State looks to railroad for money to improve Morehead City port

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State officials are prodding the N.C. Railroad Co. to quickly pledge to contribute $70 million over the next decade for a new storage facility at the Morehead City port that could start shipping wood pellets to European electric utilities by January 2014.

Advocates say the port project could give North Carolina a healthy share of a burgeoning market for biomass fuel, creating at least 200 jobs and quadrupling the yearly freight rail traffic into Morehead City.

With the railroad’s financial backing, they said, the state could win agreements with European utilities and with businesses that would produce wood pellets from Eastern North Carolina forests. They warned that North Carolina was at risk of losing out to other Southeastern states whose ports already have pellet storage facilities.   

But Scott Saylor, the railroad president, said the decision was weeks away.

“The railroad board is expected to meet in late October or early November to determine our response to the request,” Saylor said.

That won’t be soon enough, said George Rountree III, a Wilmington lawyer and former legislator who serves on both the railroad and ports authority boards.

“That’ll be too late,” Rountree said. “We might as well forget it, in my opinion. I don’t think our counter-parties are going to wait that long.”

Bradshaw said the state doesn’t have the money to build a storage facility, which would cost about $60 million, and the ports don’t have the security needed to borrow the money at a favorable interest rate. He said he would be able to sign contracts to build the facility as soon as the railroad promised to put up $7 million a year over the next 10 years to guarantee repayment of the loan.

Bradshaw said he expects the storage facility would pay for itself in time.

Rountree said he will abstain from voting when the railroad board decides whether to provide the money for a project he said is “so patently beneficial to North Carolina.”

Compacted sawdust, residue

North Carolina has seen growing interest in the manufacture of wood pellets, about the size of vitamin capsules, as a fuel source. Denser and drier than wood chips, wood pellets are made by compacting sawdust and sawmill waste and residues from timber harvesting, including roots and branches.

Maryland-based Enviva has begun building two pellet plants in northeastern North Carolina worth $112 million over the past two years. The company exports the pellets from its own deepwater terminal in Chesapeake, Va.

Electric utilities in Britain and the European Union are being pressed by government sustainability standards to cut greenhouse gas emissions and rely more on renewable energy sources. Bradshaw said they’re investing hundreds of millions of dollars to cut their use of coal and find new supplies of wood pellets.

“I’m talking to all the utility companies,” Bradshaw said. “I’ve been in Belgium, I’ve been in Germany, in Switzerland, and all of them are trying to reduce their carbon footprint.”

North Carolina has plenty of available woodlands near its two ports, in Wilmington and Morehead City, and near the N.C. Railroad line, which runs from Charlotte to the Morehead City docks, industry and government officials say.

“Part of the reason we don’t see pellet plants in North Carolina is the fact they don’t have dry storage” at the ports, said Bob Slocum, executive vice president of the N.C. Forestry Association, an industry group. “It’s not a wood supply problem.”

Burning pellets emits less carbon dioxide than burning coal, but the total carbon production includes the fuel burned to harvest the trees, manufacture the pellets and send them to Europe by truck, train and ship.

“They get more bang for their buck if they’re hauling it on a railroad,” Slocum said. “All of this is based on carbon credits. If you haul on a train with 125,000 pounds per railcar versus 26 tons on a truck, you’re burning less diesel to move it.”

450 train loads per year

Keith Crisco,  state commerce secretary, told railroad board members at a meeting last week that wood pellet shipments could fill 450 trains a year to the Morehead City port, the Wilmington Star-News reported. A Commerce Department spokesman declined to provide details.

The legislature recently put the State Ports Authority, previously an independent agency, under control of the state Department of Transportation. Bradshaw, a former DOT secretary and retired banking executive, was installed this year as ports director.

“This is an opportunity to develop our ports, to make an economic investment that gets a return,” Bradshaw said. “I see this as a real business for the long haul.”

It’s the first time the state has asked the N.C. Railroad to pay for improvements at the ports. Saylor said the railroad board needs to talk with legislative leaders and Gov. Bev Perdue.

“We look forward to receiving more information about the use of the funds and the economic development project that the port is pursuing,” Saylor said.

The N.C. Railroad’s chief revenue source is its lease with Norfolk Southern Railroad, recently renewed for 15 years, to haul freight on its tracks. Norfolk Southern pays N.C. Railroad $14 million a year, Saylor said, and the money is invested in railroad improvements that will be worth about $85 million over the next five years.

Rountree and Blackburn said the railroad has more than enough money in savings and other income so that it can afford to contribute $7 million a year for the wood pellet storage facility.

Source: http://www.newsobserver.com/2012/09/27/2373952/state-looks-to-railroad-for-money.html

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