Hog on the money and coal trail from Sydney to Paris

AT FIRST glance it is hard to find a link between a corruption inquiry looking at the transfer of coal exploration leases and the latest analysis of global energy trends. However, that is only until Hogsback tugs at the common thread that link the two events – money.
<i>Hog</i> on the money and coal trail from Sydney to Paris <i>Hog</i> on the money and coal trail from Sydney to Paris <i>Hog</i> on the money and coal trail from Sydney to Paris <i>Hog</i> on the money and coal trail from Sydney to Paris <i>Hog</i> on the money and coal trail from Sydney to Paris

 

Staff Reporter

In both cases, an investigation into the past actions of an Australian state government and the 2012 edition of the World Energy Outlook, it is the power of money that caused things to happen, and will dictate the future.

The corruption inquiry, understandably, got most of the headlines this week simply because of the stunning allegations made in the opening assault by counsel assisting the Independent Commission Against Corruption in New South Wales Geoffrey Watson.

“It is corruption on a scale probably unexceeded since the days of the Rum Corps,” Watson said, comparing the coal lease scandal with dirty dealings in the earliest days of European settlement in Sydney more than 200 years ago.

The core claim brought by Watson is that a former politician and his associates made profits approaching $100 million from being awarded coal leases for a pittance and then on-selling them for a fortune.

In the lawyer’s cross-hairs are former minister for mines Ian Macdonald and former NSW parliamentarian Eddie Obeid.

“In all, decisions taken or influenced by Ian Macdonald may have enable Eddie Obeid and his family to acquire profits in the order of $100 million. An important motive is money – a motive with a long pedigree,” Watson said.

While the ICAC inquiry promises more explosive claims as it probes dealing in the NSW coal industry, it is the money motive that also lies behind the message in the World Energy Outlook published by the Paris-based International Energy Agency.

What the IEA expects to happen over the next 20 years is continued growth in demand for coal as it retains top spot in the electricity-generating industry, but a decline further in the future as natural gas and renewables grow their market share.

In a way, there is not much new in what the IEA predicts, though what is becoming somewhat clearer is that the price mechanism will become increasingly important as energy competition rises, a trend not widely expected just a few years ago.

For coal producers the issue boils down to one of the best and lowest cost miners prospering in the future while lower-grade and higher cost mines reach their use-by dates.

No one is spelling out that future with the clarity seen by The Hog but it really is rather simple because it all comes back to competing energy sources battling over market share.

Shale gas in the US is the fastest-growing coal competitor in that country. Renewables are the competitor emerging in Europe, and while one is being produced without government subsidy (shale gas) and the other needs propping up (renewables) the impact on the energy market is similar – increased competition.

What the IEA forecasts will unfold is continued strong demand for coal, especially in emerging markets. However, it predicts there will be a decline in market share by about 3% to less than 25% of world energy demand by 2035.

“While coal’s share of global primary energy falls by nearly 3 percentage points to less than 25% in 2035, coal remains the second most important fuel behind oil and the backbone of electricity generation,” the IEA said.

“Global coal demand will grow by 0.8% a year to 2035, with growth slowing sharply after 2020 as recently introduced and planned policies to curb its use take effect.”

It is not easy to dismiss the forecasts of the IEA, even if they should be seen as just that, forecasts.

Subsidies for renewables, for example, will become an increasingly volatile political issue in Europe, which is struggling to raise taxes and create jobs in a more competitive global market. Shale gas and associated liquids are far more potent threats to coal.

Wrapping up all of the different energy sources are those questions of price and who pays.

Shale gas and renewables might look attractive today, but that’s because of either an abundance of supply (gas) or generous subsidies (wind and solar in Europe).

In time, the money factor will determine the pecking order of the energy sources, but with increased competition it would be wise to assume that high-cost coal mines are heading into a more difficult financial environment.

Or, to borrow, the words of Geoffrey Watson at the ICAC coal-lease hearing: “An important motive is money – a motive with a long pedigree.”

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