In Port News 04/06/2015
While the collapse in oil and iron ore prices may have captured the headlines recently in commodity markets, volatility in the price of coal has also sent some waves of concern through the world’s coal ports.
Coal has enjoyed its day in the sun since China joined the World Trade Organisation in 2001, creating huge demand for energy, but a series of factors have halted that momentum.
Shale gas and a surplus of thermal coal from the US has coincided with a weakening in demand from main markets such as India and China. As prices have weakened, so the profitability of thermal coal mines is being questioned.
In Australia, it is estimated that almost 10,000 jobs have been lost in the coal industry since the boom ended. That in turn asks the question of the future volumes that can be expected through coal ports.
However, that hasn’t prevented some major coal port operators from taking a long-term view of the sector. An example is Abbot Point, one of the few locations along Queensland’s eastern seaboard with deep water (more than 15 metres) access close to shore.
Adani’s interests
In May 2011, the Queensland Government entered into a 99-year lease of the terminal now known as the Adani Abbot Point Terminal (AAPT or T1) with Mundra Port Holdings Pty Ltd, a wholly-owned Australian subsidiary within the Adani Group.
Under the port’s lease, the State retains ownership of the land and fixed infrastructure such as the jetty and the wharf. The North Queensland Bulk Ports Corporation remains as the port authority and is responsible for the ongoing safety, security, efficiency and master planning for the port.
Indian giant Adani says that the first of more than 4,000 jobs and A$7bn in investment will begin flowing into Australia within months when it starts construction on the Carmichael mine in Central Queensland.
The overall concept includes the development of a rail line to link with the existing rail access to the Abbot Point terminal and a $1bn expansion of the port itself. First coal from Carmichael is scheduled for late 2017, ramping up to 60m tonnes per annum.
Adani Abbot Point chief executive Sandeep Mehta says both the North Galilee Basin Rail, Queensland’s first standard gauge rail, and the Abbot Point expansion will help deliver scale for Galilee proponents (not just Adani) that will unlock the potential for developing the basin by helping to lower infrastructure costs.
“Adani will be the anchor customer for the NGBR, as well as taking a significant amount of capacity at Abbot Point from first coal onwards, and is well advanced in discussions with customers to progress additional agreements on capacity.”
Long term plays
Mr Mehta emphasises that Adani’s projects in Queensland are a long-term play, not influenced by volatility in the coal price – “no one chooses to invest in significant mining and infrastructure plays such as these without taking a long term view.
“Equally, no long-term player undertakes such an investment without anticipating a return on that investment. In that context, it’s important to consider the nature of Adani’s operation in Australia. It helps capture the value chain.
“Adani will be the lead offtake customer for the high-quality, low-cost coal mined at Carmichael. It owns the mine. It owns the rail. It owns the port. It owns the ships.
“It owns the bulk of the ports in the main export market, India, where the coal will be landed. The lead customer will be Adani Power. And Adani owns the transmission network.
“At the present time, several hundred million households in India lack any access to power. Demand in the Indian market is only set to increase.
“So, a secure supply, centred on an 11bn tonne resource, in a strictly well-regulated jurisdiction, is a long-term play [where] Adani is confident on seeing a return, with significant infrastructure, job and royalty stream benefits in Queensland, and significant benefits in India, too.”
Adani is ready to get the ball rolling as soon as federal approval is granted for the dredging programme needed at Abbot.
Cornerstone developments
Elsewhere in the world, coal features as a cornerstone of some major port developments.
Vale is building a terminal and 900-kilometre railway line from its mine in the coal-rich Tete province of north-western Mozambique to the deep water port of Nacala in the north-east. It plans to begin exports from Nacala port in 2015.
Vale’s has been hampered by transportation problems, with hoped-for improvements to the only existing rail-link between Tete and the coastal city of Beira – the main exit point for coal exports – stalled. Mitsui is a partner with Vale in the Moatize coal mine project and the Nacala Corridor rail and port infrastructure project.
“By managing such infrastructure effectively, its railway transport annual capacity is planned to increase gradually up to 22m tons [and] the port’s coal shipping capacity is designed to 18m tons annually,” Mitsui said. The total construction cost is expected to be about US$4.4bn, with the coal transportation based on the long-term contract. Therefore, stable revenue can be expected.
Also, part of the transport capacity of the rail line is planned to be used for general cargo other than coal, such as other minerals and agricultural products as well as for passengers. In addition, the rail line and port shipping capacities have room for further expansion should there be a future increase in demand.
A Mitsui statement said Vale had knowledge and experience accumulated through its involvement in the integrated operation of large-scale iron ore mines and rail and port infrastructure in Brazil. In addition, Vale and Mitsui are jointly running a general freight transportation business.
South African targets
In South Africa, state utility operator Transnet expects to achieve its target of railing 77m tonnes of coal to the Richards Bay Coal Terminal (RBCT) in its financial year to March. Transnet provides the railway services linking the coal mines to the terminal, and the shipping coordination of more than 700 ships a year.
RBCT is one of the leading coal export terminals in the world, opened in 1976 with an original capacity of 12m tonnes per annum.
General manager, commercial, Divyesh Kalan told the IHS Energy South African Coal Exports conference recently that its volume target would not be affected by the recent announcement by Glencore that it would be shutting part of its Optimum coal mine which would affect 5m tonnes a year of coal exports.
Transnet was comfortable that replacement volume would come from other mines, whether Glencore’s or those of other companies.
Transnet has seven projects under way to expand coal railing capacity as it is taking a long-term view on the industry.
Coal challenge for Lyttelton
The challenges faced by ports highly reliant on the coal trade is illustrated by Lyttelton Port of Christchurch (LPC) in New Zealand.
LPC is the major gateway for coal exports originating from the West Coast of the South Island, with storage for up to 335,000 tonnes.
Although the port recorded coal throughput of 2.07m tonnes in 2013-2014, state-owned coal miner Solid Energy is in retrenchment mode.
In its 2014 annual report, Solid Energy reported a 29% dip in revenue and a net after-tax loss of NZ$181.9m.
Solid Energy chief executive Dan Clifford talked of reshaping the company to withstand a “challenging economic environment” through substantial cost reductions and simplification of operations.
In a recently-released statement, acting chair Andy Coupe announced the board was deferring presentation of its interim accounts until assessment could be made of an updated prediction that coal prices will not recover as quickly as previously expected.
“It is not about current performance or any immediate difficulty in meeting our commitments. It is about the impact on our balance sheet of future pricing for coal and our consequent diminishing ability to repay or refinance debt when it falls due from September 2016,” he said.
Whatever direction Solid Energy takes will be of extreme importance to Lyttelton.
In the 2010-2011 year coal represented 22% of its overall cargo throughput and the following year its coal exports rose to a record 2.45m tonnes.
Coal is still listed as one of the “principal activities” in the port company’s latest annual report but management is now speaking of a “predicted downturn” and may be reviewing its future prospects in that niche.
In an ironic positive twist for LPC, a NZ$25m planned expansion to its coal handling facilities was postponed in early 2012 as focus at the time moved to other post-earthquakes rebuilding activities. These works included a ten-hectare reclamation to expand the existing coal stockyard. That deferment may prove prescient.
