Coal’s $60 billion tale of two worlds
Adani may be bearing the brunt of activism, but it’s not alone.
Dodging protesters has become part of the job for Lucas Dow.
Adani’s Australian boss was heckled by hundreds of Stop Adani campaigners on Sydney’s George St during his last visit to the city, with the venue barricaded by a heavy police presence.
The turf war between green groups and the Queensland coalmine shows little sign of letting up. But the Adani chief is adamant he’s committed to seeing the long-delayed project through to first production.
“The proclamation that coal is dead has been greatly exaggerated,” Dow told the Sydney Mining Club last month. “But there’s probably easier ways to make a quid than this job.”
Adani may be bearing the brunt of activism, but it’s not alone. International pressure is steadily piling up on financiers and investors to switch out of coal, despite the fuel still propping up electricity grids and being an integral steelmaking ingredient.
In Australia, coal supplies a whopping 77 per cent of the national electricity grid, about twice the level of the US, while the fossil fuel now stands as the nation’s largest export, delivering more than $60 billion in 2017-18.
But that very dependence has marked out Australia as one of the most exposed countries globally in the war on coal.
“The Australian coal industry remains the lightning rod of the anti-coal movement as developments such as Adani’s Carmichael slog forward,” consultancy Wood Mackenzie says. “Volatility is defined as the liability to change rapidly and unpredictably.
“We expect the entirety of the thermal coal commodity life-cycle in 2019 to live up to this definition. From mine shovel to electron, coal faces another challenging year globally.”
Australia’s best quality black coal — coking or metallurgical coal, largely mined in Queensland — goes direct to the steel mills of Asia, with 191 million tonnes to be shipped to buyers led by India, China and Japan this year, raking in $36bn in revenues.
That’s largely uncontroversial, but it’s the dirtier thermal coal which is the chief target of green groups. Mined mostly in NSW’s Hunter Valley, it is also one of Australia’s top export earners, with revenues tipped to top $25bn in 2018-19, second only to top trader Indonesia.
Its critics say gas and, increasingly, renewable energy alternatives can do the same job, yet demand among the largest pool of buyers in Asia continues to grow, data shows.
Globally, coal output rose in 2018 for a second straight year, with declines in Europe and North America offset by strong growth in two of Australia’s key export markets — China and India — according to the International Energy Agency (IEA).
“The story of coal is a tale of two worlds with climate action policies and economic forces leading to closing coal power plants in some countries, while coal continues to play a part in securing access to affordable energy in others,” says Keisuke Sadamori, IEA director of energy markets and security.
Australian producers, of course, supply the latter, meaning the fundamentals appear reasonably sound among the top Asian buyers.
In the near-term, China’s directives on environmental policies and clean air measures will partly shape the market, given one out of every four tonnes of coal is used to produce electricity for the country.
“If power demand in China remains stable, global coal demand is set to decline more than 1 per cent per year,” the IEA said. “But with power demand growth of 10 per cent — similar to the first decade of this century — global coal demand would grow over 3 per cent per year.”
For others, it’s the next phase of growth which remains up in the air, with Australia’s $70bn pipeline of new coal projects looking less certain in the current environment.
New mines face a much tougher test to receive regulatory approvals, due to community and investor concern over environmental impacts and the threat of new coal facilities becoming stranded assets in the face of cheaper clean alternatives.
The NSW Land and Environment Court last month upheld a decision by the NSW government to block the development of Gloucester Coal’s proposed Rocky Hill coking coal mine, with judge Brian Preston citing the mine’s potential contribution to climate change as a reason for the decision.
That caused shock in the industry and may mean smaller producers at least may reassess future investments.
At the other end of the scale sits Australia’s largest coal producer, Glencore.
It also added to tensions after pledging to abandon the pursuit of large coal acquisitions and freeze production at current levels to help address climate change concerns, following pressure from institutional investors, including major Australian superannuation funds, for the fossil fuel to be phased out.
For Whitehaven Coal, getting on with business is paying dividends. While it doesn’t underestimate the formidable push by green groups and divestment campaigners, it says it won’t stand by and let fiction distort one of Australia’s most successful industries. It continues to see strong demand among its customers which it hopes will ultimately underpin more investment including its slated $700 million Vickery expansion project.
“We legitimately export to legitimate customers who have set their own agenda to meet their climate change objectives and commitments and have included over the longer term fossil fuels in their mix,” Whitehaven chairman Mark Vaile says. “For the generic anti-coal movement, it doesn’t matter whether it’s thermal coal or metallurgical coal and where it’s being sold. But we talk to a lot of institutional investors from all over the world and the US who continue to see a strong place for coal and high quality producers like us.”
New Hope Group, which controls mines in Queensland and NSW that produced more than 4.6 million tonnes in the past six months, says the industry faces a fight to promote the benefits of coal.
But the company still expects top-tier producers to continue to receive support from investors, given Australia’s high standards and the underlying demand for that top quality coal among buyers in Asia.
“The investors in our company are sensitive to and aware of the multi-billion investments that are being made in high efficiency, low emission plants in Asia,” New Hope Group chief executive Shane Stephan says. “Those assets will continue on for 30-plus years so the demand is there. It will be met. It’s best met with the higher quality coals out of Australia and it’s a real opportunity for Australia. Our investors are seeing that opportunity, we are very clear in communicating our strategy, and historically we’ve been good at executing our strategy.”
And what of the ever increasing number of banks and financiers moving away from funding the fossil fuel?
Stephan says just as European banks have fled the scene, funding has become more available in Asia, where demand for the fuel is growing fastest.
“Am I seeing a change in the availability of finance? With debt finance, yes, it’s changing, but the fact of the matter is historically there was only ever a subset of banks interested to finance resources,” Stephan says. “Most of the European banks have turned away from financing thermal coal in particular, but likewise Asian banks are opening up because they can see the demand in their home markets for the resource. They are gaining the expertise to evaluate debt refinancing opportunities in Australia.”
For Adani’s Dow — still facing hurdles before final environment approvals from the Queensland government — its biggest wish is avoiding the spotlight and getting on with building a coal mine.
“There’s a lot of mythology about our project and its impact. But we are now just another mine,” Dow says, in reference to Carmichael’s slimmed-down 10 million tonne project. “When I came on board my team asked, what is your vision? I said, to be another boring miner. We’ve got no ambition to be in the spotlight and the media. We just simply want to get on with it.”