The economic case

for an alternative use of

Carrington Coal Terminal

Dr Cameron K. Murray
October 2019 The economic case for an alternative use of Carrington Coal Terminal
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Cover image credit: Tim Starling
Summary
Port of Newcastle’s (PoN) Terminal 1 (T1), also known as Carrington Coal Terminal (CCT), is a coal
loading terminal on the southern bank of the South Channel of the Hunter River, adjacent to the suburbs
of Newcastle (shown in Figure 1 below).

Figure 1: Map of Carrington and Kooragang coal terminals

CCT comprises storage, blending operations, and loading berths (Dyke 4 and 5 berths). It is leased from
PoN by shipping services provider Port Waratah Coal Services (PWCS) until 2024. On the northern side
of the channel, the Kooragang Precinct hosts two other coal loading facilities: Kooragang Coal Terminal
(KCT), also operated by PWCS, and the Terminal 3 facility operated by Newcastle Coal Infrastructure
Group (NCIG).
The proximity of CCT to Newcastle neighbourhoods generates local negative externalities. For example,
coal dust from stockpiling and rail movements to CCT through Newcastle suburbs affects local residents
and businesses.1 Though the PoN coal operations and the city of Newcastle have co-evolved for many

1 Such as Rogers et. al. (2013). Coal Dust in Our Suburbs. Coal Terminal Action Group, and https://www.chiefscientist.nsw.gov.au/__data/assets/

pdf_file/0008/89864/160805-FINAL-Coal-Dust-Report.pdf

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decades, this does not negate the reality that the costs of these externalities grow as the city grows and
densifies.
Ceasing coal loading operations at CCT and using the site for alternative activities is inevitable. Declining
global coal trade and throughput at PoN will make operating the smaller CCT less economically
attractive, while making alternative uses that contribute to the long-term diversification of PoN much
more attractive.
The question, therefore, is when to consolidate coal loading in the Kooragang Precinct? The answer
proposed here is 2024, when PWCS’s current lease at CCT expires.
This approach capitalises on existing planning timeframes for both PWCS and PoN and will provide
additional space to support PoN’s diversification efforts, with various alternative uses of the site possible
(though with some requiring regulatory changes).

Long-term outlook
Following the boom period of global coal prices from 2008-2013, expansion plans for coal mining and
export were made around the world. However, the outlook since that time has changed substantially.
For example, coal production in the United States peaked in 2008 and has since fallen 34%. U.S. coal
export volumes peaked in 2012 and are down a similar amount.2 Global coal output peaked in 2013 and
is yet to regain those levels.3
Expectations of rapidly expanding coal throughput triggered expansion plans by PWCS in 2011 to
increase coal loading capacity by over 120 million tonnes per year at PoN’s planned Terminal 4. The
changing coal market since that time led to the plans being later downgraded to an expansion capacity
of 70 million tonnes, and ultimately to being scrapped entirely in 2018.4
Although there was a large step-change in coal throughput at PoN from 2009-14, reaching a peak of 159
million tonnes in 2014, coal exports have since stabilised and are yet to again reach that peak level.5
There are no obvious reasons that Australia will avoid the global trends of declining coal output as
energy production methods transition, thereby stabilising, or reducing, coal demand.
This trend is especially important at PoN as coal comprises 97% of materials (by weight) handled at
the port. To deal with these coal trends PoN has in place a master plan that envisages an “ambitious
diversification strategy” over the next twenty years, which includes plans to create a Newcastle Container
Port and diversify landside activities.

2 https://www.eia.gov/coal/annual/

3 https://yearbook.enerdata.net/coal-lignite/coal-production-data.html

4 https://www.pwcs.com.au/news/latest-news/port-waratah-terminal-4-announcement/ https://www.pwcs.com.au/terminal-4/story-of-the-terminal-

4-site/

5 https://www.portofnewcastle.com.au/General/Trade-Reports.aspx

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Port Waratah Coal Services lease
PWCS and PoN face a key decision in 2024 about whether to continue the lease at CCT, and, if so, the
conditions of that lease. This decision will be made in much different economic circumstances than
those that prevailed when PWCS made plans to expand T4 in 2011 and when they made the decision to
replace the two CCT coal loaders in 2014.6

Figure 2: PWCS economic summary data7

Trends in key operational metrics from PWCS are shown in Figure 2. The top left panel shows the total
coal loaded annually, which peaked in 2014 at 112 million tonnes. This was below the licensed capacity
of KCT alone of 120 million tonnes per annum, indicating that consolidation of operations would fit
within KCT’s licensed capacity. The price per tonne charged peaked a little earlier, in 2012, at $4.5 per
tonne, and is now $2.4 per tonne (top right panel of Figure 1). This has meant that revenue from coal
operations fell from a peak of $480 million in 2012, to around $260 million in 2019 (bottom left panel).
According to the available annual reports, the total lease payments by PWCS, for CCT and KCT combined,

6 https://www.pwcs.com.au/projects/carrington-shiploader-replacement/

7 https://www.pwcs.com.au/what-we-do/operating-statistics/ and https://www.pwcs.com.au/who-we-are/annual-reports/

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have increased 70% from 2012, up from $5.6 million to $9.5 million per year. If the lease costs are
roughly proportional to coal loading at each facility, the lease cost of CCT alone is estimated to be around
$1.3 million per year.
To provide a reference point for that figure, total PoN total trade revenue was reported to be $110
million in 2018, with a $46 million operating profit.8 The CCT lease revenues are therefore estimated to
be around 1% of PoN’s total revenue.
Together these figures suggest that soft global coal market trends are being felt by port coal handling
companies like PWCS who have passed a peak in both operational scale and revenue, as well as coal
port owners like PoN. These trends are changing the economic incentives from coal capacity expansion
towards consolidation, in the process making marginal facilities less viable. Being a small terminal at
a port with larger alternative coal loading facilities, CCT may in future be one example of a marginally
viable facility.
The effect on PoN’s revenue from not renewing the CCT lease in 2024, assuming that this does not affect
total coal throughput, which is then all handled at Kooragang, will be the lease payments that are in the
order of $1-2 million per year.

The case for consolidation

Total PoN coal facilities and their capacity are summarised in Table 1, showing that the
capacity of CCT represents 7% of PoN’s total coal capacity, while PWCS operational reports
show that CCT represents 14% of their total coal handling activity in the year to August 2019.9

Operator Berths Shiploaders Design Throughput (TPH)

Carrington PWCS 4&5 2 2,500

PWCS 4, 5, 6 & 7 3 Each - 10,500

Kooragang
NCIG 8, 9 & 10 2 10,500

Table 1: Coal loading facilities at PoN

As shown earlier in Figure 1, PWCS has a licensed capacity of 120 million tonnes per annum at KCT,
and an additional 25 million tonnes per annum at CCT. The peak combined coal exports were just 111
million tonnes in 2014, 9% short of KCT’s capacity, and 21% short of total licensed capacity.
If trends observed in the U.S. of a 30% decline in coal exports over a decade replicate in Australia,, then
PWCS are likely to see their excess capacity grow substantially through to 2028. During this transition
there will likely be a point where the cost efficiency gains from consolidation of coal loading at KCT
justify any transitional costs.

8 https://www.portofnewcastle.com.au/Resources/Documents/Trade-Report-2018.pdf

9 https://www.portofnewcastle.com.au/Shipping-and-Operations/Berth-Information.aspx

https://www.pwcs.com.au/what-we-do/operating-statistics/

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It may be the case that immediate consolidation of PWCS coal loading activities at Kooragang would
not be able to maintain the current level of coal throughput even though KCT has a licensed capacity
in excess of total PWCS coal throughput. Efficiency gains from the parallel operation of KCT and CCT in
terms of rail capacity, stockpiling and blending, and loading are factors that may prevent this. However,
as excess capacity grows, these constraints will diminish rapidly as the 2024 lease renewal approaches.

A precedent for consolidation

In 2010 a decision was made10 to cease coal exports from Gladstone Port Corporation’s (GPC) Barney
Point Terminal (BPT) and consolidate coal loading at Wiggins Island Coal Export Terminal (WICET).
This decision was partly driven by community concern about noise and coal dust pollution, combined
with the availability of alternative coal terminal capacity.11 In 2016 the last coal was loaded at BPT, and
in 2018 the terminal began operating as a clean dry bulk / break bulk, and general cargo terminal. This
precedent shows how ports can improve efficiency through consolidation of coal handling, while at the
same time diversifying their operations and reducing local pollution.

Scope for alternative uses

PoN plans to rapidly diversify the activities of the port by 2040. A key consideration during this process
is how best to take advantage of the port’s endowment of land, channels, and berths to optimise the
value of PoN resources. One of the unique advantages of PoN is their excess land and berth capacity, as
noted in the 2040 Master Plan (p.32):
In contrast, PON has vacant portside land accessible by deepwater channel. This means greater
efficiencies in land use, lower costs for consumers and lower environmental impacts can be achieved.
Much of this vacant land is adjacent to the coal stockpile at CCT. This means that although land is not in
short supply for port diversification, adding CCT and its coal stockpile location provides an enormous
piece of land for repurposing. This possibility does not seem to have been considered by PoN, who
illustrate the continued coal stockpiling at CCT in their 2040 master plan (see Figure 3).
Much of the land adjacent to CCT is envisioned to form the Newcastle Container Terminal, the main
diversification option being pursued by PoN, and subject to regulatory changes. Including the CCT land
in this redesign will allow for additional ‘buffer uses’ of the land, many of which may be of significantly
higher value than current uses.

10 https://www.accc.gov.au/media-release/accc-draft-decision-to-allow-arrangements-to-close-problem-coal-terminal-at-gladstone

11 https://www.accc.gov.au/system/files/public-registers/documents/D10%2B59173.pdf

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Figure 3: Port of Newcastle illustration from Port Master Plan 2040
A recent community survey found that there is a strong local desire for such uses, with public
space uses dominating survey responses about reuse of the CCT site (Table 2). However,
industrial and port-related services are also in the mix. Of most interest are the potential
opportunities for sport and tourism uses, which capitalise on locational benefits. Field
sports could certainly provide a unique ‘buffer use’ in areas adjacent to Industrial Drive.

Table 2: Community survey responses regarding favourable alternative uses of CCT land12

Category of Use Use Number of favourable responses

Parkland/ open space 77
Trees 4
Public space Dog park 3
Community space 2
Bike paths 1
Residential 23
Affordable housing 6
Residential uses
University accommodation 2
Mixed 1
Light industrial 9
Industrial/Port Container port 5
related Cruise terminal 3
Clean industry 1
Solar/renewables generation 31
Tourism 1
Other uses
V8 Supercars 1
Sport 1

12 Data supplied by Tighes Hill Community Group, Newcastle.

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A limiting factor for reuse of CCT is the State Environmental Planning Policy (Three Ports) 2013
legislation, which outlines allowable uses for the PoN land, including the CCT. This area has a Zone
SP1 - Special Activities designation that has permitted and prohibited uses as follows:
3   Permitted with consent

Capital dredging; Environmental facilities; Environmental protection works; Maintenance dredging;

Navigation and emergency response facilities; Neighbourhood shops; Port facilities; Wharf or
boating facilities; Any other development not specified in item 2 or 4
4   Prohibited
Artisan food and drink industries; Business premises; Caravan parks; Cemeteries; Centre-based
child care facilities; Crematoria; Educational establishments; Entertainment facilities; Function
centres; Funeral homes; Garden centres; Hardware and building supplies; Medical centres; Office
premises; Places of public worship; Recreation facilities (indoor); Registered clubs; Residential
accommodation; Respite day care centres; Restricted premises; Shops; Specialised retail premises;
Tourist and visitor accommodation; Vehicle sales or hire premises
These provisions limit the potential reuse of CCT without regulatory changes. However, it is clear from
PoN’s plans to pursue a Newcastle Container Terminal that it is willing to seek regulatory changes to
achieve its diversification strategy. An expanded container terminal at PoN is currently economically
unviable because of the Port Commitment Deeds (PCDs) which formed part of the NSW government
port privatisation provision.13 These outline penalties payable by PoN to Port Botany and Port Kembla
for exceeding a container volume threshold.14 PoN has vigorously pursued legislative amendments to
this requirement in order to diversify, and there is no reason it cannot also seek legislative changes to
allow higher value alternative uses of CCT land.
It would be expected that the unique case of surplus land at PoN would also make pursuing many of
the currently prohibited uses viable and appropriate, without compromising port expansion and
diversification aims. Many of these would meet community desires and be supported by local groups.

The simplified economic case

The case is simple. The economic benefits of CCT to both PoN and PWCS will decline each year as
coal throughput declines, while the economic benefits from alternative uses and consolidation of coal
operations will grow.
The value to local residents from alternative uses that produce positive rather than negative externalities
will grow as Newcastle grows and densifies. These alternatives can improve the diversification of
revenue sources for PoN while providing low-impact buffers to residential areas: a benefit to both the
port and the local community.

13 https://www.parliament.nsw.gov.au/lcdocs/inquiries/2516/Final%20version%20of%20report%20-%2025%20February%202019.pdf

14 Set at 30,000 TEUs (twenty-foot equivalent units) as at June 2013 escalated at the higher of 6% pa or the growth rate of container throughput at Port

Botany (‘excess’).

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