Canada coal phase-out a ho-hum for CN, CP

The phase-out of coal for electricity generation announced by Canada’s greenish Liberal government Nov. 21 will have no impact on the country’s Class I railways. That’s because nearly all of CN and Canadian Pacific steam coal haulage originates and terminates within the U.S.

CN and CP’s coal haulage businesses are almost entirely driven by overseas demand for steel-making metallurgical coal. That market has improved substantially over the past few weeks after several years of slumping demand from China.

Relatively little steam coal is mined or consumed in Canada, whose massive hydro-electric power stations built in the mid-20th century export their substantial surpluses to the U.S.

Ontario, the country’s biggest power consumer, eliminated coal entirely several years ago. Steam coal consumption is now limited to the four coal-producing provinces of Nova Scotia, New Brunswick, Saskatchewan and Alberta and is generally mined in situ at power plant sites. Some 80% of the country’s electricity production derives from water power, nuclear reaction or wind. Just 11% comes from coal.

For CN, coal carloads totaled 438,000 in 2015 but three-quarters of that originated and terminated in the U.S. President-elect Donald Trump’s promise to free coal from environmental constraints is far more significant to Canadian railroads than is their own country’s phase-out to meet its Paris Accord commitments. Most of CN’s domestic loadings are “met” coal for export with a small amount of thermal coal for export to the U.S. CN’s total coal revenues in 2015 were C$612 million, representing a mere 3% of total freight business.

Met coal accounted for 245,000 carloads and 22% of CP’s bulk freight revenues in 2015—10% of total freight revenues.

“Our Canadian coal portfolio is comprised almost entirely of metallurgical coal shipments, with more than 28 million metric tonnes (MMT) transported in 2013—equating to approximately 245,000 carloads and C$560 million of revenue,” according to CP’s current Investor Fact Book.

The vast bulk of CP coal loadings originate at Teck Resources’ five high-mountain coal mines perched on the British Columbia side of the continental divide and destined for ocean terminals near Vancouver, B.C.

CP relays a small quantity of Powder River Basin steam coal as interchange traffic for delivery to power plants in Minnesota, Illinois and Iowa. There is some intermittent traffic of PRB steam coal from CP’s Sweetgrass, Mont., interchange with BNSF to Prince Rupert, B.C. for shipment to Asian power plants. None of that traffic will be affected by Canada’s coal plant phase-out.