Miners circle the coal wagons on NSW reservation scheme
BHP could be forced to supply coal at cost to NSW power generators, as miners criticised state Treasurer Matt Kean’s plans to establish a domestic coal reservation.
BHP could be forced to supply coal at cost to NSW power generators, as miners criticised state Treasurer Matt Kean’s plans to establish a domestic coal reservation in the state.
New figures from BHP show its costs of delivering coal to NSW power stations could be above the price cap for coal in the state, suggesting the mining major could be forced to reroute coal from lucrative export markets to meet a projected shortfall in domestic supply.
The Australian revealed on Thursday Mr Kean planned to issue orders requiring all thermal coal producers in the state to reserve 7 to 10 per cent of their annual production for NSW coal-fired power plants, drawing in major producers such as BHP, Yancoal and Whitehaven Coal.
It is understood the NSW government was forced to scramble to find new sources of supply after existing producers contracted to supply NSW coal-fired stations warned of a possible shortfall ahead of winter, with poor weather and labour shortages likely to hinder mining operations.
Orders issued in December required a small number of thermal coal miners – including Glencore, Centennial, Peabody and New Hope – to reserve about 18.6 million tonnes of coal for the domestic market. All have long-term contracts to supply NSW power stations, many dating back to when state-owned mines were privatised.
But The Australian understands some of those miners advised the state government their operations were likely to fall short of previous production levels this year, forcing it to look for alternative sources of supply.
The new rules, likely to be issued by the end of the month, would force all of the state’s thermal coal miners to make supplies available to power stations when existing export contracts end.
But the price cap may force global mining giant BHP to supply up to 1.5 million tonnes of coal from its Mt Arthur mine at cost, according to new figures included in the company’s December quarter production report on Thursday.
BHP told shareholders it expected each tonne of coal produced at Mt Arthur to cost up to $US91 a tonne ($132) this financial year. The current price cap for coal under current rules is $125 a tonne – delivered to the power station – or about $136.40 a tonne for the high-grade coal exported from Mt Arthur. In 2020, BHP dismantled the conveyor belts that once carried Mt Arthur coal to AGL’s Liddell and Bayswater power stations, meaning that future supply would need to be trucked on regional roads, likely pushing up the cost.
It is understood Mr Kean plans to introduce a mechanism to allow miners to apply for permission to sell coal for more than the current price cap if their production caps sit above currently allowed levels. But it is not yet clear whether that will allow producers to claim a profit margin on supply to local power stations, who would be compensated by the taxpayer for any coal costs above the price caps.
A spokesman for BHP said the company was still waiting on the full details of the new scheme.
“Clearly there are a number of commercial and practical implications that would have to be managed under an extended direction, along with the potential long-term impacts on market dynamics and investment in more energy supply,” he said.
The new rules were slammed by the NSW Minerals Council on Thursday, with only global miner Glencore issuing even qualified support for Mr Kean’s plans.
NSW Minerals Council chief executive Stephen Galilee said the move would do little to cut electricity prices, and demanded the state government release any modelling and analysis that backed the idea.
