FAIRBANKS — Lower production of coal and refined fuel in the Interior could translate into a difficult 2013 for the Alaska Railroad.
The railroad is anticipating significant reductions to next year’s capital budget because of resulting reductions to its freight operations. The railroad transports jet fuel from the Flint Hills Refinery in North Pole, as well as coal from Usibelli Coal Mine in Healy.
Flint Hills announced in April it was idling one of its two operating refinery units, citing “challenging economics and rising crude prices” in its decision. Meanwhile, a weakened global coal market is translating into a drop in Usibelli’s exports.
Railroad spokesman Tim Sullivan said those moves are causing ripples for the railroad, which relies heavily on freight operations for its bottom line. The railroad anticipates a $10 million drop in revenue from those sources compared to 2011.
“We have to take a hard look at what we’ll be able to do moving forward,” Sullivan said.
Sullivan said it’s not a new trend for the railroad. The amount of fuel hauled from the North Pole refinery has declined 53 percent since 2003, with the pattern accelerating since the latest unit was idled last summer. He said an additional reduction of 10 percent in fuel freight is projected for 2013.
At its peak, fuel accounted for nearly half of the railroad’s freight operations, Sullivan said.
To compound the problem, the railroad also is hauling less coal from the Usibelli mine. The railroad is forecasting a drop of at least 30 percent from its 2012 export coal shipping levels, according to a report to the state the railroad released on Friday.
After collecting $185.7 million in revenue in 2011, the railroad is projecting $146.1 million in 2012. The budget for 2013 dips to $137.6 million.
Sullivan said next year’s capital budget will be “profoundly impacted” by freight losses. He said capital expenditures are the easiest area to adjust when budget shortfalls occur.
In the state report, railroad President and CEO Christopher Aadnesen said the capital budget also will be affected by the possible reduction of federal grants for improving infrastructure. Those factors combined are resulting in a $23.5 million capital budget, with roughly half as many internally generated funds to dedicate to such projects.
“We must think creatively and make bold adjustments that can substantially reduce expense,” Aadnesen wrote. “This will likely entail efforts to restructure our services and our organization in a way that can absorb some of the losses today, while leaving us prepared should our revenue picture improve.”
The losses in freight are being only slightly offset by small increases in passenger traffic. Passengers are expected to be about 415,000 in 2012, continuing a rise of 1 to 2 percent during each of the past three years.
Those figures are down considerably from the passenger peak in 2007, when about 565,000 people road the trains. Sullivan said rides track closely with overall visitor numbers to Alaska, which have bounced back slowly following the economic collapse in 2008.
“Obviously, we’d like to see more, but a lot of that has to do with the national and global economy,” he said.
Contact staff writer Jeff Richardson at 459-7518.