Bullish future for thermal coal

Investors can expect a bullish long-term future for thermal coal, despite the current environment of depressed prices.

Glencore Coal CEO Peter Freyberg expressed confidence in the future of thermal coal yesterday in his address to the Melbourne Mining Club.

The Australian coal boss said Glencore was optimistic about the commodity despite current challenges due to pricing and environmental concerns, as the global market was still rebalancing.

Freyberg spoke about Glencore’s attitude towards avoiding market surplus in order to maintain viable production.

“After a period of much new production increases right across the industry in the boom times, Glencore was the first to say: It’s time to stop building,” he said.

“Unfortunately our Wandoan coal project in Queensland is a case in point.

“This was a $7 billion investment in mine, rail and port infrastructure in Queensland to bring on an additional 22 million tonnes a year in Stage 1 of the project.

“By September 2013, prices had fallen significantly and it was clear to us that adding further tonnes into the market at that time would destroy value across our whole portfolio

“Placing Wandoan on hold was the right thing to do by our shareholders and the rest of the Australian thermal export market.”

Freyberg said that Glencore backtracked plans to increase exports with the recent announcement to reduce 2015 coal exports by 15 million tonnes.

“Our installed capacity – after our Clermont acquisition last year – was programmed to run close to 110 million tonnes, but the market doesn’t need all this coal,” he said.

“We think an appropriate level of exports this year is closer to 90 million tonnes than to 100 million tonnes.”

Freyberg said the prospect of weaker coal demand in China in the long-term would be outweighed by new power stations to be built in Korea, Taiwan, Vietnam, India and Japan.

On the topic of environmental concerns, Freyberg was candid about Glencore’s view of the importance of carbon capture and storage technology.

“If all the newly installed coal-fired power capacity added between 2000-2010 (about 550GW) had been deployed using state of the art, ultra-supercritical technology, we would have achieved 2 billion tonnes of carbon emission reductions,” he said.

“This is equivalent to running the European Emissions Trading Scheme for 53 years at its current rate, or running the Kyoto protocol three times over.”

He was also critical of populist policy which led to significant investment in renewable energy technology, and called for global policy that would recognise the ongoing importance of fossil fuels, and address the funding gap to enable building of high efficiency, low emission power stations.

“The fact is that $2 trillion was invested in renewables and only 1 per cent of that was invested in carbon capture and storage,” he said.

“Had more available funding been directed to CCS and cleaning up fossil fuels we’d be much further ahead today with the emissions reduction task.”

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