Sept/Oct 2010

Supply constraints

Australia and Canada coal industry face logistics and capacity challenges

By Jeff Borsato

Port of Newcastle

Installation of the slew deck of stacker-reclaimer 1 at the new coal export terminal operated by Newcastle Coal Infrastructure Group in the Port of Newcastle | Photo courtesy of NCIG

The number of ships delayed at Australian ports hit a record of 223 bulk carriers in early 2010. “The situation has drastically improved,” said Commodore Research & Consultancy’s Jeffrey Landsberg. As of mid-August, that number had come down to about 145 vessels congested at Australian coal and iron ore ports, but he added that “things in this market can change very quickly.”

Canada’s coal shipping facilities centre around three major terminals: Ridley Island near Prince Rupert, and the Neptune and Westshore terminals in the Vancouver area. Allen Wright, president and CEO of the Coal Association of Canada, believes the difference between Australia and Canada’s export levels is one of supply versus logistics: “Westshore and Neptune have some additional capacity while Ridley Island has considerable potential to carry more coal, whereas Australia faces greater logistical issues getting coal into port and onto ships.”

With an estimated 5.9 billion tonnes of hard coal consumed globally last year, Australia and Canada continue to benefit from a global commodity boom but face different issues with respect to coal and coal export capacity. The mineral remains Australia’s biggest export commodity, accounting for over 50 per cent of world coking coal exports, with almost 75 per cent of those exports destined for Asian markets (primarily Japan).

As the largest coal exporter in the world, the coal industry in Australia is serviced by nine loading terminals located in Queensland and New South Wales. It also houses the Port of Newcastle, the world’s largest coal port. Freight bottlenecks have increasingly occurred in the past five years, primarily at the Dalrymple Bay Coal Terminal (DBCT) and at Newcastle’s Port Waratah. A pair of capacity management systems were developed to cope with the problem of how to reduce queues. They insure that each stage of the exporting process — from loading and rail logistics to demurrage costs — is factored into the execution of shipping operations.

The responsive development of new mine sites and logistical support in the form of rail and port infrastructure are critical to Australia’s coal export industry. Seeking to ease congestion at the Port of Newcastle, the Newcastle Coal Infrastructure Group (NCIG) has committed $850 million to increase the capacity of the Hunter’s coal export chain in anticipation of 30 million tonnes per year in shipping capacity. This was confirmed in a May 2010 announcement of a third terminal opening at Newcastle, along with a second phase of expansion set for 2011 and 2012.

With 98 per cent of all coal moved by rail in Australia, rail issues continue to hinder growth. A national approach to planning freight transport on both roads and rail is gradually being developed. Capacity at The Port of Abbot Point is upgraded being from 21 to 50 million tonnes, through construction of the $1.1 billion Missing Link railway slated for 2012.

While infrastructure issues remain the single greatest barrier to export growth for Australia’s coal sector, Canada’s most pressing issues pertain to mine permitting and mine-site expansion, said Wright. “Efficiency is essential at each port in regards to capacity concerns, but right now, mine expansion is critical to addressing the increased demand for coal; our exporting capacity can still absorb it,” he said.

In 2009, Canada exported 28 million tonnes of coal, 90 per cent of it metallurgical. With approximately 70 million tonnes of annual production, centred largely in British Columbia and Alberta, coal remains the number one commodity carried by rails and shipped from ports.

Recent expansions at Westshore have resulted in total annual increases in handling capacity from 24 million tonnes to 29 million tonnes. Potential developments at Ridely include the South Kaien, Coast, and Lelu islands. This represents almost 1,000 hectares of land available for a variety of terminal activities. Additional production from openings at The Hermann and Willow Creek mines will help feed additional demand from Asian markets as they ramp up steel production following declines in 2008.

Economic Development Canada (EDC) expects the 2010-11 contract prices for coal to rise, but the forecast notes that they will remain below the 2008-09 highs. If a commodity super-cycle is truly in its building stage, then both Australia and Canada stand to benefit greatly if they can keep apace of rising demand.

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