Queensland election result could be terminal for Galilee coal projects

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The commercial viability of Adani’s Carmichael proposal is likely to be the first casualty of the dumping of the LNP state government.

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The landmark Queensland State election yesterday is likely to introduce a new Labor-led government elected with the key policy framework of “Saving the Great Barrier Reef”.

The ALP has committed to remove state subsidies for the Galilee coal and associated rail projects, banning Reef dumping and to ensure no dredging is undertaken at Abbot Point prior to financial close on any project.

Seen at the Sydney rally to save the GBR

This election result will return the focus of Adani’s $15 billion Carmichael coal mine plus associated rail and port infrastructure proposal to the key questions of financial viability and strategic logic in the face of the structural decline of seaborne thermal coal markets.

Central to its “Saving the Great Barrier Reef” policy, the Queensland Labor Party has committed to:

  • “Ban the sea dumping of capital dredge spoil within the Great Barrier Reef World Heritage Area”;
  • “Labor does not support … plan to dump dredge spoil from Abbot Point onto the Caley Valley Wetlands”;
  • “We will ensure that dredging does not go ahead until Adani has demonstrated its project has financial close”;
  • “The stewardship of the Great Barrier Reef necessitates that we have a comprehensive climate change policy”;
  • “Repeal the Newman Government’s water laws”; and
  • “Labor will not spend taxpayer money to build a private rail line for a private commercial project. …. Labor will not do any secret deals.”

Labor’s policies will see the removal of numerous taxpayer funded subsidies as diverse as buying dredge spoil, co-funding a foreign billionaire owned private rail line, allocating free water permits and funding a new single purpose water channels for 200km to the Carmichael proposal.

The commercial viability of Adani’s Carmichael proposal without this government support is highly questionable. At the least the port project will not be allowed to commence until financial close, currently not scheduled until the end of 2015.

The proposal to open up the Galilee coal basin for up to nine new mega-coal projects would see up to 300 million tonnes per annum of additional thermal coal exports. The 60 per cent decline in coal prices over the last four years reflects significant oversupply and weaker than expected demand. Flooding the seaborne coal market with a further 30% increase in global supply is against Australia’s national interests.

Opening the remote and lower quality Galilee Basin flies in the face of increasing global action on climate change by many of Australia’s major trading partners.

Korea has just launched its national emission trading scheme in January 2015. In November 2014 India committed to a US$100 billion renewable energy program and US$50 billion electricity grid modernisation in the next five years. In the same month the China-US Climate Agreement committed both countries to expand on their significant, sustained efforts to systemically reduce emissions.

There are serious questions for the incoming executive in Queensland to examine how and why such lavish promises by way of enormous public subsidies were made to the Adani group in the face of conventional economics and our, and many others, continued analysis that showed this proposal was unbankable on commercial terms.”

Tim Buckley is the Director of Energy Finance Studies, Australasia for the Institute for Energy Economics and Financial Analysis. He has 25 years of financial markets experience, including 17 years with Citigroup culminating in his role as Managing Director and Head of Australasian Equity Research. His   detailed reports on Adani and GVK, global electricity markets plus the Indian electricity sector can be found here

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23 Comments
  1. suthnsun 4 years ago

    “There are serious questions for the incoming executive in Queensland to examine how and why such lavish promises by way of enormous public subsidies were made to the Adani group in the face of conventional economics and our, and many others, continued analysis that showed this proposal was unbankable on commercial terms.”

    I hope we don’t waste too much on seeking answers – there are just far too many other urgent things to do and I am just thankful Queenslanders have voted decisively to dump a government who were promoting an absurd, immoral and indefensible course of action.

  2. Rob G 4 years ago

    Queensland made the right choice voting these LNP crooks out of there.

  3. Alan Baird 4 years ago

    More cracks in the edifice…

  4. Coaltopia 4 years ago

    To assuage the “norf” and the ALP in coal seats, we should draw a clear distinction between thermal and metallurgical coal. The latter not being a climate priority as yet. No new, and then phasing-out thermal coal must be priority.

    • david_fta 4 years ago

      With repect, ALL coal is a climate priority – and there is a technology that can (and therefore will) replace coke-consuming steel-making: electrosmelting, eg http://www.technologyreview.com/article/515411/eco-friendly-steelmaking/

      • Coaltopia 4 years ago

        Tactically it makes sense to target thermal coal on its own now. Strategically we must transition from all coal, but not at the rate required of thermal.

        • david_fta 4 years ago

          “Tactically it makes sense to target thermal coal on its own now. ”

          Strategically, it makes sense to target ALL fossil fuel, and to complete the transition away from fossil fuel before atmospheric CO2 exceeds 350 ppm.

          For that reason, we don’t “target” this sector, or that sector. What we do is apply a uniform price to ALL consumption of fossil carbon, and the cheapest replacements are carried out first. http://www.environment.gov.au/submissions/emissions-reduction/green-paper/95-david-arthur-attachment5.pdf, also suggest the parent submission.

          • Coaltopia 4 years ago

            We’ll agree to disagree – as Hansen says you’ll unlikely reign-in oil fast enough. A rising carbon price is essential however in order to stop Gallilee (and Surat etc.) the first mines must be stopped with extreme prejudice. Much likely before any new carbon price can be enacted.

          • david_fta 4 years ago

            Whether oil reining-in is “fast enough” or not is immaterial – we know that the end-point is necessarily the complete de-fossilisation of the entire economy. Anyway, you do realise that Australia’s entire transport fuel requirements could be satisfied with less than 10,000 sq km of ponds of algae?

            Regarding Galilee Basin, I understand all that would be exported. A revenue-neutral FFCT would apply in Australia to Australian consumption only – so exports are subject to the carbon pricing of the consuming nation.

            Seriously, read the reference I gave you in the previous comment – because you seem stuck like a broken record on ALP’s deadset moron emissions PRODUCTION pricing scheme – which is the most effective way of blowing your own foot off I’ve ever heard. Believe me, you’re batting zero if you don’t understand the difference between PRODUCTION charging (ALP’s scheme) and CONSUMPTION taxation (what I’m arguing.

          • john 4 years ago

            Gallilee does not stack up on cost of production rail port and shipping unless the buyer is prepared to pay well above $70 a tonne.

          • john 4 years ago

            It has exceeded 350.

            http://www.esrl.noaa.gov/gmd/ccgg/trends/

            I think it is at about 397
            Ever upwards as it will for as long as we live this way

          • david_fta 4 years ago

            Well done, you’ve spotted my deliberate error.

            “Ever upwards as it will for as long as we live this way” With respect, I disagree; all that is required is transformation of our technological basis: eg solar PV, solar thermal and wind farms plus battery storage, and non-food biofuels.

            Bad luck, however, for organisations and nations that make their money from coal and petroleum sales.

          • john 4 years ago

            I can not see any change in the western society any time soon the Nordic states china and perhaps japan Korea and surprisingly India may show leadership however except for some states in the USA not much is being done

      • Catprog 4 years ago

        Which means you have to replace the electricity generators first or you are just creating CO2 to power the mills.

        • david_fta 4 years ago

          Au contraire, captors, all that I need to do is introduce a revenue-neutral Consumption Tax on Fossil Fuel – and then steadily increase its rate each and every year.

          As more and more consumers use their other tax savings (it’s a revenue-neutral tax change) to purchase solar PV, or invest in wind, and in both domestic and network storage, coal-fired power gets squeezed out of the market, being unable to compete on price.

          In other words, it’s the owners of the coal-fired power stations who’ll be shutting them down (boo-hoo-hoo).

          • Catprog 4 years ago

            Of course with the steel mills coming onto the grid, their is suddenly a lot more demand.

            Of course if you apply the tax on the coal whether it goes into the power plant or the steel mill, the more efficient process wins.

          • david_fta 4 years ago

            Steel mills won’t be coming onto the grid: they’ll all be in the Pilbara, powered by CSIRO solar thermal technology, and value-adding Australian production BEFORE export.

          • Catprog 4 years ago

            I hope you are right.

  5. Ken Dyer 4 years ago

    The Galilee coal projects are now no longer viable.

    http://www.smh.com.au/business/pressures-on-coal-show-no-signs-of-ending-20141228-12enrk.html

    What this means is that the Queensland Government can now redirect its coal subsidies to more deserving and profit making projects, the Abbott Point depot and its proposed expension, already seriously under utilised and deserted by the coal businesses can be scrapped, and the coal can be left in the ground.

    It is just common sense.

    • john 4 years ago

      Ken I agree it is not a political decision I do not see the figures adding up to make it viable into the India market.

      I will copy past my stuff from before.

      Unless the figures for cost of production, rail, storage, loading and shipping all up it will not be viable.
      So mining say $25 rail $25 port $2 shipping $12 total = $64
      This is above the price in India.
      You may do the figures differently ok divide the investment figure by the expected production and add the amount to repay the loan.
      About $10B expected output 10 million.
      1000/10 = 100
      Ok if it is 30 million then it is 1000/30 = 66
      Actually that is almost the same as my figure above now it is better quality coal than the Indian product however to get to 30 million tonne a year is just a little bit more than the investment
      To get to 30 million output the investment is way more than 10B so the figures do not stack up.

  6. john 4 years ago

    The election of a different government will make no difference.
    Unless the figures for cost of production, rail, storage, loading and shipping all up it will not be viable.
    So mining say $25 rail $25 port $2 shipping $12 total = $64
    This is above the price in India.
    You may do the figures differently ok divide the investment figure by the expected production and add the amount to repay the loan.
    About $10B expected output 10 million.
    1000/10 = 100
    Ok if it is 30 million then it is 1000/30 = 66
    Actually that is almost the same as my figure above now it is better quality coal than the Indian product however to get to 30 million tonne a year is just a little bit more than the investment
    To get to 30 million output the investment is way more than 10B so the figures do not stack up.

  7. Bob 4 years ago

    Dump the spoil off the continental shelf. Problem solved, this is not too expensive as claimed an will allow far more port expansion projects to proceed generating billions in additional revenue for the state.

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