Coal reservation scheme stokes fears for BHP’s Mt Arthur mine

Mining giant BHP has told workers at a NSW coal mine that new rules requiring it to reserve up to a 10th of its output for local power stations have forced it to launch a review that could lead to the mine’s early closure.

NSW Treasurer Matt Kean is preparing to issue orders requiring the state’s coal shippers to hold back 7-10 per cent of their export volume and set it aside for domestic power plants at a capped price of $125 a tonne. The plan is aimed at driving down the cost of running coal-fired power stations to tame soaring energy bills facing homes and businesses.

Heavy machinery working at the BHP Mt Arthur mine near Muswellbrook,NSW.

Heavy machinery working at the BHP Mt Arthur mine near Muswellbrook,NSW.Kate Geraghty

However,in an internal email to employees at the Mt Arthur coal mine,near Muswellbrook,on Friday,BHP head of NSW energy coal Adam Lancey said the market intervention had raised major concerns about the mine’s ongoing operations.

The Mt Arthur mine,which employs about 2000 people,is the biggest coal mine in the NSW Hunter Valley.

Lancey warned it could force BHP to re-evaluate its existing plans to continue operating the site until 2030. “In light of these directions, we are actively reviewing operational plans and existing commitments to understand their implications,” he said in the email,obtained byThe Age andThe Sydney Morning Herald.

“While I would like to avoid this scenario,the findings of this review may lead to a reassessment of our ‘Pathway to 2030’ plan.”

The NSW coal reservation plan,unveiled this month,is part of an emergency effort by the NSW and federal governments to push down the cost of supplying electricity from coal-fired power stations and help blunt the large increases looming for retail bills.

Coal and gas prices have been surging,largely because of the war in Ukraine,deepening a global energy crunch and boosting demand and prices for available Australian supplies.

Wholesale energy prices reached their highest average levels on record last year. Left unchecked,surging wholesale costs were expected to have driven an increase of more than 50 per cent to east-coast electricity bills by 2024,according to Treasury.

In the email,Lancey said BHP’s biggest concerns with the NSW reservation scheme included the risk of Mt Arthur’s production costs exceeding the $125-a-tonne price cap,as well as the impacts it may have on the local rail network and the company’s ability to meet its obligations to customers.

“I understand this is a lot to take in – but I wanted you to hear it from me first,” he said. “Importantly,nothing changes right now ... we are working to understand the full impacts and implications.”

Earlier this month,BHP told shareholders it expected the cost of producing coal at Mt Arthur to rise to as much as $US91 a tonne ($128) – above the $125-a-tonne cap.

“We have written to the NSW government to make our position clear,and I am actively engaging with government representatives to convey our concerns in person,” Lancey said.

The NSW government was contacted for comment on Sunday.

Previously,Kean has said the intention of the coal reservation plan was to help “even the playing field” between the state’s coal miners selling into the local market and those exporting their product.

NSW coal miners that sell domestically are already subject to a temporary $125-a-tonne cap on local sales of intermediate-grade thermal coal.

BHP’s Mt Arthur mine historically produced coal for domestic and international customers in the energy sector,but has since shifted to international customers only. In 2020,the company dismantled the 10-kilometre conveyor belt that fed coal to AGL Energy’s nearby Bayswater and Liddell coal-fired power stations.

Australian exports of thermal coal – the type used in power generation – are forecast to surge more than 60 per cent this financial year to more than $75 billion,as prices remain at near-record levels.

Benchmark prices of high-quality thermal coal traded at the Port of Newcastle more than tripled last year to a record high of more than $US400 a tonne.

However,the longer-term outlook for Australia’s coal exporters remains deeply uncertain. Power generation from renewable energy continues to rise,large resources companies are increasingly divesting or announcing closures of their coal assets,and financial institutions are pledging not to make new investments in the sector,citing concerns about its future demand and global warming.

If the world meets the Paris Agreement’s ultimate aim of 1.5 degrees – the level scientists say is necessary to avoid the most catastrophic effects of climate change – Australia’s coal earnings could collapse by up to 80 per cent by 2050,according to the Reserve Bank.

Nick Toscano is a business reporter for The Age and Sydney Morning Herald.

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