industry can produce sufficient steel to meet global demand using these newer technologies while simultaneously requiring less metallurgical coal as an input.

If these mines go ahead, they will face not only a market in decline but also increasing competition within this shrinking market, which could potentially put downward pressure on prices. 

Royalties

Another promised benefit from coal mining is the potential revenue these mines could generate in the form of royalties.

But estimates for royalty projections can be misleading.

Royalty income fluctuates in tandem with coal prices. Benga estimates that it will pay the province $32 million per year in royalties from the site. But this number needs to be taken with caution as it assumes a high – and constant – market value for the product.

Recent history shows that metallurgical coal mines have not performed well for the province. Cheviot mine, which produced metallurgical coal in an area covering 70 square kilometres, paid only $10 million in royalties in 2017. The mine closed in 2020.

How then can Grassy Mountain (which covers 28 square kilometres) really suggest that it would generate three times the revenue for a similar product?

What’s more, Alberta’s metallurgical coal royalty rates are quite low compared to other jurisdictions. The province receives only 1% royalties on monthly mine revenue for first-tier coal. For second-tier coal, royalties are 1% of monthly mine revenue and 13% of net revenue.

Can coal be counted on for revenue and jobs?

The coal industry’s economic arguments may appear attractive on the surface, but a closer inspection reveals that they are based on speculation and extremely limited data. 

Jobs and revenue are highly dependent on the price and demand for metallurgical coal – both of which call the industry’s economic case into question.

Rather than generating the promised financial windfall and driving increased long-term employment, coal appears to be yet another boom-and-bust scenario.

Like rushes of the past, there would likely be few winners and many losers.

Rather than economic gains, coal development on the Eastern Slopes would leave a legacy of dashed economic dreams and a trail of environmental destruction.

Those economic and environmental costs of coal mining will be explored in Part Two of “Alberta’s Coal Rush: Who will win and who will lose?”