Coal stoush heats up as miners told to supply local power plants

In an email to staff last month, BHP said the reservation policy could force the company to re-evaluate its existing plans to continue operating Mount Arthur until 2030.

The coal reservation plan is aimed at lowering the cost of running large coal-fired power plants in a bid to tame the soaring wholesale electricity prices that will ultimately flow through to people’s bills. Left unchecked, east-coast power prices had been forecast to increase by more than 50 per cent by 2024, according to the federal Treasury.

Kean said the policy’s impact was apparent already as electricity futures contracts – those bought by retailers and large customers to lock in supplies at a later date – had fallen by 41 per cent since the price caps were first announced late last year.

He said the reservation requirement was a “modest ask” of the state’s coal producers, which had exported more than $61 billion of coal through the Port of Newcastle last year.

NSW coal miners that sell domestically are already subject to a temporary $125-a-tonne cap on local sales of intermediate-grade thermal coal. The state government has said the intention of the coal reservation plan was to help “even the playing field” between the state’s coal miners selling into the local market and those exporting their product.

The state’s biggest coal producer, Glencore, extracts about 30 per cent of the state’s thermal coal, but under the government’s final directions, the company said it is expected to provide up to 65 per cent of the state’s coal shortfall.

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“We don’t know how the NSW Treasurer can talk about levelling the playing field for coal companies,” Glencore said.

Both Glencore and ASX-listed Whitehaven Coal posted record earnings on Thursday, inflated by soaring coal prices. Investors, wary about future softening in coal prices and rising costs, marked the miners down, with the share price of most major producers slipping on the Australian bourse.

Benchmark prices of high-quality thermal coal traded at the Port of Newcastle more than tripled last year to a record high of more than $US400 a tonne. However, prices have plunged 47 per cent so far this year as milder-than-average winters in Europe and parts of Asia have subdued demand.

“The fall in seasonal demand in the Northern Hemisphere … will likely keep coal prices under pressure,” Commonwealth Bank mining and energy analyst Vivek Dhar said. “But we think it’s premature to think that thermal coal prices will return back to pre‑Ukraine war levels.”

While the coal market is expected to remain tight for some time yet the longer-term outlook remains deeply uncertain as countries across the world speed up plans to move away from carbon-intensive fossil fuels and embrace cleaner sources of energy.

Whitehaven on Thursday said it was finalising plans to meet its obligations under the reservation scheme. “This is largely a political issue. That is my concern,” chief executive Paul Flynn aid. “There’s not a shortage of coal going around, it’s a price issue.”

Yancoal chief executive David Moult said the scheme was rushed and poorly designed.

“Yancoal’s logistics are set up to export coal internationally – they are not geared towards domestic coal sales and redirecting coal to domestic customers could prove resource- and cost-intensive,” he said. “The scheme presents significant logistical challenges and will be disruptive to supplying coal to export markets.”