The proposal to develop a 180 million tonne per annum coal export facility at Dudgeon Point in Queensland has been cancelled.

Dudgeon Point is one of a number of multi-billion dollar Queensland coal export terminal proposals that have been relinquished over the last two years. This highlights the rapid deterioration in the global coal industry prospects, with key turning points this last month by China’s President Xi Jinping’s call for an “energy revolution”[i] and President Obama’s “Clean Power Plan”.[ii]

Corporates like Brookfield Infrastructure Group, with a proven history of maximising investor returns, are shelving unviable proposals and moving on.

Dudgeon Point is part of the Port of Hay Point, 25 km south of Mackay in Queensland. The proponent, North Queensland Bulk Ports Corporation Limited (“NQBP”) proposed a $10-12 billion port development involving two coal export terminals, six rail loops and train unloading facilities, plus a connection to Goonyella rail system.

With the thermal coal price down 50% in 4 years to a new low of US$72/t in June 2014, the market no longer needs the expanded infrastructure of massive greenfield projects like Dudgeon Point. An excess state of supply is being maintained due to long term take-or-pay contracts. Economic slowdowns in China and India means that this is compounded by weaker than expected demand.

The lapse of Brookfield and Adani’s Dudgeon Point proposals follows a series of coal export port expansion plans being abandoned over the last two years. These include:

In 2012 BHP indicated it would not proceed with its new coal export terminal plans at Abbot Point “T2”;

In May 2013 Glencore announced they had scrapped plans to build a 35Mtpa coal export facility at Balaclava Island, 40km North of Gladstone;

Lend Lease’s decision in Feb’2014 to withdraw from the AP-X project (a joint proposal with Aurizon); and

In March 2014 Anglo American notified its intention to withdraw from the AP-X coal terminal development project at Abbot Point.

Despite this, the Queensland ports sector continues to suffer from excess capacity.

The Adani Group owned Abbot Point “T1” is operating at less than 50% utilisation, three years after Adani acquired this port lease from NQBP.

The greenfield Wiggins Island Coal Export Terminal (“WICET”) stage I of 27Mtpa capacity has delayed its commissioning till first quarter 2015, a year behind schedule. The WICET Stage 2 expansion has been put on hold post Glencore’s cancellation of the Wandoan Project in September 2013.

Clearly the world’s seaborne coal markets have entered a prolonged period oversupply. The key debate now is if this is going to be a prolonged cyclical downturn or in fact is the commencement of a structural decline in the seaborne traded coal market.

Australia remains at significant financial risk from the current government policy to encourage investment in fossil fuel developments. These long life mining and associated infrastructure projects are increasingly at risk of becoming “stranded assets” as the world transitions toward a lower carbon energy system.

Background on Dudgeon Point

Back in September 2011 the Initial Advice Statement that was released. This was followed on 21 June 2012 when NQBP released the terms of Reference for the proposed Environmental Impact Statement (“EIS”). The Terms of Reference were valid for two years, but with the EIS not progressed, the proposal would have officially lapsed on 21 June 2014.

While the lead project proponent was NQBP, there were two underlying proponents each looking to build a coal export terminal with a combined export capacity of up to 180 million tonnes per annum (Mtpa) of coal:

Adani Mining Pty Ltd (Adani); and

Dudgeon Point Project Management Pty Ltd (DPPM), a subsidiary of the Brookfield Infrastructure Group, owner and operator of the 85Mtpa Dalrymple Bay Coal Terminal (also at Hay Point).

The port is within the Great Barrier Reef World Heritage Area adjacent to the Great Barrier Reef Marine Park. This was problematic, given the associated proposal for dredging of 13–15 million cubic metres.

In June 2013 a year’s delay was announced for the Dudgeon Point proposal. At that time NQBP stated: “New port facilities will only be constructed if there is sufficient customer export demand to justify the large expenditure required.”[iii]

Neither Brookfield Infrastructure Group nor Adani Mining have progressed their EIS in the two years since the Terms of Reference were set. NQBP requested the Queensland Coordinator-General to cancel the project declaration on 20 June 2014.[iv]

Tim Buckley is the Director of Energy Finance Studies, Australasia for the Institute for Energy Economics and Financial Analysis. He has 25 years of financial markets experience, including 17 years with Citigroup culminating in his role as Managing Director and Head of Australasian Equity Research.

[i] http://www.businessspectator.com.au/article/2014/6/16/china/china-readies-energy-revolution?utm_source=exact&utm_medium=email&utm_content=792325&utm_campaign=pm&modapt=

[ii] http://www.vox.com/2014/6/1/5770556/EPA-power-plant-rules-explainer

[iii] http://www.dailymercury.com.au/news/dudgeon-point-coal-port-expansion-put-hold/1920750/

[iv] http://www.nqbp.com.au/news-updates/