The good news came in the shape of an ultra-optimistic forecast from a top resource consultancy which pointed to Australia reclaiming its status as the biggest exporter of thermal coal.
The bad news quickly followed in the shape of a reminder from one of the major exporters that there was no point in talking about reclaiming top dog status if blockages in rail and port services meant the prize was effectively out of reach.
Wood McKenzie was the consultancy which tipped a huge uplift in Australian thermal coal over the next 20 years thanks to the ongoing Asian surge in demand and the planned development of big new mines in the Galilee and Surat basins of Queensland.
Rio Tinto was the miner suggesting everyone take a pill and calm down because there was no guarantee that government in Australia, or railway operators effectively under the thumb of government, would be able to provide the infrastructure solutions to match the mines.
And, in the background was a third factor at work. What environmentalists, private or government, think of the Wood McKenzie forecasts of a big increase in exports coming as they did within a few days of a fresh wave of protests about the number of coal carriers passing through the Great Barrier Reef.
On balance, The Hog fears that the boffins at Wood McKenzie might be over-stepping the mark with their forecast of a massive uplift in Australian thermal coal exports because they do not fully understand the infrastructure, environmental and industrial relations impediments which are conspiring to obstruct the growth of exports.
What the consultancy sees is a dramatic increase in overall thermal seaborne coal exports with global shipments soaring by 200% from around 800 million tonnes this year to 2400 million tonnes in 2030.
Australia’s share of that trade will rise from around 180 million tonnes to almost 650 million tonnes in 2030, an increase of roughly 260%, providing a glimpse into the expected “catch up” of production thanks to developments in the Galilee and Surat Basins.
Wood McKenzie’s optimism about Australia overtaking Indonesia as the world’s biggest supplier of thermal coal is based almost entirely on Asian demand and detailed in a report delivered to the Coaltrans India conference earlier this week.
Reports from that conference indicate that Wood McKenzie coal market analyst Prakash Sharma forecast a massive increase in Chinese thermal coal imports, which he said would rise from 175 million tonnes in 2011 to 1 billion tonnes by 2030 – a rise of 470%.
India would also be boosting its coal imports at roughly the same pace, with last year’s 80 million tonnes of imported material tipped to hit 400 million tonnes in 2030, an increase of 400%.
If those growth projections become fact then India will overtake Japan as the world’s second biggest importer of coal, and might need even more than the 400 million tonnes tipped if its internal infrastructure fails to get local coal to where it is required.
The finale of the Wood McKenzie outlook is that Asian demand will underpin a strong future coal price, with $US120 a tonne the expected price into the future.
“Demand for seaborne coal will grow exponentially from now until 2030, particularly as a result of China and India’s needs,” Sharma was reported to have told Coaltrans India.
No-one can doubt the optimism about demand for thermal coal, particularly in the wake of Japan’s shift away from nuclear power and the rapidly rising price of oil which will see increased demand for electricity.
But, it is possible to question whether Australia will be as big a player in the game as Wood McKenzie predicts because of the triple-layer of obstructions confronting Australian coal – environmental protests threatening to use the legal system, an acrimonious industrial relations system which is pitting labour against management, and a reminder from Rio Tinto that the rail and port systems in Queensland are simply not up to scratch and might never be.
Doug Ritchie, head of Rio Tinto Energy, put the problem in easy to understand terms: “Infrastructure always needs to be ahead of production, which it has not been in Queensland or NSW for the last decade,” he said.
To which The Hog adds – why would anyone expect that situation to suddenly change?
Wood McKenzie’s optimism is welcome. Rio Tinto’s pragmatism is a wake-up call that delivering on forecasts is never easy.
