Fuzzy math in Australia | RenewEconomy

Fuzzy math in Australia

Print Friendly, PDF & Email

Coal market numbers from the office of the Chief Economist appear to be based on something other than reality.

share
Print Friendly, PDF & Email

IEEFA

smokestacks-coal-01The Australian government’s Office of the Chief Economist (OCE) touts itself as a producer and repository of “objective, robust and high-quality economic analysis.”

Sometimes you have to wonder about that, as when the agency releases contradictory sets of numbers like those it published in the coal industry report in its September 2015 Resources and Energy Quarterly.

The report puts Australian thermal-coal exports at 201 million metric tons in calendar year 2014, and has them falling to 200 million metric tons in calendar year 2015 (a 0.5 percent decline). A few lines down, it compares a somewhat different time frame, using fiscal years, and puts Australian thermal-coal exports at 194.6 metric tons in fiscal 2013-2014 (July 2013-June 2014 ), rising by 5 percent to 204.5 million metric tons in fiscal 2014-2015 (July 2104- June 2015).

Fair enough. Australia’s coal exports, by these estimates, peaked in the 12 months to December 2014, and will come off fractionally in the 12 months to December 2015.

Look further, however, and the Office of the Chief Economist has the entire global traded thermal coal market dropping by 95 million metric tons, this calendar year, off 9 percent, to 1,030 million metric tons. Even though these numbers are double the rate of the global import decline forecast by OCE’s Bureau of Resources and Energy Economics (BREE) only three months ago, the agency remains staunchly bullish beyond 2015, insisting that import demand will rise gradually beginning in 2016.

Look deeper still and the agency says that among the major export countries, Indonesia’s coal exports will drop 4 percent (8 million metric tons) in 2015, Australia’s will decline 0.5 percent (1 million metric tons), Columbia’s will be up 1 percent (1 million metric tons), Russia’s will increase 3 percent (3 million tons), South Africa’s will increase 1 percent (1 million metric tons) and U.S. coal exports will be down by 20 percent (6 million metric tons). This adds up to a global decline in exports of 10 million metric tons. However, the report has global import demand dropping by 95 million metric tons. It’s an unexplained 85-million-tonne discrepancy—how is it the major exporters will see an only 10-million-tonne decline in calendar year 2015 when import demand will plummet by almost 10 times that amount?

BREE also sees thermal coal export prices remaining flat at about $60/tonne in real terms until 2020 (a forecast that is 30 percent above current forward-market expectations, which sit at US$51/tonne in nominal terms in 2020).

BREE does acknowledge that thermal coal imports into China have tanked in the first half of 2015, and reports that Chinese domestic coal production fell 6 percent year-on-year as well. Combining a 38 percent first-half fall in imports and a 6 percent decline in domestic production means coal available for Chinese consumption fell by 7-8 percent. But then comes another baffler, as BREE asserts that while thermal-fired power generation is flat in China, the country is building 123 gigawatts of new coal-fired power plants, and that therefore coal consumption has to rise. It’s not a very rational or reality-based argument. We think, by contrast, that a drop of that magnitude in coal consumption by the world’s biggest coal consumer does and will have a material effect on markets and will see early retirement of significant coal-fired power capacity. Logic would suggest a deferral of new builds is inevitable as well.

BREE acknowledges, too, that India’s domestic coal production is rapidly accelerating (contrary to what it acknowledges in its June feature report), hence it has lowered its import growth estimate for India this year from 20 million metric tons to just 2 million metric tons, but concludes that such a trend cannot be sustainable. What has to happen, BREE explains, is for Indian coal-import demand to rise by 6 percent annually from 2016 until 2020 (a combined growth over this period of 64 million metric tons per annum), thereby supporting the case for the development of foreign coal projects like the big one the Australian government has been supporting in the Galilee Basin of Northern Queensland now for several years.

It’s an outlook that seems naïve or perhaps just ill informed—but wrong by any stretch.

Tim Buckley is IEEFA’s director of energy finance studies, Australasia.

Source: IEEFA. Reproduced with permission.

Print Friendly, PDF & Email

7 Comments
  1. Ronald Brakels 4 years ago

    There does seem to be an attitude among Australian coal producers, one that has taken quite a beating lately but clearly still exists, that Asia owes them a living. Indeed it does seem a common failing that whenever someone manages to successfully capture a large part of any market for an extended period of time that they tend to stop thinking of their customers as customers and more as vassals that they own. This rarely ends well. Symptoms of vassalitis are a feeling of betrayal when customers stop buying that overrides the normal healthy desire to attempt to win them back, and an insistence that the company is right and the customers are wrong and they’ll come back any time now. It can impede the ability to recognise when one is in a declining sector and delay the taking of steps to maximise profits earned in a declining sector. Now maybe behind the scenes Australian coal producers are takiing steps to run down their capital and eventually close their mines, but that’s not the impression that they are currently giving.

    • Coley 4 years ago

      Australian coal miners just need to take a look at the once mighty Peabody coal in the US or at UK coal here, the writings on the wall but it seems most coal producers need new glasses.

      • Ronald Brakels 4 years ago

        There has been a lot of movement behind the scenes with mines being sold by former big players to New Hope Coal (yes, they will need hope) and others, but whether or not these buyers are serious about mining tonnages actually increasing I don’t know. I presume they are serious – after all, it would be impolite to assume they are lying. And so I am forced to conclude they are as nutty as a lumpy chocolate bar.

        • Coley 4 years ago

          Now I’m not sure regarding the situation over there but a major venture capital company here in the UK bought out UK coal and took over all its liabilities, but they also got its assets,which were huge,IRO land acquisitions.

    • Chris Fraser 4 years ago

      These symptoms also apply to the ENAA.

    • CaptD 4 years ago

      Ron — I think AU Big Coal is learning from US Big (Nuclear) Utilities what they need to do to survive:

      Nuclear has now priced itself out of the market place, except where Gov’t. has stepped in and done what it needs to do to “favor” Big Nuclear with Government guaranteed loans in order to allow them to keep their ratepayers in energy slavery. Big Nuclear is now pulling out all the stops in an attempt to delay their “death spiral” as long as possible. The most progressive of them are now starting shifting their considerable resources into (dare I say it out loud) Renewables and I am not talking about any “cute” Pro-Nuclear cheerleader statements like:”For Sustainable Energy, Choose Nuclear”

      Because the Nuclear Industry is so entwined with Congress and the Military Industrial Complex, many are amazed that Renewables have already captured such a “big” slice of the Energy market. What is not being said, is that it is not just all the little ratepayers that are tired of being ripped off but ever more of the Big Investment Fund managers. Shareholders are now asking about things like Nuclear’s “dark side” like the RISK to mankind (Fukushima) and the creation of ever more ☢ Waste that will last generations if not “forever” because their effect on Climate Change and the Environment.

      Yes, lately Big Nuclear has been successful in shifting government tax credits away from ratepayers to themselves, so that they can profit even more by installing their own Utility Solar generation, in order to continue to stay in Energy generation business. But now the secret is out, and as Germany is demonstrating, major industrial countries can prosper by shifting away from Nuclear ASAP, while at the same time allowing regular people (by providing a major percentage of the Energy generated) to also share in the money to be made by Energy generation, instead of just Big Utilities.

      This is a great example of what ratepayers are up against:

      How Charles Koch Prevents Clean Energy Businesses From Succeeding

      http://www.truth-out.org/news/item/32615-how-charles-koch-prevents-clean-energy-businesses-from-succeeding

      Now voters are asking, “What about our Residential Solar Tax Credits?”

      They know that Big Utilities don’t deserve all the Gov’t. Solar Tax Credits because the taxpayers are paying for them. Since Big Utilities are already charging everyone to maintain the Grid, Big Utilities cannot claim that as an excuse. Now there is no good reason (except Corp. greed) why residential and/or small businesses should not be able to also get Solar Tax Credits so that they can install their own Solar Energy. “Local generation” is far safer and more dependable than distant generation that is subject to regional failures, as California’s fires and earthquakes proved when local solar continued to function when the Utility Grid went down.

      All customers deserve Energy Equality with the Utilities that serve them. Big Utilities should not be able to accept residential/small business/non-Utility Solar energy without paying the same amount they pay themselves for the Solar Energy they produce at the time that energy is put into the Grid, anything less is ripping non-Utility customer off.

      Since many major Corporations and very soon even the US Military are now installing their own Energy generation it is just a matter of time before home owners and business owners also do the same thing, especially since they can also use the electricity to recharge their vehicles, thus eliminating yet another monthly bill, while writing off the entire cost, just like Utilities have been doing forever.

      BTW This was previously posted here:

      http://www.forbes.com/sites/kensilverstein/2015/10/04/nuclear-energy-market-avoids-major-disruption-for-now/?utm_source=followingdaily&utm_medium=email&utm_campaign=20151005

  2. Les Johnston 4 years ago

    It’s also known as COALition math!

Comments are closed.

Get up to 3 quotes from pre-vetted solar (and battery) installers.