Carbon Supply Cost Curves: Evaluating Financial Risk to Coal Capital Expenditures

Carbon Tracker Initiative
http://bit.ly/1shmw8v

Following the oil report, this risk analysis focuses for the first time on the global coal industry, highlighting that $112bn of future capital expenditure (capex) in potential thermal coal production (excluding China) is at risk of becoming stranded.

  • Profits in thermal coal are already hard to find in today’s market. Coal companies are facing greater headwinds all the time with greater energy efficiency, cheaper alternatives and new pollution regulations eroding demand.
  • Future demand and price levels may not meet current industry expectations. High cost coal producers are gambling on survival in the hope that prices will somehow recover.
  • Peak thermal coal demand in China could be imminent. OECD demand is already falling. The resulting oversupply could flood the market, further weakening prices and asset values.
  • Deploying additional capital expenditure into high cost production is risky, especially for new mines, which typically require expensive new rail infrastructure and port facilities to get coal to market…
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