* Coal use to slow as new regulation is introduced
* Tighter regulation adds to low coal production margins
By John McGarrity
LONDON, Dec 4 Major mining companies are
reducing their exposure to thermal coal as declining reserves,
weak prices and tighter regulation erodes revenue margins.
BHP Billiton, one of the world's largest
coal producers, said it would limit investment on expanding its
thermal coal assets because of the environmental impact of
burning coal in power stations.
BHP said that although developing countries would continue
to be big users of coal decades from now, the fuel's share of
the global energy mix would fall.
"Do you really think, in 30 or 40 years, that 42 per cent of
the world's electricity is going to be generated with the
incredibly carbon-inefficient coal? I think the answer is
probably not," Marcus Randolph, head of BHP Billiton's coal and
iron ore operations, said in emailed comments on Tuesday.
Coal is the world's top fuel for power generation as it is
relatively cheap and abundant, but its share in primary energy
demand is expected to fall in the longer-term as tighter
environmental rules are introduced around the world.
"We have good assets in the (coal) business, but we're aware
of the environmental implications. Developing countries want
low-cost energy, but you can't deal with the carbon consequences
over the long term," he added.
BHP's move follows an announcement by its rival Rio Tinto
in November, in which the company said it would cut
costs by $5 billion, mainly in the coal and aluminium sectors.
Analysts say the moves are a result of rising environmental
costs that are eroding revenues generated from coal-fired power
"Tougher environmental regulations on pollution in many
emitting countries are likely to have as big an impact on coal
miners as rising costs or weak prices," said Paolo Coghe, a
commodities analyst with Societe Generale.
Coal mining revenues have fallen over the past year as low
demand as a result of sluggish economic growth clashes with wage
increases and rising equipment costs in producing countries such
as Australia, Indonesia and the U.S., prompting mine closures.
Prices for thermal coal swaps trade around $97,
down almost 30 percent since 2011.
In Australia, where BHP Billiton produces most of its coal,
the government in July began taxing major emitters A$23 ($24.00)
for every tonne of greenhouse gases they emit, and from 2015
users of fossil fuels will be forced to buy permits to cover
carbon dioxide emissions.
In Europe, regulators will slash the number of permits that
power generators will get for free through its emissions trading
scheme from next year, reducing coal-fired power generation
The Large Combustion Plant Directive, a law that controls
harmful emissions of soot and acid rain pollution in Europe,
will force many older coal-fired power plants to close this
Regulation is also tightening in the United States, where
coal-fired power plants will be subject to tighter curbs on
pollution from 2013, which together with competition from cheap
shale gas could prompt the closure of around 30 gigawatts of
capacity through 2020, the equivalent of around 30
standard-sized power plants, the U.S. Government Accountability
Office said last week.
In Asia, booming China wants to reduce the carbon intensity
of its economy by 45 percent by 2020 from 2005 levels, and the
government is readying emissions trading schemes in seven cities