THE South Korean Government has put a question mark under the strategic case for its controversial Bylong coal mine proposal with new plans to significantly cut coal-fired power use over the next two decades because of serious air pollution concerns and to reduce carbon emissions.
A draft energy plan released last week lifts the renewable energy target from 20 per cent in 2030 to 35 per cent by 2040, up from the current 8 per cent, raising more questions about the viability of the Bylong proposal as the NSW Independent Planning Commission prepares to make a final decision on the mine.
The draft plan was released only weeks after South Korean Government majority-owned mine company KEPCO, which has already spent $700 million on the project between Denman and Mudgee, dismissed questions about its viability based on being in a better position to judge its "strategic importance" than Australian critics.
The release came as South Korea raised imported thermal coal tax by an additional 28 per cent from April 1, putting even further pressure on the Bylong mine's economic viability. KEPCO proposes to produce an average 3.9 million tonnes of thermal coal per year over 25 years for South Korean domestic use.
A KEPCO spokesperson continued to defend the project on Monday, saying the draft energy policy "does not envisage a complete move away from coal" and "there is a requirement till at least 2040".
"Therefore the Bylong coal project will play an important role in meeting the demand for high energy and low-emitting quality coal for the next 25 years," the spokesperson said.
NSW Minerals Council chief executive Stephen Galilee said countries like South Korea were deploying more renewable energy "while also relying on modern high efficiency low emission power stations to meet their energy needs, providing a strong outlook for NSW coal exports for decades".
But an Institute for Energy Economics and Financial Analysis (IEEFA) report said the Bylong project "makes no sense for the South Korean Government" which is "now clearly planning a more ambitious move away from thermal coal-based power generation in the long term than it had indicated previously".
Report authors Simon Nicholas and Tim Buckley said the Bylong mine's 25-year life was beyond the South Korean Government's long term energy planning outlook and approving a new thermal coal mine made no sense for the NSW Government.
"It will lead to further long-term oversupply, contributing to depressed prices and reduced royalty income," the IEEFA report said.
South Korea is one of NSW's biggest thermal coal export destinations. In 2018 NSW exported 64.5 million tonnes of coal to Japan, 28.2 million tonnes to China, 18.1 million tonnes to Taiwan and 18 million tonnes to South Korea.
A 2017 International Energy Agency report that predicted South Korean coal imports would collapse by nearly 50 per cent by 2040 predicted the impact of recent government moves.
Tightening of the South Korean market was even more significant for the NSW Government because the other big three destinations were also importing less coal, the IEEFA report said.
The Australian Government's Office of the Chief Economist forecasts Japan's thermal coal imports will decline at an average 1.1 per cent per year to 2024, as the country retires old coal plants and replaces them with new power stations that use less coal.
The Office of the Chief Economist forecasts China's imports will drop at an annual rate of 5.2 per cent to 2024 after a 20 per cent jump in 2018. The forecast is based on China increasing its renewable energy target from 20 to 35 per cent by 2030, in part because of air pollution concerns.
NSW thermal coal exports to Taiwan in 2018 were 3.7 per cent lower than 2017 and almost 14 per cent lower than peak exports in 2016.
"After project cancellations Taiwan no longer has any new coal-fired power plants in development," the IEEFA report said.
"Although there will be some growth in thermal coal demand from some smaller Asian economies such as Vietnam and the Philippines, this will not be enough to make up for the decline in demand from the big four export destinations."
The fifth biggest export destination for NSW thermal coal, in Malaysia, makes up only 3.6 per cent of NSW total exports.
"With all the main exporters within the Asian seaborne thermal coal market expected to be looking to replace lost export destinations, the market seems set to enter a period of oversupply and reduced prices and royalties unless rational steps are taken," IEEFA said.
"For the NSW government such rational steps should include the cessation of new thermal coal mine approvals."
In 2017 the Australian Government's agency for export finance said South Korea's new energy policy was good for Australian natural gas but not for coal.
"Coal and nuclear energy make up 70 per cent of Korea's electricity capacity, while gas and renewables account for 26 per cent," the agency said.
"Under the new government policy the share of coal and nuclear will likely fall to 45 per cent of generation, with gas and renewables making up closer to 50 per cent by 2030."
In a submission to the Independent Planning Commission in January KEPCO noted the NSW Department of Planning had previously confirmed the financial viability of a project was "a risk assumed by the project owners".