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Stranded Down Under

World Coal,

A new Oxford University study and report, commissioned by HSBC Bank, has highlighted the influence of Chinese coal consumption on Australia’s coal investments. The report has demonstrated that future Chinese coal consumption could have significant consequences for the Australian coal industry, with the threat of stranded assets and mothballed coal mines a real possibility.

The report, entitled Stranded Down Under? Environment-related factors changing china’s demand for coal and what this means for Australian assets, highlights the changing nature of the Chinese Government’s use of coal and the impacts these changes could have on the Australian coal sector.

According to the report, China’s demand for coal is changing as a result of such factors including environmental regulation, developments in cleaner technologies, local pollution, improving energy efficiency, changing resource landscapes and political activism.

The report explained that of the countries that export coal to China, Australia is at significant risk, because it is a large and growing coal exporter to China. Investors, businesses and communities, as well as state governments and the federal government in Australia, could be affected by a slowdown in Chinese demand for coal – changing demand and lower prices could result in stranded coal assets or increase the risk of asset stranding.

China currently accounts for half the global demand for coal, and has a domestic market three times the size of the international market. It is largely the price setter for the international market.

Australian exports account for 32% of Chinese coal imports – the highest exporter to China, with Indonesia second with 26%. These exports represent a significant and increasing proportion of Australia’s national income, with exports in 2012-13 at AU$ 38.9 billion: or 16% by value of exports.

Projects mothballed

These factors could lead to less demand from China and lower coal prices, which would increase the risk that Australian coal mines, reserves and coal-related infrastructure become stranded assets, according to the report.

Many planned projects and mine expansions in Australia, such as the mega coal projects planned for the Galilee Basin, are considered feasible based on current high coal prices. However, if the world price drops, which the report suggests is very likely, many projects could be mothballed.

Nathan Fabian, CEO of the Investor Group on Climate Change Australia and New Zealand, said: “This report raises one simple question for investors, should any more capital be allocated to new coal projects?”


The study suggested that in order to minimise the risk of stranded assets, the resource companies involved should further interrogate the coal price assumptions underpinning the investment case for each of the proposed projects.

The report recommends policymakers minimise exposure to the highlighted risk by diversifying their tax base. State and federal governments can also reduce the rick of their own investments becoming stranded assets by limiting the use of public funds and resources that support coal-related infrastructure, such as ports and railways. 

Edited from various sources by Sam Dodson

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