Controlling carbon with more coal

Major coal miner Peabody Energy has a plan for Australia.

A plan which it says will slice Australia’s emissions profile, control carbon, and provide affordable electricity to the masses.

Its plan involves decreasing emissions and electricity costs with high tech coal fired power stations.

Peabody chief executive officer Gregory Boyce said Australia can achieve its energy, economic and environmental goals by embracing coal, saying new coal technologies would make a significant difference to the country’s emissions profile.

“Coal has a long history of advancing Australia’s energy and economic goals and can also help Australia meet its environmental objectives,” he stated.

"Supercritical coal plants are highly efficient, and their carbon emissions rate is as much as 40 per cent below the oldest plants.

“Peabody is investing in and advancing clean coal technologies and solutions which will help coal achieve our longer term goals of near zero emissions."

He explained that Australia could reduce its emissions by as much as 10 to 15 per cent if it migrates existing coal plants to the new cleaner technology.

 “The plan calls for ensuring half of new generation globally comes from advanced supercritical coal plants.

“Commercialising carbon capture use and storage methods that prevent carbon from being released into the atmosphere, and deploying coal conversion technologies that produce liquid fuels and synthetic gas.”

But for this to work he said the nation needs a strong economy.

Boyce used his address to call on Australia's incoming government to implement comprehensive policy reform aimed at returning the nation's coal sector to international competitiveness.

"Granting this [coal] technology the same status as renewables would be a leap in the right direction for a forward-thinking nation," he said.

Despite current market headwinds, Boyce explained the long-term fundamentals for coal remained strong and Australia's coal exports would have a critical part to play in shaping the Asia-Pacific region's future.

"Coal remains the fuel that can advance Australia's energy, economic and environmental goals, but recent policies have eroded competitiveness and jeopardised economic growth," he said.

Employing the nation

Peabody Energy employs more than 3000 workers across 11 mines in Australia; it is heavily invested in the coal sector and has been duly affected by rising operational costs and falling commodity prices.

The day before Boyce addressed the Minerals Council of Australia’s Minerals Week Australian Mining revealed his company slashed about 450 contractor positions across its Queensland and New South Wales coal mines in response to current market conditions.

He said in the last five years labour costs have spiralled, saying that by 2012 labour represented up to 50 per cent of the total cost of a new project.

“Recent industry cut backs are in stark contrast with the skills shortage that caused labour costs to skyrocket in recent years,” Boyce said.

Coal jump

A recent Wood Mackenzie report found that the average unit cash cost per tonne of Australian thermal coal has risen 72 per cent since 2009.

By April of this year almost 70 per cent of Australian thermal coal export production and more than 50 per cent of MET coal export production was earning an operating margin of less than $10 a tonne.

The same report also found about 20 per cent of MET export production and 54 per cent of thermal export production coal had negative margins.

Another Wood Mackenzie report found lower commodity prices, increased operating costs and ‘take-or-pay’ contracts are to blame for margin squeeze.

But Australia's coal production has continued to grow, despite lower coal prices in 2013.

It has been estimated by 2030 there will be a 14 billion tonne shortfall on the global seaborne coal market.

“That is a huge and significant opportunity for the Australian coal sector,” Boyce said.

 “Traditionally Australian coal mines have occupied a place near the lower end of the cost curve, ensuring their competitiveness in the global seaborne markets.

 “But as prices in the Australian coal sector have mounted new competitors have emerged to vie for this growing demand.”

Vying for Australia’s precious market share are low cost countries like Indonesia, Mozambique, and Mongolia.

But there is hope, the United States which was previously classed as a high cost producer, has undertaken massive productivity and export focus shifts, transforming its coal sector to enhance its ability to serve the growing Asian market.

Australia can learn from this, rather than repeat other’s policy mistakes, Boyce explained.

"There are decades of opportunity ahead in the Asia-Pacific region, but Australia's competitors recognise this, and all of Australia faces a steep cost if its policymakers get it wrong," he said.

Losing the edge

Recognising growing coal demand coming out of India and China, Australia is in an enviable position with good quality coal reserves and geographical proximity on its side.

“The long term fundamentals for coal remain strong, and Australia has both the national assets and the geographic advantage to leverage the opportunities that lay ahead,” he explained.

But Boyce said the coal sector is at a cross roads, with mining and carbon taxes risking Australia’s global economic reputation.

"Australia's recent policies have put at risk two pillars of the economy: affordable electricity and the leading position of a resource sector that has delivered a decade of economic growth that made Australia the envy of the developed world.

"Affordable, reliable electricity benefits both households and businesses and is the backbone of economic growth.”

He used the examples of Europe and California saying their carbon policies should serve as a warning of “the catastrophic effects ill-advised carbon policies have had on other developed economies”, sending energy costs soaring and threatening competitive advantages.

“Europe is now turning back to coal,” he said.

 “The US state of California mandated that 33 per cent of energy must come from renewables by the year 2020.

“The cost of incentives provided for renewables has ultimately been passed on to rate payers, electricity prices are now more than 40 per cent higher [in California] than the US national average, and that has led to a flight of manufacturing from the state which lost 700,000 manufacturing jobs since 2000, and about $127billion of lost net worth in 2013.

Back here in Australia, the cost of both the carbon tax and the renewable energy targets will ultimately be borne by Australian households, businesses and places an additional burden on the resources sector.

“Businesses will be doubly impacted paying emissions taxes as well as the resulting higher electricity prices,” he said.

“The effects are already being felt, the introduction of the carbon tax increased energy prices by 10 per cent in just three months, the largest price increase ever recorded in Australia for energy and gas.”

Australia has one of the highest average household electricity rates in the developed world.

 “Australia’s household electricity prices have risen more than 40 per cent since 2007, and are projected to rise another 30 per cent by the end of next year,” he said.

“By the end of 2014 Australia’s electricity prices are estimated to be almost double that of all other developed nations.

 “There will be no direct reduction in emissions as a result of the carbon tax.

 “For a coal rich country that has traditionally had electricity costs among the lowest in the developed world this simply defies belief.”

Coal power

Coal is a critical input which fuels the industrialised world.

Growing populations and urbanisation continue to drive the demand for steel and electricity and since 1970 Boyce estimates coal’s use has increased about 300 per cent, claiming there is a “strong correlation between expanding coal use and growing economies”.

“Coal mining is the first link in the global supply chain, it fuels economies and improves quality of life,” Boyce said.

 “A rapid rise in coal fuelled electricity mirrors the global rise in GDP.

“As emerging Asia Pacific nations continue their extraordinary development, coal is the commodity that will provide both the energy needed to power new cities and the steel used to build them.”

He hit back at those who claim coal has no future saying “despite the many inches of column space devoted to debating the future of coal, global demand for coal continues to grow”.

He explained that coal now accounts for nearly 30 per cent of global energy consumption and expects it will overtake oil as the world’s largest energy source in the “not to distant future”.

“Coal has been the fastest growing fuel for the past decade,” he said.

“Over the next five years we project global coal demand will grow by about 1.4 billion tonnes.”

China and India are the world’s fastest growing economies and Boyce explained their thirst for coal will continue to drive demand because domestic production in both countries falls well short, with India last year plunging into darkness with the largest blackout in modern history.

Australia’s geographical proximity to China and India puts the coal sector in “an enviable position”, Boyce said.

“Australia continues to be a leader in the global coal sector at a time when two of its nearest neighbours are projected to drive sustained growth in global seaborne demand for coal,” he said.

He explained that Australia hasn’t fallen into this position by accident.

 “In recent years the Australia’s economy has shown remarkable growth, the so called ‘resources boom’ is credited for Australia’s economic resilience during a period of uncertainty that challenged most of the world’s developed countries,” Boyce said.

“It took until 2003 for Australia to export more than $5 billion in minerals in one year, but by 2009 Australia was shipping $50 billion.

“Australia holds about 9 per cent of the world’s total coal reserves, ranking fourth globally behind the US, Russia and China.

“With the nation’s bounty of coal Australian households and businesses have unfettered access to an abundance of low cost energy far into the foreseeable future.”

Disapproving approvals

Complicated and lengthy project approvals processes have long been a thorn in the mining sector’s side.

“Project delays contribute to cost pressures while eroding productivity,” Boyce explained.

He described Australia’s approval process as a “maze” with “substantial duplication” of Federal and State governmental requirements.

He called for stronger and simpler co-ordination of the approvals process to improve efficiencies, transparency, and competitiveness.

“Mining projects [in Australia] have faced lengthy and expensive permitting and environmental delays, while new global competitors have been working to fast track the development of their own coal sectors,” he said.

Investment levels are the ultimate litmus test of competitiveness and according to a recent BREE report in the last 12 months $150 billion of Australian resource sector projects have been delayed or cancelled.

Boyce said to encourage mining investment Australia needs “a national, coordinated approach to regulation and project permitting; this would reduce duplication, boost productivity, minimise delays”.

“Commodity prices, productivity and the cost of construction of operations and government policy all play a key role in how much of this possible invest we’re able to bring back to Australia,” Boyce explained.

Policy must serve the nations long term prospects, “it must be bipartisan, it must recognise both state and federal interests”, it must work in partnership with the private sector, not against it.

“The first job must be to repeal the carbon tax, Australia cannot afford not to,” he said.

Boyce explained that no matter who takes power at the next election it’s imperative a new strategy is implemented for the coal sector to regain ground and drive economic growth.

"It's now up to Australia's leaders to implement the policy reforms that will ensure coal can continue to drive the economy and enhance Australia's position as a global leader in the decades ahead,” he said.