Developing Business Strategies       U.S. Western Steam Coal Exports to Mexico Port of Los Angeles Los Angeles, California Port of Los Angeles Mission The Port of Los Angeles (POLA) is a major shareholder in a public-private partnership that owns and operates a large scale coal export facility known as LAXT, Inc. Located on Terminal Island with the boundaries of POLA., LAXT was originally intended to export coal to Asian electric power utilities. The export facilities came into full operation coincidental to the Asian economic slowdown in the mid-1990’s. As a result, the economic health of LAXT, Inc. suffered under greatly reduced demand for fuel in Asia. POLA was forced to meet capital calls to support operational losses and sought to reduce them by finding alternative markets for U.S. coal to emerging power utilities in South Western Mexico. Project Setting & Goals U.S.Western steam coal is a high-quality fuel resource utilized extensively throughout the world by electric power utilities and heavy industry. Sourced from approximately 16 individual mines located in the states of Utah, Colorado and Wyoming, Western steam coal is recognized for its low sulfur content, high thermal output and reliability of delivery. Though seldom the lowest price alternative available to utilities, Western steam coal is often used as a blending stock with lower cost coals to achieve an optimal balance of thermal output, environmental and cost concerns. A major power generation station located near the Port of Lazaro Cardenas on Mexico’s Pacific Coast is undergoing conversion from oil to coal fired burners. Supporting that process was the development of a large coal receiving terminal near the generation station. Known as the Petacalco Plant, the power station produces nearly 6% of the national electric power output and will consume approximately 6 million tons of coal annually when fully converted. A major success for POLA and LAXT, Inc. would be to develop sales contracts for 2 million tons per year.m the spot market and on an “all-With the U.S. coal producers at or near the high price spectrum of global suppliers available to CFE, the The Mexican utility tasked with coal buying decisions is the Comision Federal de Electricidad (CFE). A part of the Energy Ministry, CFE operates all electric power generation, transmission and distribution facilities in Mexico. Less than 8% of CFE power generation is by coal fired plants but those units are in the northern frontier in close proximity to U.S. producers and far from ocean freight opportunities accessible to global suppliers. CFE are well aware of the global market conditions effecting coal prices and intend to make their initial fuel purchases from the spot market and on an “all-With the U.S. coal producers at or near the high price spectrum of global suppliers available to CFE, the consulting team first had to better understand the cost elements which comprised the all-in price figures. Clearly, the shorter delivery time from Los Angeles to Lazaro Cardenas could offer some off-setting advantages. Overall, we sought to build a sales case for US Western steam coal that was not price-dependent. Approach & Outcomes After studying possible competitors to the U.S. interests, some advantages emerged which were tested with CFE. It was also noted that most foreign suppliers were in reality bound to or a part of their respective governments. This sovereign sale aspect meant that the U.S. producers were competing with foreign governments with the flexibility and willingness to adjust product prices to achieve desired results. Thus, even more pressure was necessary to build a sales case independent of price consideration for the U.S. side to win. Sullivan Consulting Group, Inc. (SCG) was the prime contractor selected by the Marketing Department of the Port of Los Angeles. SCG orchestrated seminars with CFE to help them better understand coal procurement policies favored by other large scale power utilities and how to best use U.S. coal in particular. SCG also organized a Trade Mission to Mexico. Sponsored by the U.S. Department of Commerce both SCG and Commerce staff were able to appeal to CFE and other Energy Ministry leaders the solid case for consideration of U.S. supplied coal. Attended by POLA, LAXT, Inc. and U.S. coal producers, the following elements to the sales case were presented: Nation-to-Nation transaction Consistent Quality Proven Performance Short-haul Flexibility Ideal Blend Stock Reliable long term Supply Long term Trading Partners Environmentally Superior SCG has been continuing to press for results and is encouraged that as much as 50% of annual needs at Petacalco can ultimately be furnished from the United States. back to top Copyright © Sullivan Consulting Group, Inc.