A proposal to build a fourth coal-export terminal in Newcastle, Australia, is about as big a boondoggle in the making as one can imagine.
Even executives at Port Waratah Coal Services, the company that wants to erect the T4 facility are having trouble explaining the sense of the project.
“T4 will only be built if there is demand for it,” the company’s chief executive, Hennie du Ploy said at a Tuesday hearing before the Newcastle Planning Assessment Commission.
As it happens, there isn’t demand for it, and that’s the gist of an IEEFA report I presented at the same hearing (and published here).
T4 is an obvious stranded asset in the making—a US$3.8 billion white elephant by any other name—and it doesn’t warrant commission consent. Here’s a statistic that puts the proposal in perspective: Existing export facilities at Newcastle are operating at only 72.5 percent capacity this year, and the momentum is not toward growth (Newcastle export facilities operated at 75 percent capacity in 2014). T4 would increase Newcastle’s already underused export capacity by a third, and for what?
Some points we make in our full report include these:
There are other reasons to question the rationale behind T4: It would help crowd out development of alternative sources of energy, it relies too much on government subsidies, it is rooted in an industry that faces increasing regulatory risks associated with pollution and climate change.
Meantime, investors continue to see competing opportunity in renewable energy. We’ve commented recently on the significance of the blockbuster Softbank/Foxconn/Bharti Enterprises joint solar-energy venture in India, for instance. Now comes Aditya Birla Nuvo, a US$4 billion equity capitalized and a listed division of the massive Aditya Birla Group, announcing board approval to enter the Indian solar sector by bidding on new solar project tenders.
One more side note on India’s new coal-import policies. With new production records being set for 15 straight months now by Coal India, the country’s domestic coal industry is responding to Goyal’s agenda. This will likely cause a re-evaluation of the assumption that he was joking when he said India plans to cease thermal coal imports. Goyal isn’t joking.
India, like every other country, is driven by its own national self-interest, of course. Which brings us back to the T4 proposal at Newcastle. Investing heavily in yet another export facility to support a fading industry is not in Australia’s best interest. Were T4 to be built, it would only enable Australian coal producers to dump massive new quantities of coal into an already oversupplied market, driving prices lower and making it more difficult for the country’s existing coal industry to cope.
Should there be any doubt as to where coal is headed, one can look to the equity market for guidance.
Globally listed coal-mining companies have lost an average of over 70 percent of their stock value over the last five years. In 2010, Peabody Energy—the big boy on the block—had a market capitalization of US$18 billion. It is the largest Western coal producer, it’s share price is down 95 percent against broader U.S. stock gains of 80 percent and Peabody’s paltry market cap today stands at less than $500 million.
Coal is not a growth industry. It doesn’t need T4.
Tim Buckley is IEEFA’s director of energy finance studies, Australasia.