. GVK’s Kevin’s Corner Project Gains Federal Government Approval . http://gvkhancockcoal.com/images/Documents/News/20131101%20-%20GVK%20receives%20Federal%20environment%20clearance%20for%20Kevin's%20Corner%20Project.pdf .
The significance of this development is without a doubt simply massive. Many don't understand the true significance the role of global energy security is going to play in the future…particularly for developing countries.
The industry has trimmed costs and increased productivity and as a result is better off for it. IMHO this development is also well timed given the position in the commodity cycle. Assuming we are somewhere near the bottom, and production coming on line after 3 years of construction, margins should be healthy and viable.
JT most of the resource build is nearing completion and this mine will have little affect on a state wide basis. It's affects will be felt local to its developments but in the scheme of things $10B over 3-5yrs is peanuts compared to where we've come from.
Coal especially thermal is marginal at best. Many mines have had to reorganise to maintain even thin margins and profitability. The Indian owners face their own problems with a problematic economy and falling currency with commodity prices out of Aus presenting huge problems for them. It's one thing to build billion dollar power stations to increase penetration of the energy grid into India but when consumers can't afford the cost of energy you have a big problem.
GVK could be another major conglomerate that could hit the wall if things get worse globally. Most of these guys are leveraged to gills. A small interest rate rise would just about knock them over or at least mean parking many of its big projects.
Hey Freckle,
Yes I agree with you in parts.
India is a basket case economically at the moment. I don't have an in-depth knowledge into the GVK company balance sheet so I can't comment on the feasibility of the finance required or possible debt issues that they may or may not effect it's involvement in this project. However, you are correct the numbers and debt used will be substantial like most other projects of this type.
As you quite rightly alluded to investment in gas, particularly in WA, is substantial in comparison.
What you and I also agree on Freckle is the head winds that still persist in global economics and the effects on tangible commodities. I totally agree that at this point in the cycle thermal coal is marginal at best. Companies have been forced to increase productivity which is a healthy benefit to the industry and separates the wheat from the chaff effecting global supplies to a more acceptable supply/demand level.
You and I have discussed the dire future the globe faces in relation to energy security. There simply just isn't' enough of the commodity in the ground to sustain burgeoning population growth. Alternative and clean sources of energy such as wind/sun/wave are too expensive to realistically rely on to produce the amount of energy required globally. There are several of these planned mines in the Galilee Basin so potentially substantially more than $10b of investment and Aldani isn't too far behind with it's Carmichael mine approval imminent.
That's if we all survive Fukushima……
You have to hand it to Campbell Newman he's determined to see the development of the Galilee Basin…..
THE Queensland premier is about to announce discounted royalty rates for mining companies that proceed with multi-billion projects in the Galilee Basin.
The new incentive is part of a Galilee Basin development strategy, which includes using state powers to speed up planning and land acquisition processes.
It will also involve the reservation of land at the Abbot Point coal terminal for first movers, Fairfax Media reports.
Dwindling coal prices have fuelled speculation that long-awaited projects in the Galilee Basin, in central west Queensland, will not proceed.
But Premier Campbell Newman is confident the strategy will ramp up mining in the basin.
"I know it will be of great interest to potential project operators that we are also willing to consider new ways to lower their start-up costs," he told the Australian Financial Review.
"Specifically, we're going to look at proposals for a ramp-up royalty period for the first mover as a key incentive."
Mining companies and the Queensland government will negotiate the size of the discounted royalty rate.
The announcement of the strategy comes less than a week after federal Environment Minister Greg Hunt approved GVK's Kevin's Corner project in the Galilee Basin, set to be the country's largest coal project.
The Alpha Coal project – a joint venture between GVK and Gina Rinehart's Hancock Coal – was approved in August last year and is expected to be up and running in 2016.
Clive Palmer's Waratah Coal and Indian energy company Adani also have projects planned in the Galilee Basin.
Mr Newman will formally announce the Galilee Basin development strategy at the 2013 Major Projects Conference in Brisbane on Thursday.
State governments are hurting with a steady drop off in revenues. There's worse to come and the big guys know it. Subsidies or tax reductions won't be enough to progress a project on its own. What many don't realise is that the Chinese are getting set to reduce over capacity in their system that is fueling massive distortions in the placement of capital and pushing debt levels to the moon.
China Admits It Has An Overcapacity Bubble
Chinese leaders have ordered local officials to stop expanding industries such as steel and cement in which supply outstrips demand, a Cabinet statement said Tuesday, in a sign previous orders to cut overcapacity were ignored.
……
In a video conference on Monday, planning officials warned local leaders to stop ignoring orders to reduce overcapacity in industries including steel, cement, aluminum and glass.
"Those who still violate discipline will be heavily punished," said the deputy director of the Cabinet planning agency
……
Cement manufacturers use only 71.9 percent of their capacity as of the end of 2012, according to the statement. The steel industry used 72 percent while the rate for glass manufacturers was 73.1 percent.
The scale of overcapacity is unprecedented, the China Daily said, citing Zhu Hongren, chief engineer of the Ministry of Industry and Information Technology.
…..
Beijing has tried to prod producers in many industries into mergers to reduce output. But lower-level officials in many areas prop up unprofitable local companies with rent-free land and other aid.
The conflict is fed by a political system in which Communist Party officials are judged on their role in economic development.
…..
In some places, the Cabinet statement said, local leaders go through the motions of obeying orders to tear down older steel mills, but then replace them with bigger facilities.
Australia's ToT looks like it'll continue to decline even further. Coal demand from China is likely to diminish substantially over the next decade and that's without a collapse. resource states are (QLD and WA) are going to find the going fairly tough.
Any legs Campbell can put under this contraction will be temporary at best.
Hey Freckle….
Time will tell mate…
However, as we have discussed previously in respect to something you quite rightly asserted Freckle – global energy demand cannot compete with the velocity of global population growth and we simply don't have the commodities in the ground to meet supply. I think you are absolutely right. Coal is a cheap form of energy, cheaper at this stage than any other alternative, and to deny billions of people in the developing world a better way of life would be a travesty.
There is no doubt we are towards the bottom of the commodity cycle. That is plain to see however, this is more about securing future energy supply. I'd also suggest more so by India than China due to Adani and GVK having a stake in the development of the Galilee Basin. If my information is correct the majority if not all the coal in the Galilee Basin is thermal coal not met coal.
You always raise some interesting points Freckle.
Coal (thermal) is near it's peak I'm guessing. The Chinese are choking themselves to death on pollution and the rest of the world as well. In the scheme of things India takes bugger all. See graphic below for usage distribution.
Since this chart was released China has capped its use of thermal coal because of pollution so the graphic should show China's consumption as a fixed amount after 2014. China takes/uses around 50% of global production. 7% is coking coal for steel production. A pullback on consumption will hurt prices and keep the pressure on coal mining for the foreseeable future. I can't get excited about QLD as an investment opportunity. I think they will struggle in all respects for some time and that's without the world going pear shaped in the mean time.
These are the guys you have to worry about.
They are effectively collapsing the price of coal for Australia.
The other concern for AU is that it has less than 80 years of known reserves. There is unlikely to be a significant growth in coal exports. Strategically AU will eventually be forced to stop exporting to ensure it's own future energy needs can be met.
Always interesting Freckle. Using the eia as a reference (http://www.eia.gov/forecasts/ieo/coal.cfm), it's clear that China continues to increase it's reliance on coal until circa 2040 where alternatives start really asserting themselves. In relation to capping the use of coal, I still think it's early days and that issue is highly debatable at this stage. (See link below.) Incredibly India's population overtakes China after 2020 as an expanding middle class demands energy consuming appliances. This is what I see as a major driving factor for GVK and Adani securing coal energy in Australia now.
There is no doubt that circa 2040 it appears coal does drop and alternative energy sources begin to take the lions share of the market. By then I'll be drinking Mai Tai's on Lake Taupo!
http://www.forbes.com/sites/pikeresearch/2013/06/24/chinas-coal-conundrum/
In the IEO2013 Reference case, which does not include prospective greenhouse gas reduction policies, coal remains the second largest energy source worldwide. World coal consumption rises at an average rate of 1.3 percent per year, from 147 quadrillion Btu in 2010 to 180 quadrillion Btu in 2020 and 220 quadrillion Btu in 2040 (Figure 70). The near-term increase reflects significant increases in coal consumption by China, India, and other non-OECD countries. In the longer term, growth of coal consumption decelerates as policies and regulations encourage the use of cleaner energy sources, natural gas becomes more economically competitive as a result of shale gas development, and growth of industrial use of coal slows largely as a result of China's industrial activities. Consumption is dominated by China (47 percent), the United States (14 percent), and India (9 percent), with those three countries accounting for 70 percent of total world coal consumption in 2010. Their share of world coal use increases to 75 percent in 2040
In the non-OECD countries, coal consumption increases at an average rate of 1.8 percent per year through 2040, more than compensating for the 0.2-percent average annual rate of decline in OECD coal use. As a result, the share of world coal consumption for non-OECD countries, led by China and India, increases from 70 percent in 2010 to 81 percent in 2040. China alone contributed 88 percent of the growth in world coal consumption from 2001 to 2009, which led to a significant increase in coal's share of world total energy consumption, from 24 percent in 2001 to 29 percent in 2009. China's share of global coal consumption increases from 47 percent in 2010 to 57 percent by 2025, followed by a decline to 55 percent in 2040. The sustained rapid expansion of coal use in India allows it to surpass the United States as the second-largest coal-consuming country after 2030.
Despite the significant increase in coal use by non-OECD countries, the environmental impacts of mining and burning coal have driven policies and investment decisions in favor of cleaner and increasingly competitive energy sources—natural gas in particular—in many key coal-consuming regions. Worldwide, all other energy sources, except liquids, grow faster than coal. In the electric power sector, the coal-fired share of world electricity generation declines from 40 percent in 2010 to 36 percent in 2040, whereas the combined share of renewable energy, natural gas, and nuclear power resources increases from 56 percent to 63 percent. Coal's share of fuel consumption for electricity generation declines from 43 percent in 2010 to 37 percent in 2040 (Figure 72).
World coal production parallels demand, increasing from 8.0 billion tons in 2010 to 11.5 billion tons in 2040 and reflecting the same expansion in the near term followed by much slower growth in later years. Global coal production is concentrated among four countries—China, United States, India, and Australia—and in the other countries of non-OECD Asia (mainly Indonesia30) (Figure 73). Their combined share of total world coal production increases in the IEO2013 projections from 78 percent in 2010 to 81 percent in 2040. China alone accounts for 44 percent of global coal production in 2010 and 52 percent, at its peak share, in 2030. Growth in coal production is significantly different from region to region, ranging from strong growth in China to limited growth in the United States, to steady decline in OECD Europe.
International coal trade grows by 65 percent in the Reference case, from 24.0 quadrillion Btu in 2010 to 39.6 quadrillion Btu in 2040. The share of total world coal consumption accounted for by internationally traded coal remains near the 2010 level of 16 percent, increasing slightly to 17 percent in 2020 and 18 percent in 2040. The relatively stable share primarily reflects the ability of the world's largest coal consumers—China, the United States, and India—to satisfy most of their future coal demand with domestic production.
The OECD's role in world coal consumption diminishes as fuel market fundamentals and environmental regulations shift in favor of natural gas and renewables, particularly in the OECD Americas and OECD Europe regions. OECD coal consumption declines from 45 quadrillion Btu in 2010 to 41 quadrillion Btu in 2016, recovers to 42 quadrillion Btu in 2020, and remains slightly above that level through 2040. OECD Europe and the United States, which together consume almost three-quarters of the OECD total, lead the trend toward lower consumption. Coal consumption in most other OECD subregions or countries, except for the Mexico/Chile region and South Korea, also trends downward (Figure 74). The decline in OECD coal consumption—at an average rate of 0.2 percent per year— causes the coal share of the region's total primary energy consumption to fall from 19 percent in 2010 to 15 percent in 2040. In comparison, the share of OECD energy supply from renewable energy, including hydropower, increases from 10 percent in 2010 to 15 percent in 2040.
India, the world's third-largest coal consumer in 2010, surpasses the United States as the second-largest coal consumer over the next two decades. The growth of India's coal consumption, from 12.6 quadrillion Btu in 2010 to 22.4 quadrillion Btu in 2040, is led by the electric power sector, which accounted for 65 percent of its coal consumption in 2010. India's rapidly growing population and an average GDP growth rate of 6.1 percent per year through 2040 lead to electricity demand growth of 3.8 percent per year in the IEO2013 Reference case, which is higher than in any other IEO2013 region. India's population surpasses China's after 2020, with an expanding middle class that results in the greater use of electricity-consuming appliances. Coal fueled 68 percent of India’s total electricity generation in 2010, and as the country strives to provide enough electricity to meet growing demand, coal-fired generation grows by 3.1 percent per year, even as generation totals from both nuclear and renewable energy (including hydropower) grow more rapidly than in any other IEO2013 region. From 2010 to 2040, India's net coal-fired electricity generation grows by a total of 910 terawatthours, more than doubling from the 2010 total. Consequently, its coal consumption for electricity generation nearly doubles, from 8.2 quadrillion Btu in 2010 to 15.6 quadrillion Btu in 2040.
Freckle wrote:Coal (thermal) is near it's peak I'm guessing. The Chinese are choking themselves to death on pollution and the rest of the world as well. In the scheme of things India takes bugger all. See graphic below for usage distribution.Since this chart was released China has capped its use of thermal coal because of pollution so the graphic should show China's consumption as a fixed amount after 2014. China takes/uses around 50% of global production. 7% is coking coal for steel production. A pullback on consumption will hurt prices and keep the pressure on coal mining for the foreseeable future. I can't get excited about QLD as an investment opportunity. I think they will struggle in all respects for some time and that's without the world going pear shaped in the mean time.
International climate-change diplomats, who have had a rough decade, got some potentially exciting news in May when reports emerged that China will consider an absolute cap on carbon emissions in advance of the climate talks scheduled in Paris for 2015.
A hard emissions cap would be a dramatic policy shift for the People’s Republic, which has previously limited emissions reduction schemes to compressing the Chinese economy’s energy intensity (the amount of CO2 released per unit of GDP) and which has decried international efforts to limit the greenhouse gas (GHG) emissions – and thus the economic growth – of developing countries.
The shift was signaled by remarks made by Jiang Kejun, a carbon policy researcher at the influential National Development and Reform Commission in Beijing, who told the Financial Times, “I am sure China will have a total emission target during the 13th Five-Year Plan.”
The move could enable an achievement that has eluded the world’s major nations for years: a binding international agreement on carbon caps that includes both the developed economies of West and East Asia and rising economic powers like China and India.
If true, this move would mark the latest in a series of measures to reduce GHG pollution in China, the world’s largest producer of atmospheric CO2. Seven Chinese cities plan to enact experimental carbon-trading programs, starting in 2014. Already the world’s largest investor in renewable energy, China has set the goal of obtaining 15% of its power from nuclear power and renewables by 2020. Since taking office in March, President Xi Jinping has made shifting to a less resource-intensive economy and reducing the country’s catastrophic air pollution major priorities. In many respects China has leaped ahead of both the United States and the European Union in its efforts to shift away from fossil fuels.
There’s one problem with this scenario: any program to reduce carbon emissions on the mainland depends on shrinking China’s reliance on coal – and coal-fired power in China is not going away anytime soon.
No Peak Soon
“It is very unlikely that demand for thermal coal in China will peak before 2030,” said William Durbin, the Beijing-based president of global markets with Wood Mackenzie, an energy research and consulting firm, in a statement accompanying the release of a new report entitled “China: The Illusion of Peak Coal.”
“Despite efforts to limit coal consumption and seek alternative fuel options, China’s strong appetite for thermal coal will lead to a doubling of demand by 2030,” the report concludes. Coal consumption in China, bolstered by a period of rampant construction of coal-fired plants that has only recently slowed, must rise to feed China’s explosive demand for power, which will nearly triple to 15,000 TWh by 2030.
Even existing goals for reducing coal consumption are sketchy, many analysts believe. “Achieving these targets eventually would come at considerable economic cost,” John Reilly, an environmental economist at MIT, told New Scientist magazine.
China is by far the world’s largest importer of coal, and despite massive investments in nuclear, wind, and solar power, along with a crash program to develop domestic natural gas reserves, no other energy source can replace coal as a source of primary power in the next two decades. China’s leaders are determined to replicate America’s shale gas boom, but “natural gas supplies will struggle to meet demand growth due to modest investment in conventional reserves and the very slow development of domestic unconventional shale gas reserves,” Wood Mackenzie states.
Gray Market, Black Fuel
The continued coal boom in China also reflects the provincial divisions that make enacting nationwide policies increasingly challenging for leaders in Beijing. Most coal-reduction schemes are centered in the big cities of the coast, while the poorer provinces of the interior still rely on dirty, cheap coal. Ambitious plans to build long distance ultra-high-voltage transmission networks, for example, won’t reduce overall coal burning; they’ll simply shift coal demand from the coast to the interior. What’s more, official statistics on coal use in China significantly underestimate the true demand, because of the size of the gray market consisting of small, unlicensed mines and untracked sales. A 2011 report on the Chinese coal industry produced by Stanford’s Program on Energy & Sustainable Development stated the problem clearly: “One important driving force underlying the existence of gray coal markets in China is the historic and chronic difficulty of compelling local officials to obey central policies.”
China’s evident intention to institute firm caps on GHG emissions is an encouraging sign. But the grim reality is that such a cap has no chance of succeeding without a dramatic, and unlikely, reduction in power generation from coal.
JT I don't buy the speculation about future consumption levels. There's a lot of industry driven hype around this topic with an agenda to encourage investment and capital expenditure around coal based industries.
The simple fact is that over capacity has to be addressed even at current growth rates. The reality is demand may well stay flat for a decade or more as the Chinese curb over investment and address the over capacity issues.
Smog is now seen as a security issue and may prompt a more aggressive approach to curbing polluters.
And the harsher penalties are coming… (via English.cn)
- Harsher punishments on polluters are needed to help improve air quality in China, a senior Chinese official said here on Tuesday
- Xie Zhenhua, deputy head of the National Development and Reform Commission, told a press conference less use of coal and emission reduction for automobiles were also crucial to tackle air pollution.
- He said increased air pollutants caused by growing social consumption of fossil fuels were the main cause of the worsening smog, which has severely affected people's health.
- Those who take irresponsible decisions that lead to severe environmental consequences need to be punished according to the law, he said.
This article neatly summerises many of the points I've been making in recent times. My personal opinion is that the QLD govt will enter a period of 'increased misallocation' of capital as it struggles with budgetary issues and falling revenues in an increasingly credit constrained world.
If coal’s in trouble, why build more coal ports?
The trends aren’t looking good. China now plans to cap thermal coal use by 2015, a marked shift from doubling thermal coal consumption in the last decade. Goldman Sachs predicts seaborne trade to grow at only 1% for the next few years, compared to an annual 7% over the five years to 2012. Previous prices of US$120 a tonne now look like a blip on the radar, with the World Bank forecasting prices closer to US$70 a tonne out to 2020.
The government aims to keep total energy consumption below 4 billion tonnes of standard coal equivalent by 2015, with electricity consumption below 6.15 trillion kilowatt hours, according to a statement released after a State Council meeting presided over by Premier Wen Jiabao.
To meet the target, average annual energy consumption growth should be controlled at around 4.3 percent between 2011 and 2015, lower than the 6.6-percent annual increase realized between 2006 and 2010.
Hey Freckle,
You know I respect your views they are interesting and you always present an interesting debate. The simple fact is that it is easy to find articles, figures and white papers that present different perspectives on subject matter. I acknowledge that i do this myself depending on what views i believe in. This robust discussion could persist forever as we speculate on energy security and consumption into the future. The organisation i presented my figures above was the same one as you used to reference your graphs and visual data all i did was read and present their projections after examining the research.
I personally would not give Goldman Sachs the time of day after their criminal and morally disgraceful activities in recent times Freckle and you and I both agree on that (GFC Subprime collapse).
So I think we'll have to agree to disagree on this one Freckle.
Goldman Sachs like a rat with a gold tooth!
http://online.wsj.com/news/articles/SB10001424052702303491304575187920845670844
Interesting article at MB today. Seems like CSG could be in trouble.
QLD gas wells falling short of forecasts?
DOUBTS about the ability of Queensland’s coal seams to produce enough gas to feed Gladstone’s LNG export plants are growing, with claims that many wells are not producing as expected and that more gas could be needed.
The concerns, which have been rejected by the three proponents spending $70 billion on projects to export gas through Gladstone’s Curtis Island, have now been backed up by Houston-based drilling supplier Superior Energy Services.
SES, which has turnover of more than $US4bn ($4.2bn) and employs more than 14,000 people around the globe, says its foresees growth in its eastern Australian business because poor well performance means more drilling in Queensland and South Australia.
“When we are talking to the operators in Queensland, we hear from them that the coal-seam gas (wells) that currently have been drilled are actually not meeting the production expectations,” SES head of Asia Pacific, Ruud Boendermaker, told investors in Houston last week.
“So what they have to do is to drill a lot more CSG wells in the next few years because of the commitments to the LNG trains that they are currently building in the north of Queensland.”
GVK – talking with banks and financial closure in a years time…
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