The Queensland Flood is Coming to Your Neighborhood (coal exports)

The news this week that about one-third of Australia's coal production has been halted by massive flooding in the state of Queensland is an opportunity to look at the coal supply situation in Asia and the impact it could have on global energy prices in the next few months.

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In November, however, the Wall Street Journal reported that the word out of Beijing was the meteoric growth of coal production was likely to come to a halt possibly as soon as this year or next. This of course makes perfect sense as nothing can continue growing at 10 percent or 300+ million tons per year indefinitely and knowledgeable outside observers were saying that this unprecedented surge in growth had to end soon. Mines were getting deeper, coal seams thinner and transportation of this much coal from the mines was overloading the rail and road networks.

The problem, however, is that if Beijing is to continue growing its economy in the vicinity of 8-10 percent a year, then it has only a limited number of choices. It can increase its production of nuclear and hydro generated electricity; it can replace old inefficient generating stations with new high-efficiency ones; or it can increase imports of foreign coal, liquefied natural gas, or oil. While China is making major efforts to increase production of wind and solar power, these are still minor producers by the scale of Chinese energy consumption.

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With much of Asia's coking coal supply shut-in, prices for coal and steel are going to increase rapidly. With imports severely restricted for the next several months some Chinese steel mills may be forced to shut down and imported steam coal shortages are likely to result in more reductions in China's power generation. Some are already saying that this situation could add to inflationary pressures and that shortages could markedly slow China's economic growth this winter.

http://www.fcnp.com/commentary/national/8185-the-queensland-flood-is-coming-to-your-neighborhood.html