PORT of Newcastle's push to diversify from an over-reliance on thermal coal shows it "clearly sees the risk" and warning signs from Australia's biggest coal export destinations including Japan, said a leading energy finance analysis group.
"The world's largest coal export port has identified the need to diversify away from thermal coal. Australian governments that have any long term interest in the economy should have perceived the same need by now," said Institute for Energy Economics and Financial Analysis finance analyst Simon Nicholas.
The Hunter is particularly at risk because of Australia's reliance on coal export earnings from Japan, which is by far the largest thermal coal market at 45 per cent in 2018-19, but where there are strong signs of a shift from coal, Mr Nicholas said.
The warning comes after a week in which Port of Newcastle chief executive Craig Carmody pushed the NSW Government harder on its opposition to a Newcastle container terminal to diversify from coal, Prime Minister Scott Morrison dismissed Labor's commitment to a net zero emission target by 2050, and Opposition Leader Anthony Albanese told a Country Labor conference at Singleton that Australia will export coal for "decades".
It also comes amid increasing concerns that another global climate change shock like Australia's catastrophic bushfires this summer could trigger both a regulated and unregulated shift from coal that would make "stranded assets" a reality.
While Japan has 9.3 gigawatts of coal plants under construction according to Global Energy Monitor data, about 8.3 gigawatts of old coal power plants are due for end-of-life closure over the next five years, Mr Nicholas said.
"The new, more efficient coal plants will replace the old ones and consume less coal in the process," he said.
A pipeline of planned coal-fired power plants had been "hollowed out by project cancellations" as Japan's demand for electricity has dropped at an annual average rate of 1.2 per cent since 2008, he said.
"Assuming a full 40-year lifespan for the existing fleet, Japan's coal power capacity will peak in 2024 and then decline throughout the late 2020s and 2030s as units reach their end-of-life.
"Japan is by far Australia's largest thermal coal export destination so the implications for miners in the Hunter Valley will be very significant."
Some of the Australian and Hunter implications were already visible, Mr Nicholas said.
In February Mitsubishi Materials Corp divested its entire 11.2 per cent stake in New Hope Corporation, owners of Bengalla coal mine. New Hope Corporation's share price fell by 14 per cent after the news at the end of a year in which its share price struggled, Mr Nicholas said.
Mitsubishi Corporation, another in the Mitsubishi Group, pulled its investments in the Ulan coal mine between Denman and Mudgee in December, 2018.
"The Port of Newcastle, the world's largest coal export port, clearly sees the risk and hopes to diversify its business away from over-reliance on thermal coal. The risk may be increased if pressure for Japan to do more leads to more determined action on carbon emissions from the government," Mr Nicholas said.
Before the next United Nations climate conference in November investors are already demanding more emissions action from Japan. Under pressure, the Japanese government this month said it would review its support for coal-fired power plant construction overseas.
Major investors are threatening to divest from the Korean Electric Power Corporation (KEPCO) if it does not do more to curb emissions, and air pollution concerns in South Korea and Taiwan are leading to early closures of old coal plants and significant winter coal plant shutdowns, Mr Nicholas said.
"Air pollution seems likely to push some Asian nations away from coal faster than climate change concerns," he said.
South Korea represented 15 per cent of Australia's coal export earnings in 2018-19, according to the Office of the Chief Economist's most recent figures in December, with Taiwan Australia's fourth largest thermal coal export destination on 12 per cent.
The second largest destination, China on 16 per cent, seemed "determined to be fully reliant on its own coal in the near future", and with 90 per cent of Australia's thermal coal exports going to those four nations there is "no hope that significant declines in their coal consumption can be adequately compensated by imports into much smaller markets like Vietnam", Mr Nicholas said.
While India's latest commitment to cease thermal coal imports from 2024 was "aspirational at best", even a progressive reduction in Indian imports "will have significant knock-on effects through the Asian seaborne thermal coal market".
"It would also mean the opportunity for Australian thermal coal exporters to move into the Indian market is practically non-existent," Mr Nicholas said.
The Office of the Chief Economist predicted export volumes would rise slightly in 2020 from the 210 million tonnes exported in 2018-19, valued at $26 billion.
But "earnings are forecast to fall to $18 billion by 2020-21, as the impact of price falls more than offsets higher export volumes", the Office of the Chief Economist said in December.