Last weekend the CEO of BHP Billiton, Andrew Mackenzie, lamented how the mining industry was misunderstood by policymakers and non-government organisations. “Popular opinion has it that our industry is fundamentally unsustainable because the world, they believe, is running out of resources. Popular opinion is wrong,” Mackenzie proclaimed.
In his speech, delivered at an event in one of the club rooms at the Lord’s Cricket Ground, Mackenzie traversed many topics: government taxes, the ‘noble purpose’ of mining and even the time taken to change a tyre at pit stops in Formula One racing. However, one topic didn’t rate a mention: coal and its role in global warming.
As one of the single biggest source of greenhouse gas emissions, coal is the epitome of unsustainability caused, not by scarcity, but by its very abundance. But that is hardly a point that Mackenzie is going to make. After all, BHP Billiton is one of the world’s largest exporters of thermal coal, which is used in power stations, and the world’s largest exporter of metallurgical coal, which is mostly used in steel making. All up, BHP Billiton’s direct share of coal produced from its mines is nudging up to a hundred million tonnes a year.
However, what BHP Billiton currently produces annually is just the tip of the iceberg. BHP Billiton alone has – based on 2012 data – just a whisker under 13 billion tonnes of measured coal resources and billions of tonnes more in less well delineated deposits. So there is no risk of BHP Billiton ‘running out’ of coal to mine anytime soon. With each billion tonnes of coal burnt generating approximately 2.7 billion tonnes of carbon dioxide, what happens with BHP Billiton’s coal resources is of global significance.
But BHP Billiton has a big problem: the international coal market. Two weeks ago BHP Billiton hosted a tour of investment analysts to a couple of half-completed metallurgical coal projects in Queensland. The two briefing notes the company released at the time are significant both for what they do say and what they don’t. In the first 47-page briefing note giving an overview of the company’s coal projects, there is barely a mention of thermal coal.
There are no graphs or projections of future thermal coal demand, supply or prices, all of which usually feature prominently in presentations seeking to wow analysts.
There isn’t even anything from the company aimed at selling the story line that the market might be in for a few tough years and then rebound. BHP Billiton’s silence on the prospects for the thermal coal market serves only to reinforce the recent assessment by Deutsche Bank analysts that the thermal coal market is likely to be oversupplied for the rest of the decade and prices fall in real terms.
Instead of discussing the grim prospects for the billions of tonnes of thermal coal the company has title to, BHP Billiton’s executives prefer to focus overwhelmingly on the higher priced metallurgical coal, which it dominates the seaborne export market in.
BHP Billiton’s attempt to put some distance between itself and the ailing thermal coal market is not new. Back in a November 2012 interview with the Australian Financial Review (AFR), BHP Billiton’s then head of the company’s iron ore and coal division, Marcus Randolph, described the future of thermal coal as ‘very clouded’: “In a carbon constrained world where energy coal is the biggest contributor to a carbon problem, how do you think this is going to evolve over a 30- to 40-year time horizon? You’d have to look at that and say on balance, I suspect, the usage of thermal coal is going to decline. And frankly it should,” he said.
It was a shrewd rhetorical more: a hat tip to the damage done to the global climate by coal whilst putting thermal coal’s possible use-by date sufficiently far off into the future to avoid suggesting that the billions of tonnes of thermal coal resources the company has title to aren’t counted as worthless. Perhaps more significantly, Randolph’s statement was designed to draw a line between the increasingly grim prospects of thermal coal and the company’s dominant interest in the higher priced metallurgical coal.
But since his comments to the AFR even the metallurgical coal export market has soured. In its recent presentations to analysts the company made clear that growth is steel demand in China is likely to slow dramatically and that the “India steel outlook is less certain as steel production growth has been slower than expected.” BHP Billiton concludes that slower demand growth and “range bound pricing” in the short term “could lead to project delays”.
While global coal consumption is still increasing, the unstated implication of BHP Billiton’s most recent assessment is that the era of rapid growth has gone, prices are falling and the outlook is uncertain. Coal’s glory days of ever escalating growth may be drawing to an end.
So while it suits the PR purposes of BHP Billiton to try and hype a straw-man argument over resources ‘running out’, the reality is that coal has outlived its social utility. Mackenzie would do well to reflect on the fact that that the demise of asbestos mining in Australia was not because of its scarcity but because of its toxic effects and public opposition. So too it it is likely to be with coal.
Bob Burton is a Contributing Editor to the CoalSwarm wiki and co-author – with Guy Pearse and David McKnight – of the forthcoming book Big Coal: Australia’s dirtiest habit (New South Books, August 2013)