Stranded assets

Source: Lazard
My estimate for a grid 50/50 wind/solar (green line)

For a few years now, analysts have been warning those involved in coal, either as miners or as operators of coal fired-power stations, that the rapid cost declines in wind, solar and batteries would led to coal assets becoming worthless, long before the debt raised to buy them was repaid.  What is happening with BHP's [Australia's largest mining house] as it attempts to offload its coal interests is a good example.

When you’re in the business of buying and selling, timing is everything. That’s the costly lesson facing BHP Group, which is looking at options to divest its thermal coal assets according to a report by Thomas Biesheuvel of Bloomberg that cited people familiar with the matter.

Arch-rival Rio Tinto Group raised $2.7bn selling mines in the Hunter Valley north of Sydney to Yancoal Australia Ltd., in a process that started in 2016. BHP could get far less: Macquarie Group Ltd. estimates $1.6bn. That’s despite the fact that BHP’s Mount Arthur and Cerrejon mines, in the Hunter Valley and Colombia, post roughly the same Ebitda as the ones Rio Tinto sold.

What’s changed? More or less everything.

Back in 2016, coal was still the lowest-cost way of delivering new generation in most major markets. The slumping price of wind and solar generation since then has changed the game. Thermal coal will fall to 11% of U.S. generation by 2030 from the mid-20s at present, S&P Global Ratings wrote in a report; outside of Spain and Germany, most European coal-fired plants will be retired by 2025.

North Asian markets supplied by Mount Arthur look like an exception, with Japan, South Korea and China making up about 80% of Australia’s thermal coal exports. The first two countries are rare cases where falling renewables costs have failed to undercut the black stuff.

Even there, though, the picture is dimming: Japan’s coal-fired capacity will go into decline starting 2023, and actual demand should fall faster since its most recent plants use fuel more efficiently, according to a report this week by the Institute for Energy Economics and Financial Analysis, a research group opposed to fossil fuels. South Korea now has taxes on coal amounting to $60 a ton and imports will fall by half by 2040, according to the IEA.

[From IEEFA]

Something similar is going to happen with oil and eventually with gas, too.  As sales of EVs grow, oil demand will decline, and only low-cost oil producers will remain profitable.  In the USA, we've already seen how plunging coal demand and prices has led to bankruptcies.  This trend is likely to extend world wide.