A ship is loaded with coal at the RG Tanna Coal Terminal located at the town of Gladstone in Queensland, Australia, June 12, 2015. (Reuters Photo/David Gray)

Launceston, Australia. A planned Chinese-owned coal mine in Australia has become the latest example in a long line of mud-slinging trumping sensible debate.

While it makes for great headlines, there are few things less edifying than seeing politicians, business and community leaders flinging gratuitous insults at each other.

The stoush is over the Australian federal government’s approval of a A$1 billion ($746 million) coal mine being developed by China Shenhua Energy in the Liverpool Plains region of New South Wales state.

It would be something of an understatement to say the 10-million ton a year project has been controversial, with its approval showing splits in the ruling Liberal National coalition, while prompting threats of civil disobedience from farmers and legal action from a variety of opponents.

The main issue is that the proposed mine, known as Watermark, is in prime agricultural land and there is concern that not only will it take up land that could be used for farming, but also that the mine will deplete or degrade the region’s underground water table.

Barnaby Joyce, the somewhat colorful federal agriculture minister, probably best known outside Australia for threatening to kill actor Johnny Depp’s pet dogs for illegally entering the country, is a vocal opponent of the mine.

He said last week that the approval of the mine, which is within his constituency, was a sign of the “world gone mad,” breaking ranks with Greg Hunt, the federal environment minister who granted the approval with what he termed strict conditions.

Joyce hails from the rural-based National Party, the junior partner in the ruling coalition with the Liberal Party of Prime Minister Tony Abbott.

So far the Liberal-National government has dismissed calls from the opposition Labor Party that Joyce should resign his portfolio if he doesn’t agree with the mine’s approval, but the fact that Joyce has been so vocal does call into question the unity of the coalition.

Open for business?

Rural groups have also been vocal in denouncing the mine, with farmer and Caroona Coal Action Group head Tim Duddy telling the Australian Broadcasting Corporation that the project was “agricultural genocide”.

But Shenhua, China’s biggest coal miner, isn’t sitting idly by over criticism of the mine, which has already cost the state-controlled miner some $800 million.

Paul Jackson, Shenhua’s project manager for the mine, called Joyce a “xenophobic loony” who dislikes Chinese investment in Australia, according to a July 13 report in the Australian newspaper.

“The wider benefit of this mine is that you can engender a long-term relationship with China and they will want to take your agricultural goods from the other 1 million hectares of the Liverpool Plains,” Jackson told the newspaper.

Putting aside the “loony” jibe, and Jackson does come closer to some of the real issues of whether Australia is open for business, as Tony Abbott claims, or whether narrow interests will be able to trump the wider aims of the federal government and the business lobby.

The ongoing vociferous opposition to virtually every mining project, but especially coal developments in New South Wales and neighboring Queensland state, may well cause foreign investors to think twice about doing business in Australia, and not just miners.

Is a new mine needed?

But the most relevant question on the Shenhua project is one that receives little attention in Australia, namely why bother building a mine at all given the low prices for coal, the poor prospect of a recovery and the slowing demand in China?

Chinese coal imports have slumped 37.5 percent in the first six months of the year from the same period in 2014, a trend that if continued will see the nation lose its position as the world’s top importer to India.

China has also courted controversy in Australia by rejecting cargoes, citing quality issues.

While Australian coal producers have maintained their product meets China’s new standards, the bottom line appears to be that China’s appetite for imported coal is waning and the hurdles to get cargoes cleared are increasing.

Shenhua also said in April it would cut its output by 50 to 60 million tons this year to help ease a supply glut, suggesting that it has plenty of domestic coal available and doesn’t really need to import from Australia.

While there are quality differences between what Shenhua produces domestically and what it plans to mine in Australia, the economics of the project and its necessity surely must be more questionable now than when Shenhua bought the license to develop the Watermark mine six years ago.

In that time spot thermal coal at Australia’s Newcastle port has reached a record high of $136.30 a tonne in early 2011, before losing more than half its value to end at $60.08 on July 10.

The Watermark mine may be sunk by poor economics, but virulent opposition may make any decision to walk away easier.

-          Clyde Russell is a Reuters columnist. The views expressed are his own. -

Reuters

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Launceston, Australia. It’s become an accepted market fact that Saudi Arabia didn’t cut oil output last year in the face of sliding prices as the world’s biggest crude exporter wanted to maintain market share.

Given more than third of 2015 has already passed, it’s probably worth examining if the kingdom has been successful in keeping market share among its main Asian customers, and what this may mean for its future policy.

Saudi Aramco, the state-owned oil producer, kept prices for Asian refiners steady for its benchmark Arab Light crude for June-loading cargoes, while raising them for European buyers.

This was seen as a sign that Saudi Aramco wants to keep its oil competitive in Asia, while the increase for Europe reflected rising prices for rival grades in recent weeks.

It’s also important to note that the official selling price (OSP) for Arab Light is still at a discount to the regional benchmark Oman/Dubai crude.

The discount for June cargoes was set at 60 cents a barrel, the same as for May.

While the discount has narrowed from $2.30 a barrel for March cargoes, it has been in negative territory for nine straight months.

OSP discounts to the benchmark are still fairly rare, with the last occurrence more than four years ago, so an extended run of discounts show that Saudi Aramco is serious about maintaining its competitive edge, especially in Asia, which accounts for roughly two-thirds of its exports.

Divergence from Brent-Dubai spread

Normally the OSP tracks movements in the Brent-Dubai exchange for swaps, which measures the price differential between the main European crude benchmark and its Middle East counterpart.

The one-month exchange for swaps has been holding in a fairly narrow range anchored around $1.60 a barrel since September last year, when I first said that Saudi Arabia was more interested in protecting market share than cutting output to hold up prices.

But while the Brent-Dubai spread has been largely steady, the Saudi OSP has been lowered, breaking the usual correlation between the two, a further sign of Saudi determination to keep their prices competitive.

So, has the tactic worked, and if so, how well?

China is the main buyer of Saudi crude and here the picture is mixed.

In the first three months of the year China imported 12.75 million metric tons of crude from Saudi Arabia, or about 16 percent of its total, according to customs data.

Saudi Arabia increased its volumes by 0.5 percent in the first quarter to about 1.034 million barrels per day (bpd), but this meant it was still surrendering market share as China’s overall imports grew by 7.5 percent.

Big gainers in the first quarter were number three supplier Oman, with a 30.8 percent rise in its shipments to China over the same period in 2014, Russia with a 14.3 percent increase and Kuwait with a 47 percent jump.

Iran, China’s fifth-biggest supplier in the first quarter, saw its volumes drop 1.9 percent, while second-ranked Angola experienced a 7.5 percent decline.

But Saudi Arabia’s modest gain in China imports in the first quarter should be seen against the light of a 7.9 percent decline in 2014 from the previous year.

It could be viewed as a positive that Saudi Arabia has managed to increase volumes to China in the first quarter, thus reversing partially last year’s drop.

India share drops, Japan gains

Saudi Arabia is also the largest supplier of crude to India, Asia’s second-biggest importer, which purchased 757,400 bpd in the first quarter of 2015 from the kingdom, down 1.8 percent from the same period a year ago.

Last year, India’s imports from Saudi Arabia dropped 0.5 percent from 2013, while, among other major suppliers, Iraq’s dropped 17.3 percent, Iran’s jumped 41.5 percent and Nigeria’s rose 27.6 percent.

Saudi Arabia managed to outperform in Japan, Asia’s third-biggest crude importer, in the fiscal year ended March 31.

Japan’s 2014-15 oil imports dropped 7.2 percent from the prior fiscal year to a 26-year low of 3.36 million bpd, but imports from Saudi Arabia declined by 1.7 percent.

So even though Saudi Arabia managed to increase market share in Japan, overall volumes still dropped amid weaker demand.

Taken together, the figures from Asia’s top three importers show that Saudi Arabia is more or less holding its ground in market share, but is certainly not increasing it.

This suggests that Saudi Aramco will have to maintain a policy of setting its OSPs at relatively low levels if it wants to see off competitive threats.

Clyde Russell is a Reuters columnist. The views expressed are his own.

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