Carmichael mine motion - 26/02/18

February 26, 2018

Ten days ago, the Australian published an article headed ‘South32 dumps thermal coal, citing uncertainty and climate change’. Matt Chambers wrote that the BHP spin off is getting out of thermal coal ‘because it is becoming less attractive to investors, has an uncertain future that does not support long-term investment and because the world needs to decarbonise’.


There is a clear structural shift underway in the global thermal coal market – driven by a change in the nature of China’s economic growth, and a global shift away from coal-fired power generation.


The great hope for the thermal coal industry is India. The Indian Prime Minister, Narendra Modi, was elected on a promise of bringing affordable electricity to all Indians by 2019. But it’s increasingly clear that Modi does not intend to deliver that promise on the back of Australian coal. The Indian Government has imposed production quotas on the local industry (particularly the giant, state-owned ‘Coal India’) that are intended to put an end to coal imports by the end of this decade. Thermal coal imports have been declining substantially since 2015, and are expected to continue to do so.


I pause to emphasise that I’m not dealing here with the outlook for coking coal, which remains relatively robust as industry still searches for cleaner ways to make steel. But, the outlook for thermal coal is a different matter.


Australian governments have been consistently bullish about the outlook for thermal coal exports. The Energy White Paper of 2012 forecast that coal exports were ‘expected to grow strongly’ up to 690 million tonnes by 2025. The Paper said pointedly that ‘increasing demand has meant that an entirely new coal precinct has opened up in Queensland’s Galilee Basin’.


The reality today is quite different. Total coal exports are running at around 390 million tonnes –about half of which are thermal coal - and volumes have been flat for several years now. The IEA describes the Adani Carmichael mine as the only significant export-oriented greenfields project – that is, it’s in a new thermal coal basin - on the face of the planet. The case made a decade ago for opening up that new thermal coal basin rested on demand projections that are fundamentally inconsistent with current market trends and the more probable scenarios for future global demand.


In all of the many discussions I’ve had over recent years with different interests about the Galilee Basin projects, a consensus view has been put that they are simply not financially viable. Adani continues to struggle to get financial backing for the Carmichael mine, most recently seen in the decision of the large Chinese banks to walk away from the project. The projects next in the Galilee queue – owned by GVK and Clive Palmer – appear even further removed from financial viability.


There’s clearly a great deal of frustration in Queensland about the constant delays and debate about the Adani project, and whether the promised jobs will ever really happen. In a region that’s been hit hard by the end of the mining boom, job opportunities are crucially important. Bill Shorten isn’t willing to wait on Adani’s continual delays with this project – delays that will likely come to nought anyway. He’s putting concrete announcements before the people of Central and North Queensland right now – jobs that we guarantee will happen.


Now, I and most commentators might be wrong about all that – Adani’s project might notionally go ahead if the Turnbull Government finds some way of throwing a heap of taxpayer money at it. But, the industry itself has been clear that any coal mined from the Galilee to chase a declining seaborne market would simply displace coal and jobs in existing coal regions, like the Hunter Valley – advice contained in a detailed report from the well-known coal industry analysts, Wood Mackenzie. For the life of me, I can’t see how that prospect is in the national interest.


Even on the IEA two degree scenario there will continue to be substantial demand overseas for thermal coal exported from Australia’s established basins, like the Hunter Valley for some time to come. But the growth projections that underpinned plans for a brand new basin in the Galilee have disappeared.