Rio Tinto chief executive Tom Albanese this morning gave a bearish assessment of the outlook for Australia's coal industry given competition from unconventional gas and emerging energy sources.
Mr Albanese said the coal business – along with aluminium, also under-performing - would have higher cost-reduction targets than other divisions as Rio sought to take $US5 billion out of costs by 2014.
Rio last week closed its long-lived Blair Athol mine in Queensland, as announced early this year, and its Mount Pleasant greenfields project in the Hunter Valley is under review.
Mr Albanese said there had been “more changes in the global energy landscape in the last two years, than we've seen over the past 20 years.
“You've seen again nuclear power taking a bit of a hit unfortunately with the Fukushima disaster. You've seen the US - incredibly - move from being seen as not only a net oil importer but potentially net oil self-sufficient, and not only an LNG importer but potentially an LNG exporter if policy-makers allow exports.
“What that's also doing is it's causing the coal producers in the US – and the US is well-endowed with coal – to be looking to seaborne markets and that's putting pressure on conventional seaborne coal producers.”
Mr Albanese said rising costs in Australia were giving US coal producers a “free kick”
“I hope that everyone in Australia recognises that it's not in the Australian economy's best interests to give the US coal competitors a free kick.
“From our perspective it elevates the urgency of focussing on cost, productivity, particularly as some of the existing coal mines get deeper and deeper and deeper, and look at all aspects of Australian costs, and the Australian coal cost chain, in a drive to make it more competitive in an environment where you can imagine the US will have every incentive to put more tonnes into the seaborne market.”
Mr Albanese said along with increasing competition from the US, Australia should not discount competition from Indonesia and East Africa.
Mr Albanese gave a dim assessment of the prospects for new coal projects here. “The burden of proof for an Australian coal project will be its ability to demonstrate that it can operate cost-competitively, in a tougher world stage, and it can be developed in a manner which is capital-friendly,” he said. “So the increase we've seen in capital costs in the Australian coal industry in the past five years, really do need to be rolled back to attract capital. The operating cost structure, the cost structure of the entire supply chain, and the fiscal regime, needs to reflect the fact that there's tougher competition.”
But Mr Albanese rejected a suggestion Rio could itself invest in oil or gas. “I'm not an oil man and I wouldn't want to get into it,” he said.