Australian backing for India’s coal mine is doomed as an investment

The seemingly unrelated facts that Australia has this week pushed a new coal mine closer to being built, and that Norway has approved plans to dump investments in oil and coal, can be seen as opposite ends of a single currency. Which would make them not unrelated after all.

The Norwegian 1$ trillion sovereign wealth fund has a past built on coal and oil, and most of the country’s economy has come from those sources over the past 50 years. It shows bravery and a clear understanding that these investments will be worthless in a few years’ time. Best sell them now, while others are not quite so clear of mind, and there are potential buyers.

That pretty much goes for coal mines. The not quite universal dumping of coal as an electrical resource has created a short term opportunity for coal based electricity plants. There is so much coal, and so few buyers left, that it is a buyers’ market. Coal is falling in value, and that fall which usually makes up more than 30% of the coal plant’s annual costs, is just about allowing electricity from coal to be produced, along with subsidies, for about the same as solar energy. But this cheap coal is a transition effect, and solar and wind will not stand still.

If globally the world had not shut down so many coal plant’s with a commitment to shut down more, coal would not be so cheap. As coal mines follow suit and go bust from oversupply, more coal mines will go bust. Once supply and demand level off coal will rise in price. Of course that will never happen since more and more coal plants are being shown to be uneconomic, and some 900 GW of coal power has been made redundant by renewables during 2018 and will eventually close, according to Irena (International Renewable Energy Agency). More will be overtaken in 2019. This is, in fact a race to the bottom, and the last coal mine left standing will end up desolate and friendless within a decade or two.

Which is why it seems so perverse for Australia to be opening a new one. And yet this week Carmichael mine, on the books for ten years, delayed by environmental considerations, has finally received endorsements on how revised plans will prevent groundwater becoming poisoned by the mine. Permission had already been granted by central government. The final step is to approve its approach to extracting coal. India’s Adani owns the mine, one of the biggest global polluters in the world, committed to coal as its mainstay.

Most indigenous efforts to build new coal plants and mines have all been made in the interests of “national security” i.e. in order to be self sufficient in energy and in order to build jobs – even though it can easily be seen that renewables builds more jobs. But this Australian mine is not about jobs, or self-sufficiency, as its coal will be exported to China, India and the ASEAN countries – effectively exporting the CO2 emissions to countries which have not yet begun in earnest their quest for renewables (with the exception of China, which has fairly clear ideas driving down the cost of renewables to bankrupt coal). The coal will go straight to a port for export, and none of its output is expected to be used in Australia. As such it has nothing to do with self-sufficiency.

The Adani mine was supposed to be one of the biggest in the world when it was proposed and employ 10,000 people. Today it plans to open with just 1,500 jobs outputting 27.5 million tonnes of coal a year. And we predict that it will be uneconomic within ten years, and that with investors like the Norwegian Pension fund dropping all investments which mine over 20 Million tonnes of coal a year, we can see that the shares in Adani will have investor hurdles as well as those brought about by the cost of coal.

While the mine may be uneconomic in ten years, coal stock selling may drive down the share price of its parent in under 5 – although to be fair Adani has nowhere to go, has no renewables counter investment and is doomed anyway.

Norway’s finance minister said it would cut funds from 50 to 75 companies and that around $5 billion is involved. Greenpeace adds 50% to the invested funds, and more than doubles the number of companies it will have to pull investments out of including a $1 billion stake in commodities giant Glencore, as well as investments in Australian companies BHP, South32 and AGL Energy, as well as Anglo American, Italy’s Enel and Germany’s RWE and Uniper. So its reach does extend to Australia.

The key thing is that this is a signal to the rest of the market, although it will retain investments in integrated energy companies including Royal Dutch Shell and ExxonMobil. They’re next perhaps. The hope is that it will start run on coal stocks that will begin to bankrupt the sector, almost overnight. So much for those very temporary Australian mining jobs.

As an aside, this week state-controlled French utility EDF said it will shut down its 580 MW Le Havre coal fired power plant in the spring of 2021 in line with the French Government’s decision to phase out remaining coal-fired power plants by 2022.