Thermal coal is still a goldmine for Australia

As gas costs continue to rise, new Japanese technology is providing Australia's coal industry a new chance to compete with LNG.

Don’t write thermal coal off yet. The combination off very high power prices in Japan, new technology and the fact that world temperatures have not increased in the last decade is giving coal another chance given its low price.

Japan went for nuclear power in a way that was matched by few other countries. It was Japan’s way of cutting carbon emissions. The Fukushima nuclear disaster not only caused Japan to halt nuclear power but also turned the Japanese public off nuclear. Time may change those community attitudes, but so far there remains stark opposition to nuclear. Meanwhile, Japanese power prices have risen sharply at a time when Japan is not growing. It has been a big blow.

There has been a big rise in Japanese renewable power led by rooftop solar, but the next major power station in Japan may be based on coal -- perhaps Australian coal. And that will open the floodgates to an era of much lower Japanese electricity prices based on coal.

If Australia is to be competitive, it will need to cut its coal costs. Japan, led by Hitachi Power, has developed ultra-supercritical pressure coal-fired power generation technologies, which convert more of the energy in coal into power, slash pollution and reduce carbon emissions.

LNG from Australia is a very expensive way to generate power. The latest coal-fired generation plant using ultra-supercritical pressure technology is showing a return of some 15 per cent a year, thanks to Japan’s high power prices and reduced coal prices. .

It is likely that the first plant will be announced later this year or early in 2015. That will open the floodgates to a whole series of plants.

Once Japan starts to embrace the coal technology, it will spread rapidly around the world because coal energy is in abundance and is much cheaper than LNG or renewables in most circumstances.

In terms of carbon emissions, new technology coal is still around 30 per cent higher than LNG but much lower than conventional coal powered generation.

Given the current roadblocks for gas, maybe Australia has to go the same way as Japan.

China is certainly anxious to clean up its power generation because of the pollution, but it is now clear that the 3 per cent coal tariff was aimed not so much at reducing emissions but to try and make Australia agree to free trade agreement concessions -- which it should not do.

China is also likely to look hard at similar coal technology.

In Australia, the debate about carbon and the temperature is dominated by the extreme greens so all other developments are drowned out.

The failure of the world to warm as forecast by the extreme greens means that, rightly or wrongly, many in the world, believe there is much more time -- particularly where higher energy prices are hitting hard. New coal burning technology will greatly reduce carbon emissions while also creating cheaper power, which countries desperately need to increase or maintain living standards.

In the next year or two in Australia we will see much higher domestic gas prices, which will make Australians look more carefully at energy policy.

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