(The Associated Press circulated the following article on September 9.)
SIOUX FALLS, S.D. — Coal that has been trucked from Wyoming to Rapid City will be carried across South Dakota to Chicago by the Dakota, Minnesota and Eastern Railroad.
Three-thousand carloads of coal have been ordered by KFx, a Denver-based firm that’s testing a process to make coal burn hotter and cleaner in a plant at the old Fort Union mine a few miles north of Gillette.
The coal will be shipped to utilities, hospitals and universities, mostly in Illinois, Michigan and Ohio.
“If these test burns go well, particularly when our project is built, we could be moving a lot more coal,” said Kevin Schieffer, DM&E president.
The new business offers a glimpse of the future and helps illustrate the need for rail expansion, he said.
His railroad has been working for eight years to get regulatory approval and money to rebuild its line across South Dakota and Minnesota and to extend its tracks to the Powder River Basin coal fields in Wyoming.
The deal with KFx gives the Sioux Falls-based DM&E another reason to seek a $2.3 billion Federal Railroad Administration loan it has applied for.
“When you are transloading coal by truck to get to market, that tells you something about capacity problems” the existing rail shippers BNSF and Union Pacific have in moving coal out of the Powder River Basin, Schieffer said.
BNSF handled KFx’s first shipment but has a limited capacity to handle more coal, said Ted Venners, KFx chairman.
The railroad requires coal be shipped in 140-car unit trains, and Venners said many of the industries KFx is targeting do not have facilities to off-load and store that much coal.
The DM&E can haul coal in smaller lots and to places not served by the BNSF, Venners said.
Schieffer and Venners said that some of the coal could help the ethanol industry. Ethanol plants in South Dakota now use natural gas in their distilling process.
“We get calls regularly from the ethanol industry about switching,” Venners said. “Buying clean coal is much more competitive. It’s one-fourth the cost of natural gas.”
Schieffer said his railroad will carry Wyoming coal to ethanol plants someday. “There are huge, huge, huge prospects of that occurring, to the point where I would say it is absolutely inevitable.”
Only about five of the more than 100 ethanol plants in the United States use coal, said Brian Jennings, American Coalition for Ethanol executive director. The rest use natural gas, but natural gas price volatility does make coal an attractive alternative, he said.
“Natural gas will continue to dominate. But as new ethanol plants come on line, certainly developers will look at options. Coal is one of the options they will consider,” Jennings said.
Some of the KFx coal will go through Rochester, Minn., a hotbed of opposition to the DM&E’s plans.
Mayo Clinic spokesman Lee Aase said DM&E’s deal with KFx does not raise fears that Rochester will have a coal-hauling railroad incrementally shoved down its throat.
“From our perspective, the contract really doesn’t change anything. It represents a small fraction of what DM&E would need to repay a $2.3 billion loan from American taxpayers.
“It’s a very small fraction of what they need in terms of coal contracts. It doesn’t really do anything to illustrate the viability of their project,” Aase said.
Venners said KFx could do more business with the DM&E even before the expansion project. KFx can keep trucking coal to Rapid City as long as there is available trucking at affordable rates, Venners said. “As long as the market demands it, we will keep doing it.”
KFx plans more production plants within a couple of years, he said.
“It coincides with the time period of the DM&E expansion,” Venners said. “It’s all timed quite nicely.”