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Tuning the chain - a good news infrastructure story (Part 2)

THE Hunter Valley Coal Chain Logistics Team has unlocked millions of tonnes in unused potential out of the coal chain, but frustrated exporters continue to clamour for more capacity, which leads to

Andy Graham
Tuning the chain - a good news infrastructure story (Part 2)

"Whenever the blame game starts you can guarantee that people will start pointing the finger at each other," HVCCLT general manager Anthony Pitt said.

"Customers will start blaming the port. The port will say 'it's not me, it's the track'. The track operator will say 'it's not me, we don't have enough trains'."

The game was on in earnest in May, when a queue of more than 70 ships anchored off Newcastle waiting to load became front page news. Prime Minister John Howard talked about a federal takeover of ports in the national interest, while New South Wales Premier Morris Iemma tried to deflect pressure on his government by alleging it was all loader operator PWCS's fault.

Some mining companies blamed the rail network: ARTC chief executive David Marchant countered with statistics showing the miners and train operators were failing to take advantage of track capacity.

Hunting the weakest link may be tempting - and politically expedient - but according to Pitt it misses the point.

"We're trying to educate people that the amount of capacity of the coal chain is a function of the way the elements of the coal chain work together," he said.

"It's not as simple as saying 'which of train, track or ports has got the lowest capacity, therefore remove the constraints and go away and fix it'."

Pitt acknowledged, however, that inadequate planning had contributed to the situation.

"There's very little doubt that lack of infrastructure and lack of investment decisions five years ago are holding back the export volumes out of Newcastle right now," he said.

"We're probably about 3 million tonnes behind what the industry could realistically produce if we had unlimited train, tracks and port capacity."

In its first two years the HVCCLT has focused on improving infrastructure productivity but is now increasingly taking on a planning role. Nearly $1 million has been spent on coal chain modelling software so the team can advise the member organisations where best to spend their infrastructure dollars over the next decade.

"The industry has told us they would like to see a doubling of export volumes inside the next seven years out of the port of Newcastle," Pitt said.

"We're already the largest coal export facility in the world - on target for about 88 million tonnes this year - and the industry is saying they would like to get to 180 to 190 million tonnes by 2013 to 2014.

"So when it comes to making decisions about where to spend capital, it's a substantial undertaking. There's several billion dollars worth of new infrastructure required if we're going to see that sort of capacity being served."

Pitt acknowledged an element of "irrational exuberance" fuelling those future production estimates.

"I don't know if any of the mines in the Hunter Valley actually believes those forecasts in aggregate, but every one of them swears black and blue that their own forecast is accurate," he said.

"But there's no doubt that whether it's a very steep curve or a moderately steep curve, the forecast throughput for the next few years is still a pretty substantial increase on where we are today.

"So with that in mind it becomes very important to make sure that we invest in infrastructure where we're going to get the best return."

Pitt said coal mining companies negotiated separate contracts with rail and port operators, which could cause planning headaches when those contracts were out of alignment.

"We've got one group of mines that has contracted over 100 million tonnes of port capacity and yet they have only contracted about 85 million tonnes of train capacity," he said.

"So there are these bizarre outcomes that the industry itself has got to take some responsibility for.

"If those contracts are going to trigger some investment we want it to be triggered in a coordinated fashion, so we don't end up with massive over-investment in one part of the chain and with assets being under-utilised."

Considering the hundreds of millions of dollars worth of extra coal chain capacity the HVCCLT can claim credit for since its inception, there's no doubt the comparatively tiny amount spent on funding the team has proved an exceptionally wise investment. Pressed to identify the secrets of the team's success, Pitt said it really came back to two human factors - leadership and maturity.

"We have a reasonably good level of maturity around the table now," he said.

"[The member organisations] know that from time to time their individual businesses will not be optimised. There are several days in the year that we don't have sufficient track and port capacity to run both the QR and PacNat trains, and it's the planning team that will make the decision about which train fleets run on which day.

"You've just got to look at some of the other coal chains around Australia that are trying to replicate the model without a lot of success largely because [the] people issues, particularly around leadership and maturity, are the two biggest hurdles to overcome."

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