That "Oxford" study into Australian coal

WHAT IS in a name? Lots is the quick answer, but for a more detailed look at the power of a big name consider what Hogsback discovered behind the latest scare story about Australia’s coal industry facing a dismal future because of falling Chinese demand.

Tim Treadgold

Catching the eye of headline writers earlier this week was a report titled Stranded Down Under from an organisation associated with Oxford University in the UK.

At first glance the fact the document came with an Oxford stamp on it added greatly to its credibility, and there is enough truth in the opinions of the authors for them to be taken seriously.

Among the claims that made news in Australia was the linking of possible falling Chinese demand for coal with the mine development plans of two ultra-rich people: Gina Rinehart and Clive Palmer.

How simple. Take a report that assumes one thing (falling Chinese demand) and link it with another (rich people), and … Bingo!

However, who actually made the claim in the first place and was it from a truly independent body, as is inferred by the attachment of the Oxford University name?

Those were questions that caused The Hog to go digging, and what he found should really have been reported by the leading Australian newspapers which gave the original document Stranded Down Under such prominence.

Rather than simply say the report came from Oxford University what should have been said is that it came from the Smith School of Enterprise and the Environment at Oxford University – with the last part of that name (Environment) giving a hint as to where The Hog is heading.

A second clue, also available on the front cover of the document, is that the lead author of the three credited with its production is Ben Caldecott, a highly credentialed economic and environmental researcher who has to his name awards such as “a leading thinker of the green movement” from The Independent newspaper in London, as well as being a trustee of the Green Alliance, an organisation with a name that says all that is required.

Now, here comes the problem, starting with the fact that everything in the report from Smith School of Enterprise and the Environment (a more accurate description than simply saying Oxford University) could be correct.

It is possible to imagine Chinese demand for coal drying up, and it is possible to imagine some of Australia’s more remote and costly coal assets being stranded – with the implication being that such a situation would see the withdrawal of funding support from banks and investors.

But, if that is the case why are Chinese companies increasing their investment in the Australian coal industry, and why is one of the world’s biggest coal producers (and traders), Glencore, doing the same and investing heavily in expanding its coal operations.

Delicious, isn’t it? Here we have an academic study based on a series of what seem like reasonable assumptions arriving at a conclusion that points to a financial crisis for Australian coal while, at the same time we have rich investors who, presumably, have access to the same data, arriving at a different conclusion.

Perhaps the issue is one of timing with fat cat investors spotting an opportunity based on coal assets going cheap today that are likely to generate good profits for the next 10-to-20 years whereas the academics are looking further into the future.

Whatever the explanation for the difference of opinion there three critical elements behind this latest scare story about the future for coal, and they are:

  • it is a document entitled to carry the Oxford University name but it should also have been pointed out by anyway reporting on it that the work was generated by a people with close ties to the green movement
  • most of the stories in the popular press about the academic study were written by the environment correspondents, not by business correspondents
  • if the claims in the report are correct they must be analysed alongside the hard-headed investment decisions by coal-industry professionals who are doing more than using words to support their argument, they’re using money.

Having said all that, The Hog is more than willing to accept that a situation could arise whereby some coal assets are stranded by declining demand.

In fact, he will go one step further and say that there already are coal assets stranded by their location, depth, quality and a shortage of development capital – always have been, and always will be. It is what managing risk in mining is all about.

Unfortunately, The Hog’s magnanimous gesture of accepting that the academics might have some valid points to make is unlikely to be reciprocated by them acknowledging that savvy people continuing to invest in coal developments is a fact that might lead to a different conclusion – that coal (remote, or not) actually has a bright future.