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The future for Australian coal – Queensland Resources Council

first_imgIn his keynote address to the 9th Coaltrans Australia conference, on August 12, Queensland Resources Council Chief Executive Michael Roche oOutlines the market outlook for Queensland coal; lays out the four policy markers for the federal election; challenges vexatious appeals and objections to coal projects; reaffirms the long-term growth trend for thermal coal; and calls out the ‘lies, deceit and fabrication’ underpinning a Great Barrier Reef-focused campaign against the Queensland coal industry.12 months ago we met here under this conference banner in somewhat different  circumstances. As I reported, Queensland’s coal mines were still in the process of drying out after flood damage and legacy water trapped in mines cost Queensland in the order of 40 Mt of lost production, or around A$7 billion in sales. Looking now at the immediate prospects for coal exporters, that was perhaps not such a bad year after all.As you know, Australia’s coal industry is staring down the barrel of the toughest operating environment in more than a decade. As many would know from their own bitter experience, last financial year’s challenges simply set the stage for more bad news. Global coal prices have continued to fall, albeit with some recent signs of stabilising.Despite the softening of the Australian dollar against the greenback, it appears our global customers have been to some extent factoring those benefits into price negotiations. Coupled to Australia’s high structural costs, the added burden of the world’s highest price on carbon and forecasts of an oversupplied global market well into 2014 – many of the coal companies that I represent are in flat-out survival mode.The cost structures were simply not sustainable. Hence, the concerted program of cost reductions throughout the coal sector. The flow-on from their enforced cost cutting is being felt across the industry’s supply chain in Queensland, and of course in resource communities.Industry suppliers are having to adapt to the new market conditions and look to engage producers with a focus on efficiency and productivity. In an all-out effort to spread high fixed costs over more tonnes, the industry as a whole is delivering higher production and exports. For the first six months of this year, exports were up 15% over the same period in 2012.July 2013 exports did not match those of the month of June, in part reflecting maintenance at one terminal. Noteworthy though was the record export tonnage achieved at the Abbot Point Coal Terminal.Certainly, the mines are not as hampered by old floodwater as they were, and new production is also coming on line at Bowen Basin coking coal operations like Kestrel and the new Daunia mine.However, I see nothing in my current round of interviews with QRC Board coal producers to dispute that we will inevitably see more rounds of cost cutting. The only factor preventing more mines or parts of mines being put on care and maintenance is the existence of substantial fixed costs in the form of take or pay commitments for rail and port capacity.Since May last year, we estimate close to 8,000 jobs have been lost to the Queensland coal industry.The only good news for Queensland has been that the broader impact of the coal industry’s tough times has been off-set to some extent by the diversity of the state’s resources sector.Quarterly data from the Australian Bureau of Statistics shows that mining and resources sector full-time employment has remained steady over the past 12 months at around 73,000 people. Coal employment is down but industries such as gas have been on the rise.However, there is no ignoring the substantial flow on job losses in companies supplying a wide range of services to the coal sector. The lucky ones are those who had the ability and foresight to diversify into service provision to the state’s burgeoning gas sector.The federal election campaign began with a declaration by the Prime Minister that ‘the China mining boom is over’. Certainly the resources investment boom that kept Australia in the black for the past decade has peaked for now.What we have to do now is adjust for the production phase and get our Australian industry in the best possible shape to compete for the next phase of investment. Yes, the global market is oversupplied with coal, but all the official forecasts show that this oversupply will be overtaken in time by a strong growth in demand.With an eye to getting through this downturn and getting ready for the upturn, the QRC has laid down four markers for federal policy reform. We are looking for our political leaders to translate the talk of productivity reform and global competitiveness into tangible policies.So, what do QRC members see as the ‘big four’ reforms to give our industries a fighting chance?First, we’re looking for a globally competitive approach to emissions reductions. We’re a long way from it at present. The ALP proposes an accelerated move to the floating carbon price – that’s around A$6/t on current parameters, compare to the current A$24/t.From the ALP, we need to hear more though about the fair treatment of emissions intensive, trade-exposed industries and their preparedness to either include coal as an emission intensive, trade exposed (EITE) industry or bring Australia into line with the rest of the world by dropping the carbon price on fugitive methane emissions from coal mines.On the other side of the political spectrum, the Coalition plan involves no carbon price; a fund to purchase lowest cost abatement measures; the establishment of baselines for emissions and a White Paper policy process to commence shortly after the election. The clean slate approach of the Coalition appeals to many of my members, albeit there will be devil in the detail that will have to be worked through after the election if the Coalition forms government.I am not here to mark the exam papers of either party. That’s for other people to decide. Our only focus is on good policy. Our second marker is the gorilla in the room – taxation.All industries crave certainty and fiscal stability, but few others have been pulled through the wringer as many times as mining in recent years. I don’t think it’s too much to ask that there be no further tax increases, no more surprises, and no more fiddling with the fuel tax credit scheme. What we want is the next government’s commitment to open and consultative dialogue with industry and the states around a long-term, sustainable framework for resource taxation.We know that the Coalition is committed to repealing the Mineral Resource Rent Tax and releasing a comprehensive taxation White Paper. Prime Minister Rudd was silent on taxation in his important speech last month on a National Competitiveness Agenda. Perhaps we will hear more from him on this important topic during the election campaign.Number three on the list is an end to the current duplication and inefficiencies besetting project environmental approvals. The new water trigger under the Commonwealth Environment Protection and Biodiversity Conservation Act is the latest liquorice all-sort in the bag. It’s just another layer of bureaucracy adding to our global reputation as a prohibitively expensive and complicated place to do business. It is simply unnecessary legislation devised for nothing more than political benefit.Prime Minister Rudd recently acknowledged the need for action but without going into any detail over a way forward. At a minimum he should be committing to re-start the reform process abandoned by Julia Gillard in December last year. We welcome the Coalition’s commitment to implement a single entry point for project approvals, delegating more responsibility back to the states under its one-stop-shop policy.Marker Number 4 is exploration. Federal government recognition of the headwinds confronting the exploration industry is long overdue. The combination of market weakness and difficulties in accessing equity markets is tearing out the hearts of our junior resource companies. These are the explorers this country needs to prove up its next generation of resource developments.Surely, there’s never been a better time for the next federal government to revisit a much-promised but so far undelivered ‘flow-through shares’ or exploration tax credit scheme to allow unused deductions to filter back to exploration companies, to be spent on eligible exploration activities.In the past, both sides of politics have promised to deliver such a policy but in the end they both have allowed Federal Treasury to neuter its delivery. Even at the top end of town, the inability to lure much-needed capital from internationally focused boardrooms is causing sleepless nights.The more diversified the company, the less chance right now for coal divisions to mount successful business cases for new investment, particularly in a high-cost country like Australia.For those established and aspiring coal producers looking to bring on new, low-cost coal operations there is the added cost and frustration of a public appeals and objections process that is out of control.Australians should have the right to legitimately appeal and object to proposed resource projects that may have a direct impact on them. There is no debating that democratic right and no gain for any industry in seeking to have it overturned. However, the system should not be holding the door open for vexatious appeals and objections with the sole aim of stopping – or at least delaying – all new projects and proposed expansions of coal developments.In March 2012, the Australian Financial Review exposed this document called Stopping the Coal export Boom –Funding Proposal for the Australian Anti-Coal Movement. It was and still is a sophisticated pitch for large scale domestic and overseas funding to shut down the Australian coal industry through a range of strategies. This document was endorsed by a number of groups including Greenpeace, GetUp! and Lock the Gate but also co-signed by representatives of the taxpayer-funded Environmental Defenders’ Offices in New South Wales and Queensland.The reason for that becomes clear when you find that the anti-coal movement’s key strategy is, and I quote: ‘Our strategy is to ‘disrupt and delay’ key projects and infrastructure while gradually eroding public and political support for the industry and continually building the power of the movement to win more.’In Queensland, the resources sector’s public approval rating stands at more than 82% statewide.Governments elected by these people clearly have a responsibility to prevent environmental extremists from achieving their strategy through vexatious objections and appeals.We’re not talking about taking away the legitimate rights of people who are directly affected by coal or other resource developments to be involved in addressing real site-specific and project-specific questions. We are acutely aware that it is important to get the balance right in terms of the industry’s social licence to operate.The bottom line is that coal projects should not be disadvantaged compared with other types of development in Queensland by having greater unnecessary ‘greentape’ imposed on them in terms of objection and appeal procedures and timeframes.There is a real problem with the potential for abuse of process by certain organisations leading to a need to consider the question of ‘standing’ for objectors, similar to existing legal standing requirements in the Environmental Protection Act 1994 for other issues.To give you an example, one coal project proposed for the Galilee Basin has been held up at great expense in the Land Court for several months, courtesy of an objector whose residential address is Canberra, Australian Capital Territory. The extremists plotting to shut down our industry are very clever. They know that delays can kill projects. Windows of opportunity close faster than they open – but on that issue – let me add a more optimistic note.The window of opportunity to build a new coal mine in Queensland is open. There has never been a better time this century in terms of being able to contain costs for a greenfield project. The competition for skilled labour is much diminished and pencils have been sharpened across the supply chain. This is the time for a smart mid-tier coal company to win over the financiers and make [a] mark in Queensland.It’s not going to be easy, but let’s face it – it never has been. If it was easy, everyone would own a coal mine. And here’s some more encouraging news. We think Goldman Sachs might have been a little short-sighted in doing a Mark Twain on the thermal coal trade. Citing tax, production costs and environmental regulations as key inhibitors, the broking house said the prospect of weaker demand growth would see seaborne trade in thermal coal peak in 2020.The media naturally interpreted the forecast as a death sentence for major thermal projects in Queensland including plans for the opening up of the Galilee Basin by Indian companies GVK Resources and Adani. But strangely, the report then went on to say that thermal coal demand would continue in China and India.So, here are another couple of views. They are longer in scope, and therefore subject to greater variation but looking beyond 2020 is what they have done.Global consulting firm Wood MacKenzie is forecasting a Compound Annual Growth Rate for global thermal coal demand at 4.4%. It continues to be driven by China with the gap between demand and supply opening up from 2021. What a difference a year makes. By 2030, Wood MacKenzie estimates ‘unidentified supply’ at 1,070 Mt.According to the federal government’s Bureau of Resources and Energy Economics, world demand for thermal coal imports is projected to increase by around 46%, relative to 2010.They say despite serious efforts to reduce emissions, strong growth in global thermal coal imports over the outlook period is expected to be largely underpinned by the assumed continuation of robust economic growth in key emerging economies—particularly China and India.BREE goes on to say that the positive outlook for thermal coal import demand from both China and India is largely a reflection of domestic coal production being unable to match the projected rapid growth in domestic coal consumption.If that is not an argument for a renewed global focus on low-emissions power generation technologies – I struggle to see what is. On that brighter note, I should be thinking about leaving you at peace with the world.But there is another issue in Queensland taking up a lot of time at the QRC – and that is the largely untested accusation that expanding coal exports represents a direct and major threat to the health of the great Aussie icon, the Great Barrier Reef.Not surprisingly, the claim is being prosecuted by Greenpeace and the World Wide Fund for Nature in concert with the Australian Marine Conservation Society – both of which are receiving funding from the Thomas Foundation. David Thomas was the founder of Cellarmasters, which he later sold to Woolworths. According to its website, ‘Fight for the Reef’ is the first major marine project to benefit from a significant Thomas Foundation grant.It goes on to say that as well as bringing the two groups together, this is also the first time the Foundation has funded an advocacy program – a significant shift from the science-based grants programs that were the focus of the foundation’s terrestrial conservation activities over the previous decade.Yes, it is a significant shift from that foundation’s science-based grants program, because the ‘Fight for the Reef’ campaign has little connection with science. In fact what the foundation is funding is a campaign based on a litany of lies, deceit and fabrication. But I’m sure it is providing a warm glow of self-righteous satisfaction to someone.Every scientific report on Great Barrier Reef health has named Crown of Thorns starfish outbreaks, water quality and extreme weather events as the greatest dangers to its long-term health. Neither an increase in shipping traffic nor decades of port dredging has been recorded as contributing to coral cover loss or a historical decline in the environmental health of the reef.Dredging has become the new bogeyman for the anti-coal industry activists, as evidenced by their well-funded, deceitful television, print and social media campaign. They know that if they can block dredging, they can shut down existing ports and prevent port expansions, eventually leading to the shutdown of the coal mining industry.A focal point is the Abbot Point Coal Terminal where a dredging application is still awaiting federal government approval – now destined for after the election. The project involves three separate dredging campaigns, each lasting just a few weeks, to eventually relocate3 million m3 of sediment from the port. Each dredging campaign will only occur when there is a committed mine project which require the additional port capacity.The dredging project is from North Queensland Bulk Ports, who have managed 19 such dredging projects since 2002 without incident. This includes the 2006 relocation of around 9 million m3 of material in the Port of Hay Point. An independent review of that Hay Point program concluded there were no significant or long term environmental impacts from the dredging, only a temporary increase in water turbidity – cloudiness – during the dredging itself. There were no reported impacts on fishery values.Last week I visited the town of Bowen, near Abbot Point. Bowen is a community proud of its connection with the Reef. It is also a community that understands the real facts about dredging and port development. It is a community desperate to see this development proceed, a development that is supported by both the local LNP and Labor candidates for the upcoming Federal election.Despite a substantial increase in ship movements in the Reef area, the REEFVTS or Vessel Tracking Service operated 24/7 from Townsville has reduced groundings in its coverage area from one per year to just one in the decade since its introduction in 2004.The tracking system now extends to the southern boundary of the Great Barrier Reef Marine Park.There are two Great Barrier Reef campaigns determining the outlook for communities along 80% of the Queensland coastline. One is a genuine effort to make sure the values of the iconic World Heritage Area are preserved.The second is an ideologically-driven and opportunistic shot at shutting down Queensland’s coal industry – and if it works – why not the gas industry too? Why stop there? What about the export of sugar, of beef, of grain?What about the passenger ships travelling up and down the reef?Queensland’s leading export industries are minerals, energy, food, fibre and tourism – and 78% by volume moves through the well defined shipping channels of the Great Barrier Reef. Combined, these exports contribute around A$40 billion a year to the economy.Last month I had the pleasure of launching Working alongside the Great Barrier Reef – a campaign to set the record straight on the future of the Reef and the prosperity of more than one million Queenslanders who live and work adjacent to it.Along with the operators of the 11 commercial ports incorporated into the Great Barrier Reef World Heritage Area 32 years ago, the state’s export industries have co-existed with the reef under the scrutiny of state, federal and international environmental agencies. Reef-based industries know they will be judged harshly if they do not have the highest levels of environmental protection in their planning and operations. It is this reality that continues to drive positive changes to fishing, agriculture, tourism, port and shipping practices.We all have a vested interest in ensuring that the past 32 years of managed interaction between the Great Barrier Reef and adjoining industries and communities thrives.The people campaigning to see the Reef declared ‘in danger’ by UNESCO’s World Heritage Committee are environmental extremists – largely funded by international groups like Greenpeace. Scientifically informed and carefully managed outcomes will continue to serve the reef and Queensland communities well – not TV commercials full of unfounded fears, fronted by clueless if well-meaning celebrities.The future demands renewed commitments to continuous improvements in environmental stewardship and that’s what the coal industry is delivered in connection with the Abbot Point expansion – guided by the country’s first Cumulative Impact Assessment for a major port project.We don’t have to sacrifice one global value for another to appease extremists with the attention span of an election campaign. I urge you all to become familiar with the facts and tell your friends.last_img

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