Great news about Abbot Point expansion given need for royalties and boost to mining & Qld economy

I was very pleased to see the announcement about the Abbot Point expansion going ahead yesterday, given the boost it will provide to Queensland’s ailing mining industry (see chart below), royalties revenue for the Government, and the Queensland economy. North Queensland, in particular, has been struggling in recent years, with the Townsville unemployment rate at 8.6%, for example. Hopefully many NQ residents will get jobs on the Abbot Point expansion project.

mining_employment_Nov14

The likely boost to royalties will be very welcome in the Queensland Treasury. As I wrote in a post on Monday, our Government is much more reliant on volatile royalties revenue than ever before. The Government currently receives around $2 billion per year in coal royalties. Given the enormous size of the Galilee basin projects, the potential boost to royalties per annum must be in the order of many hundreds of millions of dollars. Media reports have suggested the Carmichael mine alone could produce 60 million tonnes of coal per year, which my back-of-the-envelope calculations suggest could earn the Government in the vicinity of $200-400 million per annum in royalties, depending on future coal prices. (For the royalties formula see the Office of State Revenue’s website.)

Of course, these benefits won’t come overnight. For example, construction work on the Carmichael project won’t start until later this year, and coal production won’t occur until 2017, according to a press release from Downer.

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7 Responses to Great news about Abbot Point expansion given need for royalties and boost to mining & Qld economy

  1. Jim says:

    Gene

    I cannot believe it took three successive governments to come up with the most appropriate disposal strategy for the dredge spoil.

    My take on the issues is that the problem stemmed from developers that thought they could get away with dumping offshore in the first place (probably on the back of some very poor advice from their advisors), and a complete lack of any BCA of all of the options.

    Fundamentally I think this stems from the use of impact assessment as opposed to BCA when considering options for projects and submitting development applications. If a BCA of the options was undertaken in the first place, ALL of the relevant benefits and costs would have been incorporated into the analysis in the first place and an optimal strategy could have been developed. Rather, several years have been wasted on the back of misguided analysis.

    Is it time for regulators to drop the flawed requirement for an economic impact assessments as part of the development assessment process, and replace it with a requirement for a BCA?

  2. White Elephant says:

    Galilee Basin is totally uneconomic. Has anybody actually see a Definitive Feasibility Study (let alone Bankable) from any of the participants?

    Thermal coal how many kms from the coastline?

    Not going to happen at $70tn thermal coal price.

  3. The Happy Hillbilly says:

    It’s really interesting to see the determination for it to go ahead White Elephant. I agree that it seems totally uneconomic, why it’s still forging ahead I’m really not sure. As if the world wasn’t already awash in cheap coal, this mega-project will probably add enough to have some amount of negative impact on the price.

    As for the royalties, at current prices I don’t think the government can get paid any less per tonne so maybe they consider any amount of increased output helpful to their bottom line.

    Plus, as Gene’s chart shows the employment situation for our resource sector is currently pretty dire, I guess government are hoping this will delay the collapse.

  4. White Elephant says:

    It would have been great for all this to happen 10 years ago. It is very sad what is now going to transpire.
    I just can’t see how ‘backing’ something that has negative value is good for QLD – this will only perpetuate the high wages that are part of what is holding back investment in Australia overall.
    Governments cannot sustain economic growth forever and when they try, the unintended consequences can be worse than the recession they tried to avoid.

  5. The Happy Hillbilly says:

    White Elephant – rumour has it that Carmichael coal is a vertical integration play by one of the most powerful private individuals in India and the price of coal is therefore not a factor in the decision to forge ahead. Mr Adani is building an electricity supply empire and will be consuming 100% of the coal projects output himself.

    He is supposedly good friends with the current Indian PM and believes this will have his venture approved at home (I think in Australia we would call that “nepotism”, but whatever).

    So yes, it would be totally uneconomical for anyone intending to actually sell the coal to the world market.but he won’t be. Depending on what he achieves at home, I guess the huge output could still push the price down further, resulting in further job losses and mine closures here if he is able to take control of a good part of India’s existing generation sector and dictate that it must use only his coal.

    But this is only what I hear.

    Gene, have you heard anything to this effect?

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