Published in the September 2010 Australia’s Mining Monthly

The Hunter Valley Coal Chain in New South Wales is an integrated web of coal miners, transporters and handlers.

Its statistics sheet is an impressive read with 13 coal producers across 35 mines hauling coal on one rail line up to 400 kilometres to three port terminals. These terminals will load more than 1000 coal vessels each year.

To make the game a little harder, the entire industry is nestled among one the country’s major wine regions in a well developed area of the state.

The major players in the logistics of the Hunter Valley coal chain can be split between the rail and the ports.

On the rail side, the Australian Rail Track Corporation manages the rail line while QR National and Pacific National own the locomotives contracted to carry the coal.

This is in stark contrast to the logistical scenarios in other parts of the country, such as the Pilbara in Western Australian. There miners have the luxury of remote wide-open spaces to build their own rail lines – if they have enough capital.

On the port side is the Port Waratah Coal Service, owned by Rio Tinto and Xstrata, which manage the Carrington and the Kooragang terminals with a combined coal export capacity of 110 million tonnes per annum.

There is also the Newcastle Coal Infrastructure Group, owned by several other coal miners, including BHP Billiton and Peabody Energy, which own and operate the third terminal that is partly operational but still under construction.

Up until 2003 there was no one organisation that managed the entire Hunter Valley coal chain.

The rail line and ports were bottlenecks for the industry and the system resembled a bunch of schoolchildren jostling for their turn on a slippery slide during lunchtime.

Enter the organisation known as the Hunter Valley Coal Chain Coordinator.

The HVCCC was the teacher that came along and restored order, making the schoolchildren line up and wait their turn.

The result was a much more efficient service for everyone involved.

“It’s our job to plan and coordinate the whole system as if it was owned by one company,” HVCCC chief executive officer Jonathan Vandervoort said.

“The producers, the coal miners, they enter into commercial arrangements with the port, either Newcastle Coal Infrastructure Group or Port Waratah Coal Services, or both.

“They enter in their own arrangements with track, with Australian Rail Track Corporation, and they enter into arrangements with above rail providers [QR National or Pacific National], or they provide their own trains.

“The volumes [of coal] that are part of the contracts get passed on to us.

“So we don’t get to see the whole contract, we just get to see what the volumes are that need to be moved and to meet all of those various contractual volumes.”

While the HVCCC has improved the efficiency of the coal chain, a huge increase in demand for coal in recent years, especially from Asia, has the system at bursting point.

The ARTC predicts export demand for coal in 2010 to be 127Mtpa. This is expected to skyrocket to 226Mtpa by 2013 before easing to a steadier growth.

With close to an 80% increase in demand in the forthcoming three years, the NSW coal industry is scrambling to ensure the coal chain will be able to cope.

The ARTC already is upgrading its track, installing return loops and doubling the line in high-priority areas to reduce headways and junction conflicts.

The Newcastle Port is also beefing up its nameplate capacity.

In 2007, the NCIG was awarded a lease from the NSW government to construct a third terminal in the port to the capacity of 66Mtpa.

The first stage of the third terminal was opened in May this year and while it is still in a commissioning phase it will eventually have a capacity of 30Mtpa.

Stage two of the terminal is underway and is expected to increase its capacity to 53Mtpa by 2013 before the final stage of construction takes it to full capacity.

With these measures, and subsequent upgrades at the PWCS terminals to 133Mtpa, the total capacity of the Newcastle Port will be about 200Mtpa – just shy of the ARTC 2013 forecast of 226Mtpa.

In a sign of confidence in the industry and in the ARTC forecasts, PWCS already is considering a fourth terminal.

“There is a two to three-year feasibility and development application stage followed by a similar time for final design and construction,” PWCS general manager Graham Davidson said.

“The prefeasibility study is in the early phase looking at various material handling, rail and port options.

“This would mean T4 could be up and running around 2016, although at the moment it is still only a conceptual terminal, subject to planning approvals.”

Davidson said capacity calculations and modelling work would follow after the material handling options had been narrowed down.

“If all the available land is used and port capacity modelling demonstrates sufficient port capacity, terminal four could progressively add 60 million tonnes per annum plus to the coal chain.”

Adding a fourth terminal to the Newcastle Port would bring its total capacity to about 260Mtpa.

This is the same amount as the forecast demand in 2016 and while it is leaving little room for error it is sufficient with the ARTC predictions.

However, like running in a group, it can only go as fast as the slowest person – this applies to the coal chain as well.

Vandervoort refused to comment on specific aspects of the chain and what areas may be slowing the system down.

However, when asked if PWCS was receiving a sufficient supply of coal, Davidson responded:

“PWCS nameplate capacity is currently 113 million tonnes per annum, and will increase to 133 million tonnes per annum in 2011.

“However, in 2010, the overall coal chain is expected to shift only about 97 million tonnes of coal [for PWCS].

“This indicates that there needs to be contractual alignment between what PWCS is contracted to load, and what the rail system can deliver to PWCS.”

NuCoal, one of the newest miners on the Hunter Valley coal scene, is confident the chain’s capacity is adequate to meet the demand.

“If you look at the upgrades of the port and the rail system that is currently underway, they are heading towards a 200 million tonne per annum capacity by 2012,” NuCoal managing director Glen Lewis said.

“A lot of that money has already been spent, it is evident when you are driving around the valley the amount of rail infrastructure that has been undertaken, so I am confident the capacity will be there for us.”

NuCoal is drilling at its Doyles Creek tenement 100 kilometres northwest of Newcastle. The company is undertaking a concept study and moving into prefeasibility early next year.

Lewis said construction for its coal mine could commence in the second quarter of 2013 aiming for first coal out of the mine in late 2014 with an export capacity of 4-5Mtpa.

Although NuCoal has not made any formal applications with the rail or port providers, Lewis said it was definitely something the company had been thinking about.

“I have made some informal representations but where our project currently sits in its lifecycle, it’s too early to approach them,” Lewis said.

“There is an application process that’s in place and it’s a matter of ticking all the milestones and then just using that application system to apply for access.

“That’s what we are doing through our concept study, identifying all the potential coal transportation options and then in prefeasibility next year we will refine that down to the preferred choice.

“You get to the point where you have an offtake agreement which is probably about 12 months away for us because then you have to lock into the take or pay system.

“Obviously we need access to the rail at some point – there is a rail loop within 10 kilometres of us – there are a number of options we need to consider.”

While the coal market is pumping at the moment the miners, rail and ports are crossing their fingers in hope that the demand remains high. As long as records in coal exports continue to tumble year after year, the players will be keeping a close eye on one another to make sure the entire chain is up to scratch.

Because they all know if one area falls behind, the rest goes with it.