The reign of coal is over, but the reign of fossil fools is not

The headlines this morning were impressive. “China dumps our dirty coal,” trumpeted the Sydney Morning Herald, in response to news that China was looking to impose import rules that could disqualify much of Australia’s coal because it was of such lousy quality.

It was a story studiously ignored by the right wing Australian newspaper, and buried surprisingly deep in the pro-business Australian Financial Review – considering the massive implications for the country’s second biggest mineral export, and the fate of tens of billions of planned infrastructure.

Whether these rules prove to be so damaging or not, it is yet another development that has underlined the fact that the reign of coal is in terminal decline. China has signalled that it will cap coal consumption and cease to be an importer, as it focuses on cleaner generation. India is baulking at the infrastructure nightmares of coal and focusing on a “saffron revolution” instead, boosting solar. The US is likely to scrap one quarter of its coal generation within the next five years.

As Goldman Sachs said in a report just a few months ago, the window for profitable capital spending in new thermal coal mining and infrastructure capacity “has closed.” Numerous other reports from leading investment banks have supported that view. Even the International Energy Agency has questioned the wisdom of more coal investment.

Indeed, while the Australian government stubbornly holds to its fossil fuel philosophy, pushed on by a powerful mining lobby, international investors have already fled the scene. As this graph below shows, listed coal investments have been a disaster over the last few years.

The top graph shows the Bloomberg Coal Index, an average of 40 stocks, has slumped two thirds since 2011. The second graph shows how that same index has compared to the broader benchmark, the MSCI World Index. It highlights, perfectly, the disconnect between coal and the global economy. Divestment decisions by large pension funds are just a matter of common sense.

coal graph

These developments make a mockery of the repeated assertions from Tony Abbott, Industry minister Ian Macfarlane, and even environment minister Greg Hunt, that Australia should seek to extract every tonne of coal, and every molecule of gas, all the while trying to kill the development of the renewable energy industry.

The recent RET Review was based on modelling that deliberately excluded a carbon price, financing risk, and community opposition as factors in pricing coal. As one of the world’s leading risk managers said earlier this year, such failures to factor in climate risk are “insane”. Goldman Sachs, among numerous others, is seeing a “transformational moment” for investment in renewables. The Abbott government does not.

As we reported on Wednesday, the coal industry is on a terminal decline, and Big Oil will soon follow. It is not just battling falling market prices, the higher costs of extraction, and the likelihood of tighter climate rules, it is also losing out to new technologies – wind and solar in particular.

As French broking firm Kepler Chevreux pointed out, $100 billion invested in either solar or wind energy will actually deliver more net energy to consumers than $100 billion invested in oil. And it will be cheaper. Within 10 years, Kepler Chevreux says, the global energy markets will be radically different.

Is Australia prepared for this? It was, but in the last 12 months – since the election of the Abbott government – all its policies have been thrown into reverse. Investment in renewables has come to a halt, all in the extraordinary fear that Australia might deliver 26 per cent of its electricity demand via hydro, wind and solar, rather than “at least” 20 per cent.

Greens leader Christine Milne, whose party has been ridiculed in the mainstream media for predicting exactly what has transpired in global energy markets, says Australia is likely to become a “rust-bucket economy” under the Abbott government.

“Tony Abbott is putting his hands over his ears and refusing to hear the loud message that investing in coal, and building coal ports and railways, will lead to stranded assets and is jeopardising our future prosperity,” Milne said ahead of a major speech on climate policy on Thursday.

“The simple truth is that Australia is being left behind, not by accident or negligence, but by design. Tony Abbott is clinging desperately to the old formula while the world changes around him. It is so clear that Australia’s greatest opportunities for jobs, investment and energy security are in solar and wind, especially as other countries steer away from dirty coal.”

She also said it was “an absolute disgrace” that Tony Abbott would not attend Ban Ki Moon’s climate summit in New York next week, despite being in the same city the very next day.

Meanwhile, Tim Buckley, director of Energy Finance Studies for the Institute for Energy Economics and Financial Analysis (IEEFA) says this latest announcement from China puts Australian export coal at serious risk.

“Claims made overnight by some industry lobby groups suggesting there is no impact are misleading and seem to be divorced from reality,”  Buckley said. “The critical point is that the Eastern coastal areas of China (where the restrictions are most severe) are where global seaborne thermal coal imports including those from Australia compete. The western inland coal markets of China are not contestable.”

The fact that this could impact half of Australian thermal coal exports raises serious questions about the need for significant new water allocations and new capital expenditure to build coal preparation and washing plants to process the coal before export. And it raises yet more questions about the viability of the giant Galilee Basin coal projects that the Newman and Abbott governments are so keen to develop.

“Why is China pursuing this proposal? Clearly reducing air pollution is a key driver. We would also reference the growing expectation that a peak in China’s national thermal coal consumption is imminent,” Buckley said. IEEFA forecasts a peak in China’s thermal coal consumption by as early as 2016.

Comments

17 responses to “The reign of coal is over, but the reign of fossil fools is not”

  1. Colin Nicholson Avatar
    Colin Nicholson

    There is a sting in the tail here. Lignite (brown coal) is low in sulphur and ash. This ban is not about CO2 production (for which lignite is bad) , so Ironically the ban may add to GHG production

    1. Chris Marshalk Avatar
      Chris Marshalk

      Coal with ash content of more than 40 per cent and sulfur of more than 3 per cent are banned from sale and import into China starting 1 January. China, the world’s largest consumer of coal, is restricting the dirtiest grades to fight pollution

      Read more: http://www.smh.com.au/business/china/china-bans-dirty-coal-to-fight-pollution-20140916-10hnm9.html#ixzz3DXwExX1G

      This is just a start.

    2. tknows Avatar
      tknows

      The cost of shipping it (higher moisture content means it’s also a lot heavier) and the lower energy content mean this is unlikely.

    3. michael Avatar
      michael

      exactly my point a couple of days ago, this is about particulates/smog/acid rain, not GHG

    4. Ronald Brakels Avatar
      Ronald Brakels

      Different deposits vary in ash content, but lignite produces much more ash per kilowatt-hour generated than black coal. It also tends to release considerably more sulphur per kilowatt-hour generated.

  2. Chris Marshalk Avatar
    Chris Marshalk

    Well written +1. Thank god for the Greens stance & Christine Milne.

    I’m also focusing on the below monthly “U.S. Total Gasoline All Sales/Deliveries by Prime Supplier”. It seems Electric Vehicles are having a impact.
    http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=c100000001&f=m

    We need a NEW Government to fix the Tsunami like disaster the LNP have left behind.

  3. tknows Avatar
    tknows

    Great article. But The Australian actually beat SMH to this story by two days.

    http://www.theaustralian.com.au/business/mining-energy/miners-face-threat-of-coal-ban/story-e6frg9df-1227058242898

  4. Anne-Maree Huxley Avatar
    Anne-Maree Huxley

    Great headline Giles!!!!!!

  5. michael Avatar
    michael

    share price moves make a nice picture, how about lining up on the same graph a Solar ETF? ie the ones on the NYSE that have also dropped 50% since 2011… graphs can say whatever you want them to eh? First Solar has dropped $140 to $70 over the same period, yet they are a $7B solar company.
    if you take a coal and solar ETF and compare from 2010… https://au.finance.yahoo.com/q/bc?s=KWT&t=5y&l=on&z=l&q=l&c=KOL
    OR
    MSCI vs Solar ETF
    https://au.finance.yahoo.com/q/bc?t=5y&s=KWT&l=on&z=l&q=l&c=MSCI&ql=1
    potentially not as clear cut an investment story as this would have us believe

    1. Bob_Wallace Avatar
      Bob_Wallace

      Changes in coal stock and non-Chinese solar manufacture stock prices are caused by entirely different reasons. 2011 was a great shake-out year for solar manufacturers when the industry reached the stage of maturity where the least efficient produces get forced out and the more efficient become very large.

      What is happening to the price of coal stock is that coal is beginning its decent into oblivion. Owning coal stock now is about as wise as owning stock in harness companies as Henry was introducing the Model T.

  6. Mags Avatar
    Mags

    Doesn’t it remind you of the Titanic – the captain shouting that there were no icebergs around and to go full speed ahead? Perhaps we should christen him Titanic Tony!!

    1. Alen Avatar
      Alen

      The sinking of the Titanic was a terrible disaster, whereas the sinking of the ‘Abbot led ‘LNP ship’ would be met with cheers and celebration around the country. Great news by the way, thank you once again Giles.

      1. Mags Avatar
        Mags

        Agreed!! I was actually comparing the behaviour of the captain on the titanic to the behaviour of TA. You know, ignoring the obvious for personal glory.

  7. Kevin O'Dea Avatar
    Kevin O’Dea

    If the Australian Government wants to dance to the tune of the
    Greenhouse Mafia lobbyists and their mates, then the big banks and the finance
    corporations really must wake up to the realities of this story and cut their losses and move out of coal as a matter of corporate survival. Ideology is not coping with the reality of this market.

    1. Brian Donovan Avatar
      Brian Donovan

      Yeah, David was such a bully to Goliath…..

  8. Rob G Avatar
    Rob G

    I got the gist the article in SMH’s business section, was trying to imply that coal from Indonesia was dirtier than our coal so they would take the bigger hit. When you have Clive Palmer singing the wonders of our “cleaner” coal you think Australia has a market in China. But reading between the lines it’s easy to see that China is moving away from coal. Notably, the massive gas contract they signed with Russia, this year, spelt the end for coal. That, coupled with their aggressive renewable rollout, this year alone.

  9. Jon Avatar
    Jon

    Hunter coal has less ash than the Chinese proposed limit so exports from Newcastle will continue. Chinese power stations will still require coal for many years even as they install more and more renewables. They may not require greater quantities however so that additional coal loader mentioned at ICAC looks a little unnecessary.

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