Carmichael coal mine deeper in doubt as NAB, LG walk away

National Australia Bank has become the 14th major financial group – and the second of Australia’s Big Four banks – to rule out funding the development of a mega-coal mine in Queensland’s Galilee Basin, proposed by Indian mining group Adani.

NAB confirmed on Thursday that it had no role in financing the Carmichael coal mine or associated port and rail expansions, and no plans to get involved. It follows the Commonwealth Bank, which in August abandoned its role as financial advisor for the project.

NAB’s comments come just one week after federal Treasurer, Joe Hockey, hinted that the Coalition was considering a taxpayer-funded loan for the rail line from Abbot Point port to the Carmichael coal mine, which the Abbott government has repeatedly described as “economically vital” to Queensland.

“One of the things they are looking at is how we can ensure that the railway line remains financially viable. I can’t give away too many details, but we are working away at that,” Hockey told ABC radio last Monday.

But the Carmichael coal project has been growing less viable by the week, mired in the approvals process while its business case is rapidly eroded away.

A total of 14 international banks have either pulled out of the project or, like NAB, ruled out becoming involved. The most recent, the UK’s Standard Chartered, said in August that both parties – the bank and Adani – had agreed to end the bank’s role in the coal mine after an ongoing review of its feasibility and delays.

And in August, the project’s prospects received another major blow when the federal government’s environmental approval of the coal mine was overturned by the Federal Court.

Mostly, however, it is the project’s shaky economic prospects, in a rapidly changing global energy market, that is scaring the banks away.

As IEEFA analyst Tim Buckley wrote in May, “seaborne coal markets have undergone deep structural changes over the past few years as supply has exceeded demand.

“And India – for whom the Galilee endeavour was supposed to provide an endless supply of coal – has … moved to modernise its electricity sector by adopting a national policy that has a stated objective to now eliminate any need for foreign coal.”

And banks aren’t the only ones abandoning Carmichael. Korean industrial giant LG has this week confirmed it will not be purchasing the four million tonnes of coal from the Galilee Basin mine it had proposed to in a letter of intent.

LG issued a statement on Wednesday saying: “The LOI concluded by and between LG International Corp and Adani Mining Pty Ltd was non-binding and is invalid as of July 21, 2015 in accordance with the expiration of the LOI”.

And then there is the risk to investors of stranded assets, in a warming world with an increasingly tight carbon budget. As The Australia Institute has pointed out this week, the Carmichael coal mines are bigger than most people can comprehend, and burning their coal would take a huge bite out of a constrained global carbon budget.

“The Carmichael Mine would produce 40 million tonnes of coal per year and more than 2 billion tonnes of coal over its lifetime,” TAI says as part of its No New Coal Mines initiative, released on Thursday.

“That’s enough coal to make a road of coal 10 metres wide, one metre deep and 200,000 km long. Such a road could stretch around the world five times.”

If that comparison doesn’t work for you, try the map below.

For its part, NAB is being careful to stress it is not abandoning coal investments altogether.

A spokesperson from the bank said on Wednesday: “We have a role to play in transitioning to a low carbon economy, we also believe we have the responsibility to fund projects that will secure Australia’s energy needs now and into the future and coal has an important role to play in this.”

But former NAB CEO Cameron Clyne has a slightly different take.

“NAB’s statement today seems an entirely sensible decision and prudent for NAB’s shareholders,” Clyne told Fairfax Media on Wednesday.

“You would be hard pressed to find a financial institution that would make a different call to NAB’s today,” he said.

“This project, by all accounts, doesn’t seem to stack up economically and appears unlikely to ever turn a profit.”