Macken Sense: And the winner is….

Galilee Basin, Queensland ©Greenpeace

Last week produced two powerful stories that define the perimeters surrounding the increasingly contested space in Australia’s economic and energy future. Just as history is written by the victors, there’s little doubt the future is in part created by the stories that prevail today – but which one will win the day?

The first is this story by Gary Johns, published in The Australian opinion pages last thursday. Writing about Queensland’s Galilee Basin – home of the next historic coal boom – Mr Johns kicks off with some passionate and bold assertions:

‘GALILEE is the Promised Land. It should have been the Australian Labor Party’s gift to fight global warming and global poverty. Galilee’s riches will protect, feed and clothe the poor and hungry of China and India more surely than carbon taxes and foreign aid.

The Galilee Basin in central Queensland, in the not too distant future, will provide the sort of wealth that really counts, thermal coal for electricity; and it is electricity, cheap and bountiful that turns Third World nations into First World nations.

Among other things, Australia’s gift to the world is coal, and coal generates 42 per cent of the world’s electricity. No amount of renewable energy will get the developing world to developed world status…..’

While making clear his concern for the development of China and India through the burning of coal from the Galilee – coal he believes should not be saddled with a carbon tax – Johns accuses federal Labor of walking away from, “…its own worker base and throwing in its lot with dreamers. It turned its back on its obligation to produce coal at least cost; coal that the developing world needs to bridge the development gap.”

However this recent report released in India three weeks ago takes some of the shine off the heroic assumptions Johns is making about the power of coal – Australian or Indonesian – to liberate Indian people from poverty. While the focus of the report is on the 4000 MW Tata Mundra project in Kutch, Gujarat, it includes findings about the Adani projects in the same area – the same Adani that is about to build the biggest mine in Australia.

In brief, the report found the Tata Mundra project had serious social and environmental violations and has recommended the immediate suspension of financing and called for full project review. It found:

The (Tata Mundra Ultra Mega) project has disproportionately high social, environmental, and economic costs. The company, the licensing agencies of the Government of Gujarat and India, and the national and international financial institutions have either ignored or wilfully neglected the high social and environmental costs and did little to mitigate them.

The report adds: The Social Impact Assessment and Environmental Impact Assessment are misleading and erroneous, having excluded a large number of communities whose loss of livelihood was overlooked. Cumulative impact studies required to understand the overall impacts were not done. The governments and the IFIs are equally complicit in the violations by the company.

Many in the Indian investment community believe that, coming at a time when India is facing its worst coal crisis with rising prices and supply shortage, the report signifies yet another body blow to the 4000 MW Tata Mundra project. Particularly as the panel of eminent people recommends that International Financial Institutions should undertake an immediate review of the project to examine adherence of their safeguard polices; until such a review is done, their financial assistance to the project should be suspended. Among the banks in question are the International Finance Corporation (IFC) and the Asian Development Bank (ADB).

The second story written last Wednesday by Giles Parkinson makes it clear that Indian investors are not the only people who believe the shine may be coming off  a coal led recovery of India and that the Galilee may not be all it’s talked up to be.

While acknowledging Indian companies have; “…invested billions of dollars snapping up coal assets in Australia in recent years, and one company, GVK, is the major partner of Gina Rinehart in developing her massive coal project in the Galilee Basin in central Queensland.”

Parkinson goes on to say; “But this enthusiasm for investing in Australian coal infrastructure is masking huge problems in the Indian energy market. While coal is often painted as pretty much the only option to fuel India’s rapid economic growth – nuclear is clouded by the fallout of Fukushima, and will not reach the scale some anticipated, while wind and solar are seen as marginal – there are signs that an increasing number of companies are reassessing their plans.  Fossil fuel generation is turning out to be uncertain, unreliable and unprofitable, and many are turning away from coal and gas generation and focusing instead on solar and wind.”

And here’s where the two stories begin to go head to head

As Johns sees it; “China and India are heavily dependent on coal for electricity, 80 per cent and 70 per cent respectively. For all of China and India’s striving to reduce their dependence on coal through renewables (mainly hydro) and nuclear, China and India will help triple the world thermal demand by 2030.

“China’s coal imports are expected to grow from 120 million tonnes per annum last year to more than 1000mtpa by 2030. India’s coal imports are expected to grow from 90mtpa last year to 266mtpa in 2030. Seaborne supply of thermal coal is dominated by Indonesia and Australia, which account for an estimated 60 per cent of seaborne thermal supply. Australian thermal coal exports are expected to increase from 145mtpa last year to 654mtpa by 2030. Much of this coal will come from the Galilee Basin.”

According to Parkinson: “It is estimated that 30,000 megawatts  of newly constructed coal plant in India is sitting idle, unable to source coal from the state-run body charged with doing so. It says the best it can do is 50 per cent. Imports are not the answer either, because of the rising cost. Plans for around 8000MW of new coal-fired capacity are now on hold because of that, and those that have been built are losing money. The energy ministry has told builders of gas plants not to bother with developments until at least 2015 because there is not enough gas”.

But on the renewable front Parkinson found far from failing India, solar is the new black in energy, saying: “Welspun Energy, a subsidiary of the Welspun group, a large infrastructure and textile group backed by Apollo Global Management, estimates that India will surpass its ambitious solar targets by a factor of two, predicting that a lot of the investment planned for thermal power projects will go instead to renewables.

Welspun Energy was established to invest in wind, solar, coal and gas projects. So far it has signed up to more than 1000MW of wind projects and 1,500MW of solar projects, but nothing in coal or gas. “Most people don’t realize this yet but India’s power mix will change considerably,” Vineet Mittal, the head of Welspun Energy, told Bloomberg in a recent interview.

Parkinson finishes by noting a curiously under-reported development in the China-energy story, saying: “Interestingly, India is not the only country having issues with fossil fuel production. Deutsche Bank noted in a report last month that the amount of new coal and gas generation constructed in China (the world’s fastest growing energy market) had declined 29 per cent in the first four months of the year, compared to 2011.

“The National Energy Bureau had reported that one-third of new thermal generation had been delayed, and the amount of capacity installed before this summer’s peak demand would be 20 per cent less than in previous years. “This is a highly unusual sign,” Deutsche Bank analysts wrote, “as the delay has never happened in the past few years.” They blamed the delays on a “lack of enthusiasm” from Chinese power developers in fossil fuel projects.”

The problem for investors is that both sides of the story cannot be true – at least at the same time. This problem is made even worse because the politicised nature of climate change and more broadly the fossil fuel industry is making of the reporting of the “facts” increasingly difficult.

The problem for the rest of us is even more critical. Decisions we make over the next few years will determine whether we have a snowflakes hope in hell of staying under 2 degrees warming. Misinformation and industry propaganda is making nearly impossible to make those critical decisions with the confidence that we have all the facts at hand. As those with the biggest stake in the future, it is time we demanded the facts man, just the facts.

Macken Sense is a weekly metabolic breakdown of media and green events by our astute commentator, Julie Macken. Follow Julie Macken on Twitter @juliemacken

  • Steve

    Julie,

    You cite the report of an “Eminent Panel” that alerts the Indian Government to possible shenanigans of Tata Mundra. That report states:

    “Many in the Indian investment community believe that, coming at a time when India is facing its worst coal crisis with rising prices and supply shortage, the report signifies yet another body blow to the 4000 MW Tata Mundra project.”

    http://www.bicusa.org/en/Article.12658.aspx

    This confirms Gary John’s thesis that coal is essential to the development of the Indian economy. While the report may take some ‘gloss’ of the Tata Mundra project, his thesis remains generally sound for the larger Indian economy.

    This is supported by a report in Asian Miner, a bilingual resource industry magazine, which indicates that India recognizes it is starved of coal.

    That report goes on to say:

    “Dozens of Indian companies have invested in coal mines and coal companies in Indonesia in a bid to secure supplies for their plants in the long term and this investment flow shows no sign of slowing. One of Indonesia’s largest producers Berau Caol, says that India will be the big market for its low calorific coal in 2012.

    http://www.asiaminer.com/magazine/current-news/from-the-editor/4186-strong-indian-demand-for-indonesian-coal.html

    Business week reports:

    “China’s coal demand will increase 70 percent to 3.71 billion metric tons coal equivalent by 2035 from 2009, under the country’s energy policy, while India’s demand will increase 188 percent to 1.15 billion tons equivalent over that time, according to the International Energy Agency’s World Energy (MERENER) Outlook for 2011.”

    http://www.businessweek.com/news/2012-06-08/china-india-lack-water-for-coal-plant-plans-ge-director-says

    This sounds pretty healthy for the coal industry. Recall that I pointed out to you that China has increased its coal imports by 66% over the year before … so they are now importing 166% of last year’s volume of coal.

    “China’s coal imports in the first half of 2012 rose 66 percent from a year earlier to 140 million metric tons, according to data released today by the Beijing- based General Administration of Customs.”

    http://www.bloomberg.com/news/2012-07-10/china-s-coal-imports-rise-66-to-140-million-tons-in-first-half.html

    To me that does not sound a dangerous environment for the coal industry.

    Julie, you cite Parkinson’s findings regarding green energy investment. I don’t find it particularly rational that a government in a developing country encourages green energy which is more expensive and less reliable than that generated by imported coal – the losers are the poor who currently don’t have electricity and will pay more than they should for it when it finally arrives.

    That said, the future of coal in China & India and of coal exports in Australia and Indonesia will be positive for some time to come.

  • Steve

    Hi Julie

    Regarding prospects for wind power, Make Consulting report this month that:

    “.. global order intake for 1H/2012, and we note that wind turbine order intake (MW) in 1H/2012 fell by 30% YoY, principally due to weakness in core markets in Asia Pacific and Europe, in particular China, India, UK and Germany (Offshore).

    http://www.make-consulting.com/fileadmin/pdf/2012/1207025__1H2012_Global_Wind_Turbine_Orders.pdf

    So much for optimism for green energy …

  • jon

    Gry Johns a paid industry lobbyist and ideologue – nothing he says or writes can be taken as objective.

    also do you mean PARAMETERS..not perimeters… and staying under 2 degrees is looking less and less likely

    jon

  • Steve

    Hi Julie, thinking of India, I remind you of the words of IPCC Chairman, Rajendra Pachauri who in 2009 said the following:

    “Can you imagine 400 million people who do not have a light bulb in their homes?” he asked. “You cannot, in a democracy, ignore some of these realities and as it happens with the resources of coal that India has, we really don’t have any choice but to use coal.”

    http://online.wsj.com/article/SB10000872396390443687504577565041028069420.html?mod=rss_opinion_main

    On this rare occassion I agree with the man.