What Abbot Point port deal means for Galilee Basin coal projects

LIKE a giant jigsaw puzzle Queensland’s Galilee Basin is gradually taking shape as a world-class source of coal for Asia but after the good news of approval to expand the port at Abbot Point Hogsback suspects there are more (and higher) hurdles ahead.

Staff Reporter

Funding for the mines, railways and port facilities planned by the Indian-led Alpha and Carmichael projects is the next obvious challenge for promoters of coal projects in the Galilee.

If the capital can be found to proceed with the projects that have a collective price tag measured in the tens of billions of dollars the threat of cheap natural gas becomes the next hurdle for the Galilee to clear. And then we get to the threat of fresh challenges from the environmental lobby.

It’s when you consider what needs to be done next that it becomes clear that the news about approval for the expansion of Abbot Point should be seen for what it is; one step on a long and expensive journey.

Despite that sobering warning there is reason to feel pleased that the recently-elected state government in Queensland has thrown its weight behind expansion of Abbot Point, if only because it wasn’t expected to come so quickly, if at all.

Until a few days ago it seemed likely that the left-leaning state government, with its traditional connections to the environmental movement, would find reasons to erect obstacles in the way of the port work.

But, rather than be obstructionist a dose of economic reality saw the new government led by Queensland’s unexpected, Annastacia Palaszczuk, give its blessing to a revised Abbot Point plan which could see dredging spoil disposed of on land rather than dumped at sea.

It is a neat solution which involves making use of a site previously allocated for another coal project, and in doing that the controversial issue of sea dumping close to the Great Barrier Reef is avoided – and the way cleared to create up to 4000 new jobs.

Said quickly, and the Abbot Point solution is reason to crack the bubbly, or fruit juice for the largely teetotal Indian management teams behind the Carmichael and Alpha projects, with everyone seeming to be a winner.

The project promoters have been provided with a way ahead for their port design work, albeit with the need to win more environmental approvals, and the two-month old Queensland government can show its supporters that it is genuine about wanting to expand the coal industry and give the state’s economy a boost.

So far. So good.

Now comes the harder part of the Galilee jigsaw which can be boiled down to that famous question from the Hollywood movie, Jerry Maguire: “Show me the money!”

In fact, there are three parts to the money question. They are:

  • Finding the capital to develop the mines, railway and port systems

  • Getting a price for the coal which will be high enough to generate the profits to service the capital

  • Winning market share in the Asian power generation system from increasingly competitive natural gas.

As Tammie Fraser, wife of a former Australian Prime Minister, once said: “Life wasn’t meant to be easy”, and it’s certainly not going to be easy for the promoters of the Carmichael and Alpha coal projects to put all the pieces of their jigsaw in the right place.

The funding question alone is a monumental task given the fragile condition of global capital markets as the US considers when (not whether) it will raise interest rates.

While events in Washington and New York might seem to be a long way from central Queensland they are closely connected because it is US interest rates which are determining the health of global financial markets and the willingness of the investors to provide long-term funding – as Fortescue Metals discovered this week when its latest debt-funding package fell over.

For a coal project the funding question becomes even more interesting given the attacks on coal by environmental groups.

Competing with gas, either via pipeline or as LNG, is another hurdle for the Galilee project developers because the gas price is falling, in line with the price of oil, and because new sources of supply are hitting the market, including first LNG from Queensland’s coal-seam gas developments.

Given a choice these days and governments will opt for gas-fired electricity generation than coal, especially as gas has become financially competitive.

For the Galilee coal projects what’s just happened with resolution of the Abbot Point expansion plan is an important and welcome development.

But, it also needs to be seen for what it is. A short step forward on a long journey.

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