Menacing MinersPublished by MAC on 2011-02-21
There's a growing consensus that a strong link exists between some recent environmental disasters- specifically floods and a cyclone in northeastern Australia - and the growing burden of greenhouse gas emissions. See: As storm cloud breaks, London Calling gets Biblical
This has translated into pressures on mining companies, by lawyers and insurers who urge them to "factor" climate change risks into their mine designs and contracts.
Well and good, you might think. This could lead - albeit indirectly- to a more realistic price being fixed for coal, thus curbing consumers' enthusiasm for buying this cheapest of fossil fuels.
But there's the rub.
Through their mining of coal, some of the very companies "menaced" by storms and cyclones - such as BHP Billiton and Rio Tinto - are responsible for causing adverse climate change in the first place.
If a re-occurrence of recent disasters, and a reduction in their related social and environmental costs, is to be averted, then coal mining itself must be drastically curtailed.
Anything less is merely palliative.
[Comment by Nostromo Research 20 February 2011]
Wild Weather Could Push Miners To Reassess Contracts, Risks
By James Regan and David Fogarty
9 February 2011
A surge in weather-related disasters in Australia could push global mining firms to overhaul supply contracts and rethink how bad weather will affect their operations and customers worldwide.
Climate scientists say a warmer world will cause greater extremes of weather and some scientists have pointed to climate change as factors in some of the weather disasters in Australia.
Miners needed to better assess the threats from floods, storms and droughts and include weather data and risks in mine management and commodity contracts, said Robert Milbourne, a mining and resources lawyer for global law firm Norton Rose.
"Contracts must now more accurately address the consequences of weather variability and non-delivery due to weather," Milbourne, a former senior counsel for Brazilian miner Vale, told Reuters.
"Traditionally, severe weather disruptions would be deemed beyond the reasonable expectation of either party. If severe weather events gradually become more foreseeable due to meteorological forecasting capacity, then that forecasting (and planning) capacity will need to be reflected in transactions," he said.
A series of floods, drought and cyclones has badly disrupted mining in Australia, particularly in Queensland state, where coking coal miners have been hit by severe floods twice in three years.
The latest floods along Australia's east coast, which began late last year, have led to 16 coal mines in Queensland covering total annual capacity of 94.3 million tonnes declaring full or partial force majeure.
Force majeure is a legal let-out that enables miners to break or suspend sales contracts without penalty.
Australia is a leading coking coal producer and Queensland produces 90 percent of the nation's coking coal from miners including Anglo American, Rio Tinto and BHP.
Eastern Australia's devastating floods would hit production at BHP's coal mining operations for at least six more months, the world's biggest miner said after output in Queensland fell by nearly a third in the last quarter.
Flood damage to mines and transport infrastructure will cost the Queensland government A$2.9 million a day in lost coal royalties for the rest of the financial year, which runs until June 30, a study by the Queensland Resources Council showed.
Droughts and cyclones can also be extremely disruptive, with iron ore mines in the northwest of Western Australia state vulnerable to powerful cyclones.
"The sequence and intensity of flooding and cyclones (in Queensland) has actually been down since the 1980s, so historically speaking they have had a pretty good run," said Queensland Resources Council spokesman Jim Devine.
But mining firms would not want to elaborate on risk management. "That is something that would be very commercially sensitive and not something mining companies would contemplate discussing in earshot of each other," he said.
BHP Billiton declined to comment on the likelihood of changes to its risk assessment strategy. When asked about risks from more intense cyclones in Western Australia, iron ore major Fortescue Metals Group said:
"Risk mitigation is already included in the planning, design and construction of Fortescue's operations and infrastructure due to weather events commonly experienced in the Pilbara," in a reference to a major iron ore region in the state. But it had not quantified the costs of risk mitigation, it added.
Pricing in Risk
Milbourne said weather risk needed to be a much more central component of contract negotiations and such risks could also begin to be priced into the value of mine assets, such as the cost of operating mines in disaster-prone areas.
"I think commodity contracts such as coking coal will now have to expressly look much more seriously at force majeure and delay as fundamental commercial terms," said Milbourne, who is based in Queensland's capital Brisbane.
Reinsurers Munich Re say weather related disasters have tripled in Australia over the past 30 years.
"We're at the mercy of the environment and many stakeholders haven't fully analyzed that variability before," Milbourne said, adding he believed there was going to be a premium on getting accurate meteorological data.
Martijn Wilder, head of Baker & McKenzie's global environmental markets practice, agreed.
"We haven't seen a dedicated focus on making sure that force majeure events in contracts reflect what are catastrophic climate events," he told Reuters from Sydney.
Predictions of what were seen as extreme one-in-100 year events were becoming more frequent, he said.
"Insurance companies like IAG and Swiss Re have continuously made this point and yet a lot of neither industry nor government have taken real steps to mitigate against such events."
But he thought the floods and last week's powerful Cyclone Yasi that struck northern Queensland might bring change.
"The rawness of the cost of such events and the ever-growing loss of infrastructure, livelihood and life, means there is a greater chance than ever that companies will really start to look at this," he said.
Superannuation funds also needed to take climate catastrophes into greater account when investing, he added.
"It's also an issue for those who invest in companies. If you're an investor in a mining company in an area that is susceptible to cyclones, should you start thinking about how this affects that company?"
(Editing by Clarence Fernandez)
Stronger Cyclones To Menace Miners, Crops In Warmer World
By David Fogarty
11 February 2011
Witnesses to Cyclone Yasi's destructive tear across northeastern Australia described it as a monster for its size and ferocity. It was also an omen.
Climate scientists say global warming is heating up the world's oceans and atmosphere, providing more fuel for tropical cyclones and creating ever greater risks for crops, miners and billion-dollar beachfronts.
The risks from stronger storms flow right through the heart of the global economy, affecting food security and inflation, iron ore and coal production and higher insurance losses.
Particularly vulnerable are Asia's booming coastal megacities from Manila to Karachi, large areas of the U.S. Gulf and east coast, Australia's iron-ore and northern coal mines and tropical Asia's rice-growing river deltas.
Insurers say unrelenting development along coastlines is placing more homes, businesses and infrastructure in the path of destruction that will drive up insurance losses.
United Nations data says 231 million people lived in cities in Asia in 1950. By 2050, that figure is forecast to grow to more than 3 billion.
Climate change and stronger storms are also a growing threat to Asia's rice crop.
Asia grows 90 percent of the world's rice and the International Rice Research Institute in the Philippines estimates an additional 8 to 10 million tonnes of rice needs to be produced each year, meaning disruption from droughts, floods and storms can hurt supplies and cause price spikes.
Munich Re said there were 950 natural catastrophes recorded last year, 90 percent of which were weather-related events such as storms and floods, making it the year with the second-highest number of natural catastrophes since 1980.
A major climate study in 2010 based on the results of a range of computer models concluded there was likely to be a substantial increase in the number of storms in the severe category range of 3 to 5, with 5 being the maximum.
Overall, storms would be between 2 and 11 percent more intense by 2100 and rainfall would increase about 20 percent near the center, it predicted.
The study also found that, with the exception of the Atlantic, there might be a drop in the number of storms in the Pacific and around Australia, but the storms that did form would tend to be more dangerous.
"Since the early 1990s, we have seen a significant increase in the number of hurricanes in the Atlantic," said Peter Hoeppe of reinsurer Munich Re, pointing to a natural cycle in which hurricane numbers vary over several decades.
"We think now we have a mixture of two phenomena, one is the natural oscillation and the other is the steady increase in sea surface temperatures due to global warming. And this adds up to increased risks," said Hoeppe, head of Geo Risk Research and Munich Re's Climate Center.
Hurricane Katrina, Rita and Wilma in 2005 highlighted that risk, as did Hurricane Andrew that struck Florida in 1992. According to the U.S. National Hurricane Center, Katrina killed 1,500 people and caused $81 billion in damage while Andrew caused $26.5 billion in losses, not adjusted for inflation.
In Asia, there was a danger in assuming nothing needs to be done if storm numbers don't increase, said climate scientist Johnny Chan, one of the authors of the 2010 review.
"It is a grim picture. Even if the number of storms is not increasing, the amount of rain that comes out of these storms is increasing," said Chan, director of the Guy Carpenter Asia-Pacific Climate Impact Center at City University of Hong Kong.
Fellow climate scientist John McBride said there was little doubt storms would become stronger as seas warm. Oceans soak up much of the excess heat and carbon dioxide caused by burning fossil fuels and the oceans have already warmed on average about 0.5 degrees Celsius.
"You should expect a shift toward more intense cyclones. That's coming across as a stronger prediction," said McBride, of the Center for Australian Weather and Climate Research.
In 2009, typhoons Ketsana and Parma caused damage and losses to crops, property and infrastructure of $4.4 billion in the Philippines, or 2.7 percent of gross domestic product, the World Bank says. For the year, storms led to the loss of 1.3 million tonnes of rice paddy, forcing the country to import.
A year later, Typhoon Megi, a maximum category 5 storm, killed 26 people in the Philippines and caused rice crop losses of more than 520,000 tonnes.
Tropical Asia's vast river deltas are also at risk from flooding and powerful storm surges from cyclones.
Cyclone Nargis, which ripped through the Irrawaddy Delta in Myanmar in 2008, killed or left missing 140,000 people and triggered a 2.5 meter (8 ft) storm surge that inundated much of the delta, wiping out a third of the rice crop.
Reiner Wassmann, IRRI's co-ordinator of climate change research, said new varieties of rice that were flood and saltwater tolerant would help reduce losses from storms. Faster-growing varieties could also help farmers avoid the typhoon season.
Australia's A$2 billion sugarcane crop is particularly vulnerable to more powerful storms. Floods over the past several months caused losses of A$500 million, said Steve Greenwood, chief executive of Queensland's Canegrowers Association.
Cyclone Yasi, a large category 5 storm, caused further losses of up to a quarter of the remaining crop.
But Greenwood said while there was little farmers could do faced with 250 km/h (156 mph) winds that smash cane stems, new varieties could at least reduce losses from flooding.
Hoeppe of Munich Re expected insurance losses to rise, in part because of greater risks to mines, such as Australia's storm-prone northern open-pit iron ore and coal mines that are central to global steel production.
Australia is the world's top iron ore exporter and also a top thermal and coking coal producer.
Climate change was already prompting major miners to re-assess the weather risks to their operations and existing designs of infrastructure, such as road, rail and port links and holding capacity of tailings dams, analysts say.
The key to existing strict building codes is the assessment of the return period of extreme weather events. That assessment is now being challenged. Munich Re says weather related natural catastrophes have tripled in the past 30 years in Australia.
"I think what people are still coming to grips with is how the traditional civil engineering design guidelines around return periods. Those are going to change," said Peter Lilly, a senior minerals and energy strategist at Curtin University in Perth, Western Australia.
"The historical 1 in 100, 1 in 200 and 1 in 500 years events are going to change. The traditional design criteria are going to have to change," he said.
(Additional reporting by James Regan, Rebekah Kebede and Bruce Hextall in Australia; Editing by Alex Richardson)