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Wood Mackenzie analyses the impact of Australian storms on coal and CBM industries

World Coal,

Wood Mackenzie, a research consultancy, has released two reports analysing the impact of Australia’s recent extreme rainfall on the East Coast. The key findings for both industries are noted below.

Impacts on the coal Industry

Queensland has been the hardest hit with some parts of the state receiving over 400 mm of rain in a single week, more than the average for a month. This has impacted coal mines and infrastructure, potentially restricting production and exports.

Wood Mackenzie’s report titled “Australia: Heavy rainfall hits coal sector”, summarises the affected areas, key constraints and likely impact for the coal industry as follows:

  • A variety of minesites are likely to have been affected, largely in the Blackwater region.
  • Flooding and potential damage to export infrastructure are the key constraints: the Blackwater, Moura and South Western railways are likely to remain closed for at least a second week.
  • This prevents even fully operational mines on these railways from sending coal to port, even though all coal export terminals have reopened following a number of short closures over the weekend.

Wood Mackenzie forecasts that the mines directly impacted and those dependent on closed rail networks account for 78 million t of production for the export market in 2013. One week of lost production from these mines will account for 1.5 million t, 60% of which is metallurgical coal. In the event of the three key railways being closed for one month, estimated loss of production is 6.5 million t.

While it is too early for a detailed assessment, Wood Mackenzie's findings suggest that the impact of the current rainfall will be lower than the last significant flooding episode in Queensland that occurred late 2010 and early 2011. Some of the factors for this are:

  • The worst affected areas are closer to the coast and therefore further from mines.
  • Fewer mines will be affected due to more export infrastructure remaining open.
  • Short periods of heavy rainfall are often factored into production schedules.
  • Stockpiles held by producers at ports will mitigate the impact as coal can be exported, even while production and railing have ceased.
  • Pits that are flooded may be able to pump water into creeks and rivers once the rainfall stops.
  • Some operators may be able to export coal through alternative railways and terminals.

Impact on coalbed methane industry

While the rains and rivers are now subsiding, some areas surrounding Queensland’s prime coalbed methane (CBM) acreage in the Surat Basin remain inundated.The key findings of Wood Mackenzie’s analysis of the impact of the upstream industry, titled “Queensland LNG Projects weather the storm” are:

  • Localised flooding has made a number of roads and well sites near the Undulla Nose temporarily inaccessible. This could have a knock-on effect on extensive drilling campaigns which are underway in Queensland LNG projects.
  • Operators suggest the upstream impact will be minimal, as there is little or no damage to equipment or facilities, and drilling programmes will be arranged to maintain developing schedules.
  • Drilling in some areas has restarted, with the worst affected areas expected to resume drilling programmes over the next few weeks, when access roads to well sites become passable.
  • Heavy rainfall near Gladstone has affected installation of the QCLNG, GLNG and APLNG gas export pipelines to Curtis Island. These are crucial items for the respective projects and the rains could result in some slippage of operators' targeted timeline.
  • Workers have already returned to the LNG plant construction sites on Curtis Island, and the heavy rainfall is unlikely to cause any meaningful delays to downstream project schedules.

As with the coal industry, Wood Mackenzie's current analysis suggests that the impact of flooding on Queensland's CBM industry is not expected to be as severe as in previous years because flooding is more localised. Operators have also built in greater contingency for wet weather events in drilling and construction, given the experience of previous years, and APLNG, GLNG and QCLNG have additional rigs on site with which to recover any lost time.

Adapted from press release by Jonathan Rowland.

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