Coal in Australia
Australian coal has grown into an important export industry for the country. For the past decade or two Australian coal has satisfied the rising energy demand of Asia’s rising economies. Now, thanks to growing natural gas exports, the supply of energy in Asian markets is starting to outpace demand leading to lower international prices for Australian coal exports. Still, export volumes of Australian coal are expected to hold up against this competition.
VERSATILE coal has been used by humankind for centuries – as a fuel for power generation, a steelmaking raw material, for smelting, and in the chemical industry – driving economic growth for societies worldwide.
Australia is a major producer of thermal coal and coking coal, the two main types of the fossilised fuel, and its quality is among the world’s best.
In Australia, nearly 80pc of coal is produced from open-cut mines, in contrast with the rest of the world where open-cut mining only accounts for 40pc of coal production.
Australia’s principal coal producing basins are the Bowen (Queensland) and Sydney (New South Wales) Basins.
Locally important black coal mining operations include Collie in WA, Leigh Creek in South Australia and Fingal and Kimbolton in Tasmania.
Australia’s thermal coal mines are mostly located in NSW and shipments are sent from Newcastle to customers all over Asia.
Queensland is the source for most of Australia’s coking coal for steel production and its mines ship through four ports – Abbot Point, Hay Point, Gladstone and Brisbane.
In 2019, Australia was estimated to have exported 209mt of thermal coal mostly to countries in Asia, and on top of this it shipped 184mt of coking coal.
Volumes are expected to grow to 216mt and 199mt respectively for thermal coal and coking coal exports in the year 2021, according to the Australian government’s Office of the Chief Economist in his report for December 2019.
Asian powerhouses
Over the past decade the powerhouse economies of China and India have become large-scale importers of Australian thermal coal.
This is despite both China and India having large domestic coal industries.
Imports are needed by China, India and increasingly by southeast Asia as their economic growth means their energy demand now outstrips their domestic coal resources.
This situation has made thermal coal shipments from Australia an in-demand fuel for power plants in Asian countries, including lately India.
But the fuel’s market share in these countries is starting to be squeezed by the rise of other energy sources.
Some sources such as solar, wind and even wave energy are renewable, and the technology for these is becoming ever cheaper reducing their cost.
Other energy sources such as natural gas emit less carbon dioxide than coal when consumed and are perceived to have less impact on air quality.
Liquified natural gas (LNG), a super-chilled form of natural gas that is transported on ships, has been taking an increased share of the power generation market globally.
LNG prices are currently sitting at an all-time low in the Asian market at US$2.5/ mmBtu (million British thermal units) with some cargoes sold to India at this level, according to S&P Global Platts, a price reporting agency.
China’s extended Lunar New Year holiday and reduced economic output following concerns around the Coronavirus illness has reduced the Asian country’s energy demand in February 2020.
Relatively low LNG prices has blunted the competitiveness of Australian thermal coal delivered to ports in Japan and Korea which has been trading in a steady range of around US$3/mmBtu for the past year.
Energy experts including in the Australian government suggest the scenario of cheap LNG supply is likely to last a while longer, with implications for coal.
According to the Office of the Chief Economist, the “overarching narrative for LNG markets remains unchanged: the long-anticipated overcapacity in LNG markets has arrived, placing downwards pressure on LNG spot prices which remain at multi-year lows”.
The Australian government’s experts see LNG supply rising for years to come.
“New capacity in the US, Australia and Russia are ramping up operations. Meanwhile, growth in China’s LNG imports (the world’s second largest importer) has slowed, and imports from Japan and South Korea – the world’s largest and third largest LNG importers, respectively – have declined,” the Office stated.
Gas emissions
The Australian Coal Association acknowledges that much of Australia’s greenhouse gas emissions come from burning black and brown coal for electricity, steel-making and cement manufacture.
The coal industry established the COAL21 initiative, bringing together the coal and electric power industries, unions, federal and state governments, and research organisations.
Supported through a voluntary company levy, the $1 billion+ commitment supports research, development and demonstration of low-emissions coal technologies.
To date, the COAL21 Fund has made commitments of more than $500 million to a number of active and in-development carbon capture and storage research projects.
Coal exporters
Australian coal exporters are rising to the twin challenge of lower cost renewable energy and a changing landscape for international energy markets.
Whitehaven Coal sees a ‘’ strong growth outlook across Asia” for its shipments of Australian thermal and coking coal, said the company February 20 in a results presentation for the half-year ended December 2019.
The coal producer bases its business case on three factors in Asian countries, an increase in requirements for electricity and infrastructure and industrial output.
Coal is seen to fuel 50pc of Asia’s electricity generation in 2030, down from 62pc in 2017, said Whitehaven Coal citing the International Energy Agency.
But Asia’s electricity consumption is forecast to rise to 11.3 thousand terra watt hours in 2023, up from 9.3 thousand TWh in 2017, stated the company presentation.
Whitehaven Coal chief executive Paul Flynn the company expected LNG prices to recover from their current lows.
“Market expectations remain that spot LNG prices are likely to rebound in the medium term as consuming nations, including China, expand their capacity to receive imported LNG and the current LNG development project pipeline is completed and brought onstream,” he said.
However, Mr Flynn also cited other factors for having a recent impact on market prices for Australian coal shipped to Asia, including US-China trade friction, and lately the coronavirus issue in China.
“The coronavirus has caused a temporary loss of demand for coal in China, however, the supply of coal in China has also been reduced as a result of the virus,” he said.
Therefore, reduced domestic coal production in China has balanced any lost demand.
“During February 2020 the loss of demand in China has been offset by the loss of domestic supply leading to a strengthening of China domestic prices and seaborne coal prices,” Mr Flynn said.
He said Whitehaven Coal continues to see strong end-user demand for its high quality Australian thermal coal, and that lower global prices have pushed higher cost coal producers out of the market.
“The globalCOAL Newcastle price [index for Australian thermal coal] levels have seen ‘swing’ suppliers from Colombia, Canada and the USA withdraw from the market which has led to a rebalancing of the fundamentals, and pricing being well supported in a range around the high US$60s/t,” he said.
Another coal company with mines in Australia, the London-listed Glencore, said technology would help curtail emissions from coal-fired power plants.
“We believe that coal, as a reliable and cost competitive form of energy, will continue to have a role in meeting future energy demand, particularly in developing countries, with Carbon Capture Utilisation and Storage (CCUS) adoption playing an increasingly important role in achieving emissions abatement,” it stated.
Government support
Earlier this year, Prime Minister Scott Morrison publicly stood by the Australian coal industry, despite calls from radical climate change activists to ban the export of the commodity.
Fuelled by fires ravaging the country, objectors want exports to be ceased immediately, action expected to cost Australia more than $52b and jeopardise the jobs of 50,000 people involved in coal mining.
Mr Morrison vowed that climate protesters would not be dictating energy or trade policy, and is sticking with the government’s existing plans to reduce carbon emissions by 28pc within a decade.
“We won’t embrace reckless targets and abandon our traditional industries that would risk Australian jobs while having no meaningful impact on the global climate,” he said in an opinion piece.
“In short, we will continue to act responsibly on climate change, avoiding extreme responses and get the balance right.”
Mr Morrison has rejected a suggestion that ramping up renewable energy would have prevented the wide-scale fires.
He said suggesting that increasing Australia’s climate targets would have prevented these fires or extreme weather events, in Australia or anywhere else, was “simply false”.
In its election platform last year, the Government promised to reduce carbon emissions by 28pc by 2030.
“As part of a global effort, our government will ensure Australia keeps commitments made at the election,” Mr Morrison said.
“Australia’s carbon emissions are on average 50mt less per year than they were under the previous government. All achieved without a carbon tax.”