Goldman Sachs: ‘Window For Profitable Investment In Coal Mining Is Closing’

[kristopher]

Goldman Sachs Finds ‘Window For Profitable Investment In Coal Mining Is Closing’, Ditto For Coal Exports
BY JOE ROMM ON AUGUST 8, 2013 AT 5:16 PM

Goldman Sachs has put out a must-read research paper, “The window for thermal coal investment is closing.” Thermal (or steam) coal is primarily used to generate power.
The U.S.-based multinational investment bank has some sobering findings for the dirtiest fossil fuel:

We believe that thermal coal’s current position atop the fuel mix for global power generation will be gradually eroded by the following structural trends: 1) environmental regulations that discourage coal-fired generation, 2) strong competition from gas and renewable energy and 3) improvements in energy efficiency. The prospect of weaker demand growth (we believe seaborne demand could peak in 2020) and seaborne prices near marginal production costs suggest that most thermal coal growth projects will struggle to earn a positive return for their owners.

Ouch!

Goldman projects demand for shipping coal by sea will be flat for years.



You may wonder why anyone would be building a coal export terminal — particularly on the West Coast where the obvious customer is China, whose near-term demand for coal imports is collapsing, according to Goldman:



As it turns out, the state of Washington — under the leadership of climate hawk Jay Inslee — appears to be figuring this out. The state’s Department of Ecology recently said its review of the Gateway Pacific Terminal at Cherry Point, will include “an evaluation and disclosure of greenhouse gas emissions of end-use coal combustion.” ...

More at: http://thinkprogress.org/climate/2013/08/08/2437551/goldman-sachs-coal/

[House of Roberts]

1. If the Chinese don't import coal, where will they get it?

Their own production is running out of water to process it.

http://www.bloomberg.com/news/2013-07-23/china-s-coal-fired-economy-dying-of-thirst-as-mines-lack-water.html

[pscot]

2. I think Cherry Point is probably dead

The Lummis's have said they don't want it to happen. They have Casino money and excellent lawyers. They can keep this in court forever.
http://www.democraticunderground.com/10822153

[NickB79]

3. This is talking about GROWTH in coal use

New generation is indeed going to gas and renewables, which COULD be a good thing if the gas used wasn't derived from fracking (big if there).

However, it says nothing about the thousands of coal-fired plants already in existance with decades of life left in them. And with China poised to open up Mongolia's vast coal reserves, it's not surprising that seaborne coal movement is expected to fall.

Once again, an author is confusing percentages and absolutes. It's the absolute volume of carbon being emitted every year that will ultimately do us in, and that shows no signs of dropping for many years to come.

[kristopher]

4. WTF are you babbling about?

Romm (the author) isn't the least bit confused. In fact "it" says a great deal about existing coal plants and goes into detail about what is happening in China.

As far as it "talking about GROWTH in coal use", no it isn't talking about either GROWTH or growth in coal use, at least, not as a central point of the analysis or Romm's writeup - it is talking about an investment house warning people that the upside of investing in coal is very limited. The implication being that they should probably put their money elsewhere.

And that is a BFD.

[NickB79]

5. You have read the article, right?

We believe that thermal coal’s current position atop the fuel mix for global power generation will be gradually eroded by the following structural trends: 1) environmental regulations that discourage coal-fired generation, 2) strong competition from gas and renewable energy and 3) improvements in energy efficiency. The prospect of weaker demand growth (we believe seaborne demand could peak in 2020) and seaborne prices near marginal production costs suggest that most thermal coal growth projects will struggle to earn a positive return for their owners.

and in the first graph he confuses absolute demand with growth:

Goldman projects demand for shipping coal by sea will be flat for years.

When what it actually says is:

Exhibit 2: Thermal coal demand to slow down greatly. Seaborne thermal coal demand - annual growth

That graph shows GROWTH in annual coal demand, NOT absolute volumes of coal being shipped via seaborne vessels. That is reinforced by Goldman Sach's statement earlier:

we believe seaborne demand could peak in 2020

AND as I said previously, seaborne coal volume may be skewed by the fact that China, the world's largest importers of coal, is busy opening Mongolia's massive coal reserves by rail: http://www.reuters.com/article/2013/07/19/mongolia-tavantolgoi-contract-idUSL4N0FP1JS20130719

The deposit is owned by Erdenes Tavan Tolgoi, which has contracted out work at its East Tsankhi deposit to Australia's Macmahon Holdings and Germany's BBM Operta.

The company said it expects to mine a total of 5-6 million tonnes this year at the east block and 2 million tonnes at West Tsankhi.

Erdenes Tavan Tolgoi owes Chalco $170 million, the outstanding amount from a total debt of $350 million from an off-take agreement it signed with Chalco in 2011 to be paid in coal exports.

So, all in all it's good news, but not AS good of news as you want it to be. Global coal consumption is finally starting to slow thanks to growth in natural gas (which, if derived from fracking isn't any better than coal, however) and renewables. But it appears we still have close to a decade left before we see a peak in coal consumption, followed by decades of slowly declining fossil fuel consumption. Decades we no longer have.

[kristopher]

6. The dishonesty is becoming putrid

Romm's statement you cite as being inaccurate:

Goldman projects demand for shipping coal by sea will be flat for years.



0% growth is "flat" - as GS's graph clearly shows.

You think that GS is wrong because of Mongolia, that's fine. However you are arguing a strawman since neither the article nor the study conclude that China's coal consumption will decline in the near term.
Your selective perception is noted. When declining US consumption is highlighted, the response from the nuclear junkies is to cry about how it is no help at all since our coal will be exported and burned. Now you find out that not only is the outlook for such exports extremely limited, but the investment forecast for entire coal industry is dismal.

Romm was on target, you are not. Your remarks might be interesting if presented as an expansion of the GS report (which I'm sure you didn't bother to read) instead of merely being more inapt histrionics and FUD from the nuclear club.

[caraher]

7. Why numbers are superior to words

"Flat" is open to interpretation here... I think the perspective one needs to adopt in understanding its meaning is that of an investment banker. On one hand, the graph is indeed one showing growth, and the growth is nonzero and positive, so it certainly does project an overall increase in the demand for seaborne thermal coal over the period of the projection.

However, looking at the percent figures on the right, we're looking at 1% to as much as 4% per year relative growth. Given even the most modest discount rate, that is not going to look like an exciting investment opportunity in a growth industry. If you're investor, that's looking "flat" in financial terms, even if it does represent modest annual increases in coal shipped.