Planning Assessment Commission Submission: Newcastle T4, a stranded asset?

Thank you for the opportunity to make a submission on the Newcastle T4 Coal Export Expansion proposal. We oppose the project as an obvious stranded asset in the making and believe it should not be given development consent.

The Institute of Energy Economics and Financial Analysis (IEEFA) believes the proposed capacity expansion is redundant. With global traded thermal coal market peaking in 2013 and given the Newcastle Coal Port is now operating at only a 72.5% utilisation in 2015, down from its 2014 peak of 75%. Adding another 33% is adding serious stranded asset risk.

Chinese coal imports peaked in 2013 and the subsequent and totally unforeseen 11% decline in import demand over 2014 caught the global coal industry by surprise. The decline has accelerated into a collapse of 38% year-on-year in the six months to June 2015. IEEFA forecasts that this trend is structural and permanent. The Chinese Premier has made it clear that the Chinese government is undertaking a war on pollution and pursuing all means possible to diversify away from coal. As the marginal and high cost source of incremental supply, the import market is the immediate and permanent casualty of this war. China was a net exporter of coal pre-2008, and IEEFA sees China as likely to be an opportunistic net exporter again on any temporary price improvement in seaborne coal.

The International Energy Agency (IEA) acknowledged in 2012: “China is coal. Coal is China.” As the world’s largest producer, consumer and importer of coal, China is the best barometer of this global commodity’s future.

With the collapse of China demand, India is today the world’s largest importer of coal. The Energy Minister of India, Piyush Goyal announced in November 2014 a target to cease India’s thermal coal imports within 2-3 years. In May 2015 Minister Goyal updated his view to say this is now a two year target, given the Government of India aims to treble India’s domestic coal production by 2020 to 1,500 million tonnes per annum (Mtpa). With domestic Indian coal selling at US$24/t, the ability of imported coal (even at record low export prices of US$58/t in 2015) to compete is limited at best.

IEEFA views the global equity market as a clear barometer of the structural decline of coal. The coal mining sector has seen share prices decimated. Global listed coal mining companies are down an average 70% in the last five years. Five years ago Peabody Energy’s equity capitalisation was US$18 billion. Peabody, the largest Western coal producer, has seen its share price decline 95% since, against a U.S. equity market up 80%.

Approving the proposed $4.8bn T4 expansion at a time when the Newcastle Port’s coal exports are running at only 72% of existing capacity would be counter-productive to Australia’s national interest. Enabling massive new supply to flood an already oversupplied and declining export sector will only serve to further erode the long term price of coal.

Please view full report PDF for references and sources.