May 2016

Coal in Canada

A snapshot of the sector from the Pacific to the Atlantic

By Ryan Bergen and David Chen

Infographic 1Coal production in Canada has been consistent over the past decade, hovering between 67 and 69 million tonnes (mt) per year, and split down the middle between thermal coal, used mainly for domestic electricity generation, and metallurgical or coking coal, exported overseas for steelmaking. But environmental concerns and an industrial slowdown in recent years have put both commodities under pressure.

Coal burning in Canada

The federal government sketched out in 2012 its vision for cutting greenhouse gas emissions as it relates to coal. The released regulations dictate that if provinces want to run coal power plants beyond 2030, they will have to adopt carbon capture and storage (CCS) technology. It also requires power plants built before 1975 to shut down once they reach 50 years of service, or by 2020.

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Alberta and Saskatchewan, with their mine-to-mouth coal plants, are the most affected jurisdictions. They are not only the heaviest coal-burners, but they also mine the largest amounts of thermal coal in the country. Saskatchewan’s response to the regulations was to invest heavily in CCS technology. In 2014, the province generated 44 per cent of its electricity from coal and has no plan to reduce it in the future. Alberta’s government chose a different path, pledging last November to eliminate coal burning by 2030. Last year the province cut its coal dependency to 38.5 per cent of its energy mix, a 16.5 per cent drop from 2014. Natural gas is now Alberta’s biggest power source.

The biggest coal-reduction story in Canada came in 2014 when Ontario became the first jurisdiction in North America to fully eliminate coal as a source of electricity. A decade earlier, the province still generated a quarter of its power from coal.

The other provinces that still burn coal for electricity are Nova Scotia and New Brunswick. The two maritime provinces currently import all of their coal from the United States and South America. Overall, Canada now generates around 18 per cent of its total electricity from coal.

Cost control for coking coal

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Metallurgical coal, the other half of the industry, accounts for half of the country’s coal production and almost all of its annual exports. It has been hit especially hard over the past few years as producers are faced with plummeting prices and market oversupply. It also did not help that Australia and China, the largest consumers of coal in the world, signed a free trade agreement last year, eliminating a three per cent tariff on coking coal and putting Canadian companies at a disadvantage.

In an attempt to try to stay afloat in the volatile market, a number of companies in Canada have had to reduce or cut production altogether. Anglo-American and Walter Energy indefinitely suspended a combined four mines in northeastern British Columbia between 2013 and 2014. In Alberta, the Grande Cache mine was shut down at the end of 2015 after a series of layoffs. Teck Resources, now the sole producer of coking coal in Canada, took a rotating 3-week shutdown of its six coal mines last summer.

The Vancouver-based company has implemented a number of cost-cutting measures to its mining operations. According to company spokesperson Chris Stannell, one of the biggest savings comes from the reduction in diesel fuel consumption by haul trucks. Stannell said Teck has installed lighter truck boxes, ran an anti-idle campaign and cut the amount of time it takes a haul truck to load and unload. He also said the decline in oil prices have helped significantly with cost savings. Other diesel-saving measures the company is looking into is the use of liquefied natural gas as a fuel source for its haul trucks, a measure it is testing out at its Fording River coal mine in B.C.

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Carbon Capture and Storage

While Alberta has pledged to wean itself off of coal by 2030, Saskatchewan is taking a different tack. The province invested nearly $1.5 billion to equip its Boundary Dam power plant near Estevan with carbon capture capabilities, which it proudly opened in October 2014 as the world’s first commercial-scale carbon capture-enabled plant. But since then the CCS plant has had to work through a number of technical issues which has cost Saskatchewan dearly.


Renaissance project

There are signs of life in the cradle of Canada’s coal mining industry. The Donkin project on the northern tip of Cape Breton, where coal mining in North America first began centuries ago, has been recruiting experienced coal miners to help bring the room-and-pillar mine into production.

The last operating coal mine in Cape Breton was shuttered in 2001. Xstrata sparked hope for the industry in 2005 when it bought controlling interest in the Donkin project in 2005. The company and its junior partner Morien Resources spent a combined $43 million before it stopped operations there in 2013.

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Jim Bunn, Kameron Collieries senior vice-president of operations and development, would not say how much the company has spent so far since it bought in 2014 the 75 per cent interest Xstrata-acquirer Glencore had in the project, but confirmed the site is buzzing. In addition to the dewatering of two 3.5-kilometre tunnels that lead to the coal seam beneath the ocean floor, underground work includes roadway improvements, tunnel support, geotechnical work, the installation of a new power distribution system as well as the beginnings of a conveyor system. According to Bunn, the deposit “has great mining height – 3.5 metres at the face – and great coal quality, but it is on a 10 per cent grade.”

Donkin has an estimated resource of nearly half a billion tonnes of coal well suited for both power generation and steel making. “We are sharing quality information with Nova Scotia Power and preparing to collect a sample for a test burn in the summer of 2016,” said Bunn. The mine is also a short haul away from port facilities, which goes a long in improving the economics of the project.

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