Washington (Platts)--3Dec2010/507 pm EST/2207 GMT

BNSF Railway is on pace to triple its shipments of export coal to Vancouver piers in 2010, as higher Asian demand for thermal coal pushes up prices, driving multiple companies to explore new coal terminals along the US West Coast as capacity at Canadian terminals tightens.

The Fort Worth, Texas-based railroad should haul more than 6 million short tons of Wyoming and Montana coal through Westshore Terminals in 2010, compared with about 2 million st in 2009, according to two people familiar with company operations.

The year-end total will make up about a quarter of the coal shipments flowing out of the terminal, the largest in North America by volume.

While shipments to the Canadian port remain a fraction of Powder River Basin production, which annually nears 500 million st, the rate of growth and upward demand trajectory has encouraged companies including BNSF to explore the possibility of building international coal terminals in the western US.

Westshore is expecting to haul 24 million metric tons this year, breaking a record set in 1997.

BNSF officials have repeatedly declined requests to confirm the railroad's shipping pace, clarify the exact tonnage expected to flow through Vancouver this year or discuss plans for a new port.

In an October interview with Platts, Stevan Bobb, group vice president for coal, said the company was "pleased" with the volumes bound for Asia.

"A couple years ago, we sort of had in our mind that this was a two or three million ton opportunity just from just existing capacity perspective and we're pleasantly surprised," Bobb said at the time.

Much of the coal is coming from Montana mines, in particular FirstEnergy's Signal Peak and Cloud Peak Energy's Spring Creek facilities, as well as some shipments from the coal-trading arm of Peabody Energy, according to a person with knowledge of the shipments.

"We are seeing an increase in international demand ... as the demand goes up, the prices go up," said Mark Dawson, a spokesman for FirstEnergy, which co-owns Signal Peak with Boich Cos.

Industry officials have said much of the pull for the coal is from Chinese and South Korean power plants, assertions bolstered by export data from the US Department of Commerce.

Montana coal exports to South Korea reached $57 million at the end of September, compared with $32.9 million during all of 2009, government data shows. The coal Montana sold to China jumped from zero in 2009 to more than $25.3 million through the first nine months of 2010.

Raymond James analyst Jim Rollyson said the increase in export values reflects both higher volumes and prices that are outstripping domestic utility markets that have traditionally been the domain of Wyoming and Montana coal.

"One of the reasons that people are excited about the growth opportunity is, at least on paper, they are able to get higher prices," Rollyson said. "They would seem to be getting some premium at this moment over what they're getting in the PRB [domestically]."

The growing international trade in western US coal has been encouraged by a shift from spot contracts to one- and two-year term supply deals that coal industry officials say are crucial to the development of new terminal capacity along the California, Oregon and Washington coast.

"There's always been either a couple of term deals or some spot cargoes that have moved through Westshore, so it's been an option for a long time," Bobb said. "But generally, it's been shorter term, single-destination-focused or spot tons that is different than today, where it's moving to multiple geographies and a little bit more term to the business than a spot nature."

Peabody and BNSF representatives declined to comment for this story. Cloud Peak did not immediately respond to questions and phone messages seeking comment.

A US subsidiary of Australian miner Ambre Energy recently cleared its first regulatory hurdle to build a 5-million-st terminal along the Columbia River, while the port commissioners in Tacoma, Washington, rejected a terminal proposal that would have handled up to 20 million tons annually.

Peabody Energy and Arch Coal officials have repeatedly said they are exploring coal port options.

Those kind of announcements may be an indication that the market is shifting from mid-term to what one Montana coal official in March said was the "next step" -- long-term commitments that can underpin a terminal.

"What needs to happen is a section of the Asian utility market has to come to a decision that for strategic reasons they want some US sub-bituminous supply and that they are prepared to enter into not just a medium-term contract, but the sort of long-term contract that underpins capital investment -- major capital investment -- and those conversations are the next stage along the process," the Montana official said at the time.

--Peter Gartrell, peter_gartrell@platts.com

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