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Jeff Seeney may well be Australia’s most indefatigable optimist. For as long as he’s been in office, Queensland’s deputy premier has been promising huge new coalmines in the state’s remote Galilee Basin, generating tens of thousands of jobs and tens of billions in royalties for the Sunshine State.
In dozens upon dozens of speeches, press releases and media conferences during his two-and-a-half years in the job, he has promised fabulous wealth, just around the corner. And then just around the next corner. And the next.
Seeney, who is also minister for state development, infrastructure and planning, was at it again last Monday.
He called yet another press conference and put out yet another document trumpeting proposed Galilee projects “valued at between $14 billion and $29 billion” – including coalmines, rail, port and other infrastructure, producing up to 28,000 new jobs and paying the state an annual $600 million in royalties. (Seeney didn’t mention the estimated annual emissions of some 700 million tonnes of carbon dioxide.)
It was the same old rhetoric, but with one key difference. This time he was waving a big blank cheque at the recalcitrant potential developers.
He didn’t put it so crudely, of course. He categorised the government’s offer as an “Infrastructure Enabling Investment Agreement … a short-term investment on commercial terms so long as that investment will enable world-class efficient infrastructure to be built that will facilitate the early development of the Galilee Basin”.
The offer was open to all potential miners and infrastructure developers, he said, but in reality it was directed primarily at just one – the Indian company Adani, whose mine/rail/port proposal is the last chance for Seeney and his leader Campbell Newman to make good on any of the flamboyant promises made since they were elected in March 2012.
The government had reached an in-principle agreement with the Indian conglomerate to take a stake in its proposed $2.2 billion rail line. Central to the agreement was that it would become a “common user” piece of infrastructure, able to be used by other developers.
But Seeney couldn’t say just how much the state might kick in to get things going, apart from the ballpark estimate “hundreds of millions, but not billions” of dollars. He left vague, too, just how “short-term” the government investment might be. Perhaps five years. Or 10.
He was precise about one thing: the timeline for turning the in-principle agreement into something concrete. The government would allow just 30 days to lock in details of the investment and 90 days to draft the paperwork. It would expect construction to start in the first three months of next year.
“We’re not going to drag on endlessly,” he told sceptical reporters at his press conference.
There’s no mystery behind that very tight timeline. It is driven by political desperation. The Newman government must go to an election by June, and it is not travelling well.
At the last election, Campbell Newman’s team won 78 of 89 seats in parliament. But the Liberal National Party government has burned its political capital at a furious rate, including through an ambitious and unpopular privatisation of assets.
Adding to the Newman government’s woes is the fact that unemployment is zooming upwards. When it came to power the rate was 5.5 per cent, and it stayed reasonably stable for a couple of years, in significant part because of the state’s boom in coal seam gas exploration and development. But the development phase is slowing now and while the royalties continue to flow, the jobs are drying up.
“At the start of the year unemployment was 5.9 per cent. Now it’s 7.0 per cent and it looks like it will continue to increase,” says Dr Paul Williams, political analyst at Griffith University.
“When they were elected, the LNP promised a ‘four pillar’ economic revival, those pillars being tourism, agriculture, mining and construction.”
But tourism and agriculture have not prospered, due in part to drought and the high dollar. The sectors also complain of a lack of government support.
“It very quickly became two pillars: mining and construction,” says Williams. “And now it’s essentially one: mining. That’s all they’ve got.”
The polls indicate the LNP government led by Newman and Seeney is heading for a bloodbath at the next election. They may hold on to power, but on the current indications, Williams says, their parliamentary numbers will likely be cut “to the low 50s”. Premier Newman will likely lose his own seat.
Hence Seeney’s desperate recourse to the state chequebook. They have to generate some jobs, somewhere.
The timing of the announcement was dictated by the presence in Brisbane of the leaders of the world’s biggest economies for the G20 meeting in Brisbane. In particular, Seeney told his press conference, the new Indian prime minister, Narendra Modi.
The obvious hope was that Modi, who reportedly is close to Gautam Adani, the principal of the mining company bearing his name, would offer enthusiastic endorsement of the deal. Alas, that didn’t happen. In his address to the federal parliament Modi said one of his government’s top priorities was to supply electricity to all India’s people, one-third of whom do not now have it. But this electricity, he said, must be generated in a way “that does not cause our glaciers to melt”.
Modi mentioned clean coal, but also gas, nuclear and renewables. It was all very generic and anodyne, particularly when compared with United States president Barack Obama’s speech given three days earlier at Queensland University.
Obama referred pointedly to the debate in Australia over climate change policy. He called on his audience to “keep raising your voices” against the “entrenched interests” of the old carbon economy.
“[A] climate that increases in temperature will mean more extreme and frequent storms, more flooding, rising seas that submerge Pacific islands,” he said. “Here in Australia, it means longer droughts, more wildfires. The incredible natural glory of the Great Barrier Reef is threatened.”
The Queensland government was, in the words of a front-page story in Wednesday’s Australian, “incensed over what it sees as an ill-informed, insulting speech … about climate change, the Great Barrier Reef and coal”.
Senior Queensland MPs, the paper said, were so angry at Obama’s “attack on coal production in a resources state” that they were considering a formal complaint.
The story also suggested they were less than impressed with Modi’s talk about melting glaciers.
The newspaper chose the day after the G20 meeting, the same day as Seeney’s Adani announcement, to run a commentary by Tony Abbott’s business adviser and climate-change denier Maurice Newman.
For want of any credible source to cite, given the near-universal acceptance of the science of climate change, Newman resorted to quoting several denialist US Republican politicians, notably Oklahoma senator James Inhofe, who labelled the US–China emissions reduction agreement, announced three days before the G20, a “non-binding charade”.
Inhofe’s pronouncement came as no surprise, given that he believes everything to do with climate change is a charade, indeed, the second greatest fraud ever “after the separation of church and state”.
In a 2012 radio interview, Inhofe claimed the Bible refutes climate change, and declared: “The arrogance of people to think that we, human beings, would be able to change what He is doing in the climate is to me outrageous.”
That Inhofe was presented as a credible critic says something not just about Newman’s intellectual rigour but also, by extension, that of his patron, Abbott.
The prime minister was also dismissive of the China–US agreement on carbon emission reductions. The US committed to cutting its greenhouse gas emissions by 26 to 28 per cent below 2005 levels by 2025, while China said its emissions would peak before 2030. It also promised to source at least 20 per cent of its total energy needs from zero-emission sources by that date.
This agreement between two nations, which between them produce some 40 per cent of global carbon dioxide emissions, was a very big deal, but Abbott pooh-poohed it. It was a “hypothetical” reduction, he said, with targets in the “far distant future”.
“I’m focusing not on what might happen in 16 years’ time. I’m focusing on what we’re doing now, and we’re not talking, we’re acting,” Abbott said.
Indeed, his government is acting. Since it abolished the emissions reduction scheme, the amount of carbon dioxide produced by the electricity sector has increased dramatically.
Furthermore, the US and Chinese commitments are neither hypothetical nor far distant. Already America is nearly halfway to its target. According to the US Energy Department, carbon dioxide emissions fell 12 per cent between 2005 and 2012.
And while sceptics are right to note that Obama’s capacity to act is limited by a hostile congress, making the prospect of a legislated carbon trading scheme impossible, he can achieve a great deal through executive orders. He has ordered, for example, a mandatory 30 per cent cut in emissions from power stations by 2030, as well as much tougher fuel economy standards for vehicles.
Also, a great deal is happening in the US at the state level.
The most populous state, California, is well on its way to getting a third of all its power from renewables by 2020, and is considering lifting the target to 50 per cent.
The second most populous state, Texas, with a population only a bit larger than Australia’s, already has three times as much wind power installed as across this entire country. And Texas is an oil-rich, Republican state.
As for China’s commitment, it entails the installation of 800 to 1000 extra gigawatts of non-fossil fuel generating capacity by 2030. That equates to something close to the total current capacity of the US.
Yes, it’s ambitious, but China’s determination to move away from heavy reliance on coal has become quickly evident in the past few years. It has shifted from posing the greatest threat of disastrous climate change to presenting perhaps the greatest hope for averting it.
As Professor Ross Garnaut, economist, former Australian ambassador to China and climate change expert, noted in this year’s John Freebairn Lecture at the University of Melbourne, before 2011 China’s rush to development ran against the general global trend of increasing energy efficiency.
“The fact that China’s demand was especially focused on coal made the first decade of the 21st century a time when the world quickly ran out of time for taking action to reduce the chances of dangerous climate change,” Garnaut said.
But in the past three years China’s energy policy has shifted. Not only has its economy become less energy intense, almost all of its new capacity between 2013 and 2020 will be supplied from sources other than coal.
China will still burn lots of coal in the coming couple of decades, but its requirements are already falling, and will fall faster after 2020.
As Garnaut said: “The huge upward pressure on global fossil fuel prices from Chinese economic growth ended in 2011 and will not return.”
Let’s say that again: it will not return.
Other analyses underline the magnitude of China’s shift.
“In 2010, 22 per cent of China’s capacity was hydro-electricity, and only about 5 per cent wind, solar and other non-nuclear renewables,” says Tim Buckley of the Institute for Energy Economics and Financial Analysis.
“By 2020, hydro will still be 22 per cent, but other renewables, wind and solar, will also be 22 per cent. Nuclear will increase from 1 to 3.5 per cent. Plus China will dramatically increase its use of gas. In May, it concluded a $400 billion deal to buy Russian gas.
“It’s all about diversifying. China’s wedded to more of everything, except coal. That all means thermal coal consumption will peak in 2016.”
The problem for coal producers is not just one of rapidly tapering demand. It is also one of gross oversupply. The high prices of last decade not only encouraged rapid development of previously marginal deposits in this country, they did so around the world. So now we have a buyers’ market.
According to analysis by the usually bullish global energy research consultancy Wood Mackenzie, half the coalmines in the world now face prices below their costs of production.
We’re seeing the consequences in Australia, with mine closures and layoffs around the country. Only last week, Australia’s biggest coal exporter, Glencore, announced it would shut down all its Australian mines for three weeks from mid-December and force 8000 workers to take leave. The object of the exercise was to spare the company the cost of pushing another five million tonnes of coal into the depressed market. And Glencore is one of the country’s most efficient miners.
Let’s return to Queensland’s Galilee Basin. The coal reserves there are vast, some 20 billion tonnes in all, but because they are a long way inland, and because some of the coal is of only moderate quality, they were considered uneconomic. Until the coal boom, which got under way in the mid 2000s.
Then the development proposals flooded in. At the height of the boom, there were nine separate developments planned, five of them bigger than any Australian mine now operating.
If all nine went ahead, they would have produced more than 300 million tonnes a year, about 1.5 times the total amount of thermal coal exported by all Australia’s existing mines. They would have increased by almost one-third the total world seaborne coal trade.
But in late 2011, coal prices began to fall precipitously and the development proposals associated with the Galilee began to fall with them. The timing could hardly have been worse for Queensland’s LNP government, which was elected just after the peak of the boom.
To be fair, the previous Labor government was every bit as devoted to coal as are Newman, Seeney, et al. But the maxim is that democracy is a process by which the people decide who to blame for the next three years, and it was under the LNP that the Galilee development plans began to fall apart.
In May 2012, for example, after he had been in office just two months, Seeney announced that the Alpha project, the first of the Galilee megamines, was ready to go. He claimed there would be an $11 billion boost to the economy during the three-year construction phase, from 2013 to 2016.
Two-and-a-half years later and what has happened? In a word: nothing. The proponents have not even got it together to build the infrastructure to move the coal the necessary 500 kilometres to export. Negotiations remain stalled between the Indian mining company GVK and the Queensland rail freight company Aurizon, over the plan for Aurizon to acquire a 51 per cent stake in the rail project and associated port at Abbot Point.
Aurizon points to “conditions precedent to this transaction that GVK needs to fulfil, prior to finalising the transaction.”
Not least among these is the fact that GVK is overdue in paying Gina Rinehart’s Hancock Prospecting a final $560 million, owed from when they bought a majority stake in the deposit from her for $1.26 billion in 2011. GVK is overextended and strapped for money.
Sources close to the negotiations suggest no decision for at least a year.
At least, though, there is the remote hope that the GVK mine will go ahead sometime. All other proposals, save the Adani one, are moribund or already dead.
As for Queensland’s ambitious plans for a huge expansion of the Abbot Point coal port, they also look fairly mortal.
In April, 2012, Rio Tinto announced it was pulling out of the expansion project, citing uncertain global coal markets. Six months later, BHP Billiton, the preferred developer for Terminal 2 at Abbot Point, announced it had formally withdrawn, and was also abandoning plans for a $5 billion rail connection to the port.
In February this year, Lend Lease, one of the Queensland government’s two shortlisted developers for another of the four new terminals – designated Terminal X – announced it, too, had decided not to proceed. The following month another potential developer of Terminal X, Anglo American, did likewise.
Adani is still in there, but it’s clearly having trouble getting finance for its project. Major global banks including Citibank, Deutsche Bank, Royal Bank of Scotland, Barclays and HSBC have declined to be involved.
The company has signed a $1 billion memorandum of understanding with the State Bank of India, as well as an agreement with the Korean infrastructure company Posco to construct the rail line from the mine to the port. But analysts, and statements from Posco, suggest the two arrangements are not binding.
In any case, they are small beer, compared with the $22 billion total cost of the long-delayed project.
And so Jeff Seeney has come in with his offer of untold hundreds to millions of dollars, in the hope it might stimulate the project and we might finally sell some Galilee coal into what is widely seen as the last big growth market in the world, India.
Miners might want to be quick. Just before the G20, India’s new energy minister, Piyush Goyal, announced a plan for India to cease all imports of thermal coal within two to three years. That plan is contingent, though, on India managing to double its own coal production within that time, which is generally seen as unlikely, and to invest $100 billion in new solar and wind capacity, which is entirely feasible.
The fact is India’s leadership is eyeing the Chinese model of development, for very strong reasons. Renewables are now cost competitive, and India is facing air pollution problems at least as severe as China’s.
Much as the likes of Abbott, Seeney, the coalminers and climate change denialists might wish otherwise, the market for Australian coal is tanking. And the likes of Ross Garnaut are unequivocal in their belief that it will never boom again.
That is not to suggest that the Queensland government might not succeed in subsidising the Adani project – and maybe even others in the Galilee – into production.
But it does suggest that will only change their status from stranded assets to white elephants.
This article was first published in the print edition of The Saturday Paper on November 22, 2014 as "Paying the barons to take our coal".
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