Adani update

A week ago, I was speaking at a Royal Society of NSW Forum on the topic “Getting climate policy back on track” when the news came through that Adani had announced a start to the Carmichael mine “before Christmas”, funded from the company’s own reserves.  With Christmas now less than three weeks away, where do things stand?

It’s evident that, as with previous construction starts, this one won’t be on a large scale. Adani has just posted its first job opening for a year, on the portal it set up with great fanfare in mid-2017. It’s for a Senior Mine Planning Engineer a “newly changed and developed role reporting to the Head Mine Operations”.  Given that Adani has announced a proposal that’s radically different from the one they were running last year, you might have expected that a Senior Mine Planning Engineer would have been on the job for some time, heading a substantial team. Still, it’s likely that some kind of activity will take place, even if it’s only symbolic.

The big question is how Labor will respond, since it’s highly likely to be in office by the time any serious mining activity starts. So far the signs have been mixed. Queensland Premier Palaszczuk has said, correctly, that this is effectively a new proposal, and will need new approvals. On the other hand, Penny Wong has suggested that, once contracts are signed, the dreaded spectre of “sovereign risk” will mean that the government cannot intervene.  This is a bogus argument in the specific case of Adani, but the whole idea needs to be challenged. Governments routinely break their promises to voters, and corporations regularly renege on their commitments to governments, but, in the era of neoliberalism, promises made by governments to corporation have come to be held sacred.

Adani

Adani Mining announced today that its scaled-down Carmichael mine project would proceed without any external funding. Before considering reactions, it’s important to recall causes for scepticism.

First, Adani has repeatedly announced the imminent start of the project, while doing little or nothing. It is possible that this announcement will be followed by months, or even years, of “pre-construction activity” during which the project is kept alive with minimal expenditure from Adani.

Second, the economics of the project are as bad as they have ever been. Thermal coal prices have declined in recent months, especially following China’s decision to freeze imports. If China gets through the winter without significant problems, it is likely that the decline will be permanent. Even if it isn’t, the discount on low-quality coal =of the kind found in the Galilee Basin is rising all the time.

Third, the failure to secure any external finance for the project is significant. Most of the big lenders have now sworn off thermal coal altogether, but if there were real money to be made here, some second-tier institution would probably have gone for it.

So, it would make sense to wait for a while to see what develops. Still, we need to be prepared for a decision on whether Australia is going to back a future for coal, and destruction for the global environment or a moratorium on new mines. Labor under Bill Shorten has been surprisingly brave on issues like tax, and our Trumpist government is in a complete mess. A strong stand would be a huge step towards a better future.

Incredible shrinking #Adani still a threat

Adani has just announced another scaled down version of its proposed Carmichael mine, bringing the initial capital cost down to $2 billion, and the estimated  initial output to 10-15 million tonnes a year. As usual, the claim is that financing will close in the near future.

Unfortunately, it is possible that this time the project will go ahead. The Indian Supreme Court has reopened the possibility that Adani may be able to pass on to customers the costs of imported coal for its Mundra power station.

That doesn’t change the fact that the project is economically unsustainable in the long run, as well as being an environmental disaster (though not as big a disaster as in its original version).  But the cost is now low enough that, if Gautam Adani is willing to put in enough of his money, he may find lenders willing to finance the rest.

At this point, it looks as if Labor will have to get off the fence, on which has perched for so long. The world needs to stop opening new coal mines, and Carmichael is a good place to start.

 

The Coal Cartel ? Why Adani’s prospects haven’t improved

In my recent piece in The Guardian, mostly about Adani, I observed

The paradoxes of Adani are mirrored in the global coal market. Despite a small increase in 2017, global coal production is below its 2013 peak. Yet prices have recovered strongly, yielding big profits to existing miners and offering a seemingly tempting prospect for new mines.

It turns out that this isn’t quite right. The benchmark Newcastle price, for low-ash coal with a heat content of 6000kcal/kg has risen strongly, to the great benefit of companies like Yancoal, Glencore and Whitehaven. It turns out, however, that this increase isn’t representative of the broader market. Prices for lower quality coal with lower heat content and higher ash content haven’t moved at all, with the result that the premium between higher and lower grades has grown dramatically.

What’s going on here? One possible explanation is that Yancoal and Glencore, who produce the majority of Australia’s high-grade coal, have engaged in successful cartel behavior. Another is that the premium reflects shifts in demand (with China and India increasingly rejecting high ash coal, while Japan continues to demand high grade coal) and supply (few new mines are opening, and this has a bigger effect on the smaller market for high grade coal).

Whatever the explanation, most analysts agree that it is more likely to be resolved by a decline in the price of high-grade coal rather than an increase in the price of low-grade coal.

Where does Adani fit into all this. Most of the discussion I’ve found focuses on the premium between 6000kcal/kg and 5500 kcal/kg. Coal extracted from the Carmichael mine would be much lower quality, below 5000 kcal/kg.

Adani on life support

I have a piece in The Guardian under the headline Adani’s rail line cut shows project is on life support but still a threat to climate, starting with the observation

The recent announcement by Adani that it will halve the costs of its rail line to the proposed Carmichael coalmine by building a shorter, narrow-gauge line raises an obvious question: if such a massive cost-saving is feasible, why didn’t Adani go that way in the first place?

I also address the broader question

If coal is doomed, why has the price recoverd

Adani: Put up or pack up

That’s my suggestion for the way Bill Shorten can resolve his continuing problems over the Adani Carmichael mine-port-rail project. To spell it out, he should set a deadline (say June 30) for Adani to achieve financial close for the entire project, and commence construction. If the deadline isn’t met, Labor should oppose the project outright. This is only a marginal variant on the position of leading Adani supporter, Jenny Hill, who suggested a six month deadline in February. So, it gives plenty of cover for those who have supported Adani to fall into line.

The big risk is that Adani will somehow come up with the money to fund the project. As Tim Buckley has pointed out, Gautam Adani is, on paper, rich enough to pay for it out of his own personal wealth, but he shows no sign of doing so. The basic problem is that, while India may not achieve its stated goal of eliminating coal imports, the long term trend is clearly down. That’s only going to accelerate with the shift to renewables, in which Adani itself is a major player. While Mr Adani would rather keep the Carmichael project alive on life support, he’s unlikely to risk his own fortune on such a marginal project.

The end of Adani’s project will entail the end of the whole idea of developing the Galilee Basin. None of the other potential mines have any chance of starting if Adani fails. That leaves open the broader question of a moratorium on new coal mines, which Labor will need to address sooner or later. But the threat posed by the Galilee Basin coal is so great that it’s worth an inelegant compromise.

Victory in sight on Adani, but Aurizon still a threat

After years of campaigning, it finally looks as if the Adani mine-rail-port proposal in the Galilee Basin has been defeated. A week after the Palaszczuk government was re-elected on a promise to veto funding from the Northern Australia Infrastructure Facility, the two biggest Chinese banks have announced that they will not be lending to the project either.

The election outcome is particularly striking. Premier Palaszczuk executed a rather inelegant backflip on this question after it became apparent that her weak pro-Adani position was politically untenable (I hope my column on the subject may have had some small influence there). My expectation (widely shared, I think) was that this would cost the government seats in Townsville and Rockhampton, where the local governments had committed millions of dollars to be nominated as FIFO hubs. In fact Labor held all these seats, with the possible exception of Townsville, still in doubt. Meanwhile, the LNP proposal for a coal-fired power station gained them nothing in North Queensland and cost votes in the South-East. With the election over, Adani’s political leverage in Queensland is now non-existent.

The Chinese banking decision also welcome. Although China is rapidly moving away from coal in its domestic economy, the Chinese export finance machine is still pushing coal projects around the world, as long as they use Chinese equipment and expertise. Perhaps this announcement is part of a broader change, or perhaps the Carmichael mine project is too much of a dog even for pro-coal lenders.
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Breaking ground in Adani’s Utopia

Having argued for some time that Adani’s Carmichael mine-rail-port project is unlikely to go ahead, I was initially surprised to read the announcement that Adani says it will break ground on Carmichael rail link ‘within days’. My mental image was of heavy earthmoving equipment excavating the route along which the line is to be laid. This seemed surprising to me, since there had been no evidence that the project was anywhere near that stage.

But a closer reading suggests that the “ground breaking” is of the kind seen in a typical episode of Utopia, in which lots of dignitaries are presented with shovels and turn over a piece of dirt, to “mark the official start” of the project. That is, presumably, a different “official start” from the one that was marked by another ceremony back in June. Obviously, this ups the pressure on governments to lend public money to the project since a failure to do so would mean abandoning a project that is “officially” under way.

Who will pay for Adani’s infrastructure? We will

A couple of days ago, it was announced that the Fly In Fly Out workforce for Adani’s putative Carmichael mine would be split between Townsville and Rockhampton. Since I’ve long argued that the mine is highly unlikely to go ahead, I didn’t read the news stories closely. So, I missed the fact, buried in the middle of this ABC news report, that the deal requires Townsville and Rockhampton councils to build Adani an airstrip at a cost of $20 million. It turns out that not everyone in Townsville is happy about having their money spent on a project far away from the city.

This outcome is consistent with what I and others have been arguing for some time. Adani has to keep the project alive to avoid recognising the loss of the money its spent so far, and admitting that coal volumes at its Abbot Point port will be far lower than planned. On the other hand, there’s no point throwing good money after bad. So the strategy is to move slowly on the development, building a railway with money from the Commonwealth government and, now, an airstrip paid for by the people of Townsville. When, with much regret, the mine is deferred indefinitely, the Australian public will be the proud owners of a railway to nowhere, with the option of a flight back.