NSW Treasurer Matt Kean has told the state’s coal exporters he is preparing to issue orders requiring their mining operations 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.
Thermal coal prices have surged to record highs since Russia’s invasion of Ukraine.Glenn Hunt
However,the plan has been met with strong resistance from operators of the large mines that will be affected,including BHP,the biggest Australian mining company.
Idemitsu,a Japanese energy giant whose mines in NSW and Queensland employ more than 1000 people,said it had also contacted the Perrottet government to object to the scheme. Idemitsu Australia chief executive Steve Kovac argued the domestic reservation proposal would affect long-term agreements with overseas buyers,harm Australia’s reputation as a reliable supplier and deter future investments in the energy sector.
“Large-scale,long-term investments in major energy and resources projects require long-term fiscal stability,mutual trust and ongoing consultation between all parties,” Kovac said.
“There are simpler ways for the government to achieve its desired outcomes,which will not negatively impact exports and customer relationships,particularly in Japan and other key export markets.”
The NSW coal reservation plan,unveiled last 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.
The higher prices pushed east-coast wholesale energy costs to their highest average levels on record last year. Left unchecked,the increases could have driven a blow-out of more than 50 per cent to household electricity bills by 2024,according to Treasury.
NSW Premier Dominic Perrottet earlier this week criticised BHP for telling the 2000 workers at its Mount Arthur coal mine that it may be forced to shut down the site sooner than its planned closure in 2030 if the NSW reservation went ahead. BHP said its biggest concerns with the scheme included the risk of Mt Arthur’s production costs exceeding the $125-a-tonne price cap,as well as the impact it may have on the local rail network and the company’s ability to meet its obligations to customers.
Perrottet said BHP was making “super profits” by exporting coal at sky-high global prices as Russia’s invasion of Ukraine deepens a global supply crunch. “I’ll stand with families and small businesses across NSW,not with major coal companies who are earning super profits at a time when people are struggling,” he said.
The NSW government 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.
Idemitsu’s NSW coal operations include the Muswellbrook and Boggabri mines. Kovac said the higher grade of Idemitsu’s thermal coal meant it was not suitable to be burned in NSW power stations. He said the possibility that it would need to buy lower-quality thermal coal to supply the reservation scheme “makes no sense”.
“This will result in a substantial financial loss as we would be forced to purchase lower-quality coal from other producers or traders to supply to the 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.
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