Investing Daily is an online service which, according to them, gives “Profitable advice for smart people”.
A few weeks ago they published an article titled Coal’s Terrible, No Good, Worst Year Ever.
So what are the facts they are giving out to prospective investors?
“The recently released BP Statistical Review of World Energy registered new all-time highs for the production and consumption of oil and natural gas, and for fossil fuels as a whole. But the story for coal was much different. In fact, 2015 brought the biggest drop in coal demand since 1965, the first year the BP Review began tracking energy statistics.
How bad was 2015 for the coal industry? Since 1965, annual coal demand has only declined by more than 50 million metric tons of oil equivalent (MMtoe) twice. Following the global financial crisis demand fell by just over 50 MMtoe in 2009, and then last year it tumbled by 71.3 MMtoe.”
According to our Resources Minister Josh Frydenberg there’s no need for concern.
“I’m confident that Australia is better placed than most other countries to ride out the current cyclical downturn and be ready for the next market upturn.”
Counting on this being cyclical is foolhardy.
China has long been the world’s largest producer and consumer of coal. In 2015, its 1,920 MMtoe of coal consumption accounted for half the global total. China’s coal consumption grew for 15 straight years until 2014, increasing even during the 2008 financial crisis.
But now Chinese coal demand has declined for two straight years. The 29 MMtoe demand decline in 2015 was the largest on record, and was the result of flat power industry demand, higher production of renewable power, an increase in natural gas consumption, and a huge increase in nuclear power (+29%) production.
The U.S. had been the world’s second-largest consumer of coal, but the decline of its coal demand in 2015 — the largest in the world at 57 MMtoe — dropped the U.S. to third place among the world’s coal consumers. In fact, the primary reason for the huge global demand drop for coal in 2015 was the sharp decline in U.S. coal demand. This also resulted in the U.S. having the largest decline of any country in carbon dioxide emissions in 2015. Over the past decade, U.S. coal demand has dropped nearly 30%.
In April, Peabody Energy became the latest in a long line of coal producers to file for bankruptcy protection in the US, citing a prolonged downturn in coal prices as the major driver behind its bankruptcy filing. The move is significant since Peabody is the world’s largest private-sector coal producer.
Metallurgical coal prices have fallen roughly 75 percent since 2011, according to Bloomberg, and analysts are not expecting a turnaround anytime soon. “The outlook for coal players remains bleak,” Sandra Chow Singapore-based credit analyst told the news agency. “Any recovery remains a long way from here.”
Other coal producers who have filed for bankruptcy protection in the past two years include:
- Alpha Natural Resources
- Walter Energy
- Patriot Coal
- Arch Coal
- James River Coal
Peabody stressed that it expects its operations to continue in light of the announcement, and that its Australian platform would not be a part of the filing. But the Australian arm made a nearly $3 billion loss last year.
Peabody Australia Holdco also made a $1.2 billion loss in 2014, and its latest accounts show its total debt has increased to $10.7 billion while its total assets are worth $4.1 billion, leaving the company owing far more than it is worth.
Coal producers, and conservative politicians, have been banking on demand from India’s growing economy to boost the industry but, in April this year, India announced a 15% year-on-year decline in coal imports for the twelve months to March 2016, as the country remains firmly on track to meet its publicly stated goals of ceasing thermal imports by 2017/18.
Even a cursory look at the evolving energy policy in India makes it clear that Adani’s Carmichael mine project in the Galilee Basin has no future.
The Adani proposal is a low energy, high ash thermal coal deposit that would deliver coal into India at double the cost Coal India Ltd is supplying domestic coal and even at current depressed coal prices, it is more expensive alternative than domestic solar.
Indian fossil fuel subsidies have been radically curtailed in 2014/15, and India’s tax on coal doubled to US$4/t effective April 2016.
In this context, with unsubsidised, utility scale solar electricity now available at as low as Rs4.34/kWh (US$64/MWh) fixed flat for twenty five years, imported coal is structurally challenged.
Indian solar generation costs have fallen 25% in just one year. IEEFA forecasts that continued technology and economies of scale gains will continue at 5-10% annually, further eroding imported coal’s competitiveness.
But never fear. George Christensen assures us that “The viability of the Adani Carmichael Coal Project is not in doubt” despite the Adani management saying that no capital expenditure is planned by the company for the project until there is “visibility” of a rebound in the coal price.
From the Axis Capital report…
Even the conservative International Energy Agency said late last year that it did not expect Carmichael and other projects in the Galilee Basin to be built. “It is not likely that the above listed projects will be operational by 2020, if ever,” it said in its latest medium term coal outlook.
The Coalition might tell us that they are the better economic managers but I sure as hell won’t be taking their advice on investment.
