LAST decade’s NSW coal industry boom time – driven by soaring Chinese demand – is rapidly turning to bust. Since 2011 coal export prices have halved and coal industry profits have collapsed.
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Hopes raised by companies and a parade of NSW governments that selling ever-increasing volumes of coal for overseas power stations would create jobs and wealth for all are disintegrating.
Projects conceived during the boom time exuberance – such as the proposed massive new coal export terminal in Newcastle – look increasingly fanciful as the Chinese government’s ‘‘war on pollution’’ begins to undermine the export coal market. With the Port of Newcastle currently operating 30per cent below the current coal export capacity, the plan to expand it by a third again is symptomatic of a failure to comprehend that the electricity industry is undergoing a profound change.
The NSW Planning Assessment Commission has been advised to approve the $4.8billion expansion at ‘‘T4’’. In 2012-13 Newcastle Port exported 150 million tonnes of coal. To further expand the Port of Newcastle’s coal capacity from the current 211 million tonnes per annum (Mtpa) by an additional 30per cent or 70Mtpa at ‘‘T4’’ should be seriously questioned.
The 10per cent annual growth in total coal demand in China over 2000-11 gave the mining sector the confidence to build Australia’s coal trade into a $US30billion annual export business that is second only to Indonesia in size. However, since 2011 the coal industry’s profitability has collapsed. The share prices of listed US, Chinese and Australian coal producers have followed this downward spiral, dropping by 60-95per cent.
The Hunter Valley is one of the world’s largest producers and exporters of thermal coal. Yet thermal coal’s role in China’s electricity sector is under threat.
China, which consumes half the world’s coal, is pursuing a rapid diversification of its electricity sector away from coal-fired power stations. This year China’s Premier Xi Jinping has advocated for a revolution of the energy sector, declaring a ‘‘war on pollution’’.
Even the normally cautious International Energy Agency (IEA) has adopted as its central estimate that China’s coal demand will peak in the next few years. This means much more hydro, gas, renewable energy and nuclear power stations. More railway lines to move coal, more gas pipelines and much more transmission lines crossing the country to move electricity. And a continued focus on energy efficiency to divorce electricity demand growth from economic growth.
A slower rate of economic growth and a diversification away from heavy industry towards services will further reduce energy demand in China.
To combat pollution, coal power stations in the densely populated coastal regions – where imported coal is landed – are being shut and bans on new ones instituted. A few years ago this sort of transformation was unthinkable but now the momentum against coal is unstoppable. In the past few years China’s coal consumption growth has slowed from the previous 10per cent annually to just 3-4per cent annually. In the first half of this year, coal demand in China slowed again to be up only 1.6per cent.
China’s total electricity demand will continue to grow, with electricity growth of 5.3per cent year-on-year to 2.63 trillion kilowatt hours in the half to June 2014. Solar generation capacity grew a staggering 202per cent year on year, with double-digit capacity growth in gas, hydro, nuclear and wind.
Coal-fired generating capacity continued to grow, but represented only a third of all new power installations in China in 2013-14. Over 70 gigawatts of non-coal power capacity was installed in one year – an amount exceeding the entire Australian grid. IEEFA forecasts that this rate of non-coal capacity will continue for the next decade, with thermal coal consumption peaking in the next two years.
The last year has seen almost weekly announcements of staff cutbacks across the Australian coal sector, more than 10,000 job losses in total. The North American coal industry has announced a series of mine closures, and Australian closures will follow.
But there are coal companies which – despite the bleak global market outlook – want to roll the dice one more time and bet on big new projects.
In light of the Adani-POSCO and GVK Hancock-Aurizon announcements last week, and Federal Environment Minister Greg Hunt’s approval of Carmichael yesterday, the opening up of the Galilee thermal coal basin in Queensland is a real possibility. That could add 100-300 Mtpa of thermal coal supply into the seaborne market already suffering from excess supply. That is a proposed 10-30per cent expansion in global supply.
Massive new projects like T4 are highly likely to be losing bets, which cause unnecessary community stress for residents and put our farming communities at risk. Scarce state government resources would be better devoted to expediting the transition for Hunter Valley communities to life beyond coal.
Tim Buckley is the Australasian director for the Institute of Energy Economics and Financial Analysis
