Otter Creek Coal – “Not ready to be developed”

The long, strange story of the Otter Creek Coal tracts got longer and stranger at the July 2006 meeting of the Land Board. The tracts, located on the east boundary of the Northern Cheyenne Reservation, were granted to the State of Montana by the federal government in the late 1990s as part of a settlement to buy out the proposed New World gold mine on the border of Yellowstone National Park. At the time, then-Governor Marc Racicot reasoned that developing the coal deposits in Montana would make up for jobs that were "lost" because the gold mine wouldn't go forward and took the coal instead of $10 million offered by the feds. But nearly a decade later, the coal remains undeveloped for a number of significant reasons and, as Governor Schweitzer and the Land Board were told, it is likely to remain undeveloped for quite some time to come.

Although we have chronicled the Otter Creek saga in this publication for years, a quick review may prove useful. When the Otter Creek tracts were first accepted by the Racicot administration, Jim Mockler, the long-standing executive director of the Montana Coal Council, told the Land Board that "the state should have taken the money." Mockler then went on to add that the federal coal had "been there forever" and "if it was economical to develop it, it would have already been developed."

Undeterred by advice they didn't want to hear from the state's most pro-development representative of the coal industry, both the Racicot administration and that of his successor, Judy Martz, forged ahead in their attempts to develop Otter Creek. The 2003 legislature even went so far as to appropriate and spend $300,000 of public money to perform initial studies on the tracts.

Faced with the prospect of massive coal development on its border, the Northern Cheyenne Tribe sued the state and eventually reached an agreement (see Focus on Montana State Lands, Summer 2002 and May 2005) in which cultural, social, environmental, educational, and hiring issues were addressed. In the meantime, ranchers were fighting the proposed Miles City to Otter Creek Tongue River Railroad to prevent it from transecting their ranches.

And then politics reared its ugly head when Secretary of State Brad Johnson, the lone Republican on the Land Board, called Governor Schweitzer's plans to build a coal-to-liquids plant a "pipe dream" at the Republican state convention in 2006 and chided him for failing to push development of the Otter Creek tracts.

Schweitzer struck back hard three days later at the June Land Board meeting with an hour-long presentation which had not been on the agenda, detailing the administration's efforts to develop Montana's coal resources and peppering Johnson with questions about what he thought the state should be doing.

At the July 2006 Land Board meeting, DNRC made another presentation of the administration's coal development efforts, this time with special emphasis on the Otter Creek Tracts. Significantly, Chuck Kerr, the president of Great Northern Properties (GNP), which owns the private land checkerboarded with the state land in the Otter Creek Tracts, gave a long presentation and cautioned the Land Board against rushing into leasing the coal properties until necessary infrastructure was in place. Although he called the estimated 1.2 billion tons of Otter Creek coal "a wonderful resource," Kerr said because of its high sodium content it was not suitable for use in today's thermal generation plants -- but would be suitable for coal gasification or coal-to-liquids. Kerr estimated the current high-sodium coal market at only 20 million tons per year compared to the 400 million tons per year mined for coalburning plants. Likewise, until a railroad, transmission lines, and/or pipelines were built to the tracts, Kerr felt that both the state and GNP would receive far less than the coal was actually worth and perhaps even face the prospect of the leases being purchased by Wyoming coal producers who would simply sit on them to eliminate any competition from Montana coal. Kerr estimated the time frame for getting the necessary infrastructure in place would probably be 6- 8 years and take $600-700 million.

In a surprising bit of news, state representative Jim Keane (D-Butte), gave a presentation and told the Land Board discussions were underway to build a much shorter rail line that would access the tracts from the south. As a union representative of the Operating Engineers, Keane said they have always opposed the Tongue River Railroad and still do because all it would accomplish would be allowing Wyoming coal to be shipped up to the northern tier — which Keane said would cost Montana 200 coal miner jobs in the first year alone. Keane estimated a 41-mile railroad could be built for $73.5 million to move the Otter Creek coal down to the existing Decker-area mines and generators where it could access Midwest markets, be blended with other coal, or used for gasification or liquifaction.

In the end, it was clear that not much is likely to happen with the Otter Creek coal tracts in the near future. As GNP’s president Chuck Kerr noted when he testified before the Board: “Otter Creek is obviously a remote area...a geopolitically sensitive area...an extremely rugged area...a pristine area” – which are all good reasons for conservationists to be happy that development of this low-grade coal is not imminent.