Adani idiocy reaches new heights

Did the last commodities economist in government turn the lights off when they left? From BS:

Conservationists and traditional owners have been floored by Queensland’s decision to grant mining leases for Adani’s mega-coal mine while two court challenges are unresolved.

The Queensland government has cleared the last major state hurdle for the Indian miner to proceed with its $22 billion mine, rail and port project in the Galilee basin and at Abbot Point.

But even Adani says it won’t make a final investment decision on the project until legal challenges by “politically motivated activists” are concluded, and it has the last approvals it needs.

Readers will know that MB has treated this project with the contempt it deserves not for environmental reasons (though they also make sense) but because it makes zero economic sense. The project is known to have break even costs around $100 per tonne. Yet thermal coal is currently averaging $50 on its way to the $30s as global oversupply refuses to rationalise quickly. Moreover, there are numerous Australian projects that operate far more cheaply than Adani so they will have to shut to accommodate it delivering a truly backwards blow to thermal coal revenues and productivity.

And it gets worse, from Macquarie:

Capture

We haven’t made any meaningful adjustments to our thermal coal price forecasts and still see the outlook as negative. Our 2021 price remains below current spot, to which we see ~20% downside in the interim years. The thermal coal bear case is well known by now: a global drive towards cleaner energy, falling power intensity of economic growth and increasing power plant efficiency mean global consumption has more-or-less peaked. And the seaborne market, which sets the international price, is doing even worse. It has been in contraction since 2013 due to Chinese protectionism and India being able to supply more of the coal it needs domestically.

Last month, Macquarie’s oil and gas equities research team, led by Iain Reid, published a comprehensive report on the global LNG market. The conclusion of the note is that the LNG market will be in surplus for the foreseeable future, rising to a peak of ~70mtpa by 2019. This peak is a thermal coal equivalent of ~190mtpa, or over 20% of the current seaborne market. If a meaningful portion of this surplus LNG manages to displace coal in regions with spare capacity (mainly Europe), coal’s demise might even more brutal than we currently anticipate.

Where are the three highest cost and most vulnerable Australian LNG producers? QLD! The there is this shocker, from Reneweconomy:

Could Australia’s sovereign wealth fund be the key source of finance that enables Adani’s Carmichael mega coal mine in the Galilee Basin? News has emerged that India’s Finance Minister, Arun Jaitley, will meet with Finance Minister Mathias Cormann and Chairman of the Future Fund, Peter Costello, on an Australian visit aimed at trying to secure subsidised government funding for Adani’s proposed coal mega-mine.

Having utterly failed to attract finance from the commercial banking sector for the initial A$10 billion required for the mine, rail and port project, Adani is now looking to its friends in the Indian and Australian government for a little sugar. The Abbott-Turnbull Government has remained staunch supporters of the Carmichael mine but, knowing how unpopular it is with the electorate, would want to find a way to finance it that flies under the radar. A direct handout in the form of a grant is too obvious, but the Future Fund presents several opportunities for a sly multi-billion dollar investment.

“How could the Future Fund finance the Adani Carmichael coal mine?” is a question worth asking from a moral and common sense perspective as much as anything else, but here we will take a look at the practical side of how the Future Fund could end up investing in Carmichael.

Surely not.

David Llewellyn-Smith
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Comments

    • Couldn’t agree more! Willpowering ahead! Way to go in the C21. Great piece of out of the box thinking though from the Canetoad State. Think about it. In the meantime, go go go!!! Adani, you good thang! Really looking forward though to seeing them going home pantless; all in good time, of course.

  1. It’s most likely a measure of just how bad the income crash is in regional Queensland.

    it doesn’t appear to make any economic or environmental sense. The silly thing is it doesn’t appear to make much political sense outside of a little local bribery? Government desperately needs royalty income?

    • Ronin8317MEMBER

      They approved it they can have a newspaper headline of ‘5000 new jobs’, even though most of the new job will be for Indians on working visas.

      • bolstroodMEMBER

        By Adani’s own reckoning only 1800 jobs will be created.
        The Fed & Qld govts. are certainly giving full value for Election donations.
        The Free Enterprise Foundation to the moon

  2. surflessMEMBER

    Noticed that the Indians send a government minister to Australia recently perhaps push this corporations case.

      • Would not be surprised if the FF was used to get the nonviable Adani project over the line.
        Prior to the 2008 GFC, the FF was protected from losses by being heavily weighted in Cash.
        Since then, the FF had a major switch into Alternative Assets (US shopping malls / Aust apartment glut).
        Investing in a dinosaur coal industry when royalties are at their low point makes sense if you are playing with other people’s money. Care factor zero.

      • This is the pollies own mega pension fund – i’m not sure that they’ll be overly pleased with this news – for once it isn’t other peoples money.

  3. With all the Tesla car sales, coal has a bright future, get those generators fired up.

    Coal is good for humanity, a wise monk once said.

  4. Wouldn’t worry about – it will never happen…. and that future fund infrastructure idea is idle speculation by the author with no basis in fact. If that were to happen, public pensions will take a massive hit – and its already underfunded as it is…

    Just on coal going to $30/t Newcastle Spec. – v. hard of a cash cost basis. $40/t at a bare minimum, assuming future developments basically don’t get up. At $30/t, a heap of mines start closing. A heap… i.e. 90%+

    • Not everyone believes in fairy tales.

      As you won’t be revisiting this thread, i can also safely announce that Santa Claus is not real without upsetting you.

      It must be comforting to know that you are not alone, and there are 275,999 other tragics out there.

    • Last year I was talking with a highly respected German Eco-scientist and I suggested to him that Climate activists should really be 100% focused on preventing the development of infrastructure for these new mega coal projects. Unfortunately once the infrastructure exists the operation of the mine really becomes a matter of Entropy rather than economics. IF the whole undertaking remains exothermic than it continues to extract coal, it’s only when the total energy expended exceeds the energy delivered that the venture closes down. this makes the infrastructure barrier a much more serious operational deterrent than any carbon tax / carbon credit, Disrupting Infrastructure development is logically the place in the chain where Eco-warriors will get the most bang for their eco-buck.

  5. I had an interesting conversation on Saturday with a very well informed coal executive. He claimed that almost all Hunter coal was unprofitable at current prices and that all the Hunter collieries would be shutting down once their “Take-or-Pay” rail transportation contracts expired. That’s a lot of thermal coal that’ll come off the market unless coal prices recover.

    • so much excess capacity that mines that are already completely integrated in the supply chain are being mothballed as unprofitable.

      sounds like a perfect time to start a massive mine from scratch along with all the requisite infrastructure and supporting investment.

  6. So what do the Indians have over our government and Costello to actually have them even considering this? Because you KNOW that the taxpayer will end up involved somehow too.

    Dead woman, live boy, or both?

    • lol. It just actually makes zero sense. Even from a political point of view it’s disastrous – i haven’t met a single punter that thinks this a good idea – admittedly i haven’t driven a ute through Mackay but even then i just don’t think the people of Mackay are that stupid.

      This will have so much government money and subsidies tied up in it they could just build some epic infrastructure in Mackay and get way way more bang for their buck. The headline in the Courier could equally read – “Qld Government screws over Mackay gives money to suspect Indian company instead”.

      • Mining BoganMEMBER

        I don’t know about Mackay, but I can say that Bowen folk are terribly angry about Greenie interference in such an upstanding investment.

        Explaining the big picture brought more ire down. It’s still coal or nothing in some of these places.

  7. Mining BoganMEMBER

    It’s political games. The Qld gov know it’s not going to happen but signing the lease makes it look like they’re supporting Central Queensland and jobs.

    Once it goes belly up because of lack of funds they can blame overseas folk for the failure to launch. No finger pointing to be done internally.

    • I wondered this as well – approve with stringent conditions – already non-viable and now more so, but keep the ‘were not blocking growth or development’ T-Shirt on.

      Trouble is there are plenty that won’t see it as this, just as pigheadedness in the face of strong env and economic cases.

    • Exactly. Low probability for finance from anywhere, even public finance. Future fund – meh!