Hogsback and some inconvenient truths

HOGSBACK has been shaking his head a lot saying lately “I told you so” when it comes to the price of power, the cost to the economy of reducing coal mine development, and the continued demand from our northern neighbours for coal powered fire generation.
Hogsback and some inconvenient truths Hogsback and some inconvenient truths Hogsback and some inconvenient truths Hogsback and some inconvenient truths Hogsback and some inconvenient truths

Lou Caruana

By 2040, India’s coal production is estimated to be double that of Australia’s at about 997 million tonnes per year.

Despite this incredible level of production, India will still need Australia’s coal to power its rapidly growing population and burgeoning economy. That is why Adani is expected to plough $23.7 billion into the proposed Carmichael coal mine and infrastructure complex in Queensland’s Galilee Basin.

The demand for coal in newly emerging economies in south east Asia like Vietnam and Thailand is also strong and Australia’s proximity to this market and its ability to provide high energy low emission coal puts it in the box seat for its long term supply.  

But Australian governments that are over-eager to slug coal mining operations with higher royalties and encouraging renewable energy may end up hurting the local economy and endangering significant downstream projects.

Victoria has decided to triple the royalties paid by the state’s brown coal industry from January 1 after relying for decades from cheap power from its brown coal power generators in the Loy Yang Valley.  

As a result, the future of the Victoria’s Portland aluminium smelter in Victoria still hangs in the balance, with its owner the US-based Alcoa saying talks on a power supply deal are on-going. Commercial discussions on a new power supply agreement are proceeding as a subsidised contract nears its end.

If no satisfactory deal can be made, these operations could end up being unviable and more than 500 jobs could be lost.   

Victoria’s generating capacity has now been diminished with the closure of the Hazelwood power station and there are now rising concerns about the stability and security of Australia’s east coast power generation network.

Minerals Council of Australia Victoria division executive director Gavin Lind said the expected increase in electricity costs would hit Victorian businesses hard.

“The Victorian government claims that energy suppliers can ‘absorb’ these increases – ignoring the practicalities of the National Electricity Market,” he said.

“Through brown coal royalty slugs and bans on conventional and unconventional gas exploration, the government seems intent on making life as difficult as possible for safe, reliable and proven sources of electricity – brown coal and gas.”

A decade ago Australia had the lowest cost energy in the OECD. Now it has the 27th lowest.

While this fact has caused significant hand-wringing amongst the nation’s economic leaders, the Australian coal industry keeps performing and delivering on all fronts – exports, productivity and employment after years of difficult market conditions.  

Coal exports are now performing strongly with forecast exports expected to reach $40.6 billion in 2016-17, up more than $6 billion compared with 2015-16. 

Recent state mid-year budget updates showed higher coal prices will deliver a royalty boost to the Queensland and New South Wales treasury coffers in excess of $1.5 billion in the current financial year alone.

The medium and long term outlook is strong.  The International Energy Agency reiterated in its latest forecasts in 2016 that strong demand for coal in the pivotal economies of both India and South East Asia would continue.

 

Hogsback keeps saying this and keeps shaking his head. One day, hopefully, the pollies will be listening.