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Predicting ten lean years for the coal industry

Arild Olsen (left), union stewart at Store Norske, is preparing his members for the storm and ensure that the union will work for further operations. The picture is taken in Gruve 7, where he met Ted Magne Hansen, on of the workers. FOTO: Eirik Amb Nysveen

Predicting ten lean years for the coal industry

The board of directors is emphasizing it believes in Store Norske, but now there are beginning to be doubts about signing off on future mining projects. Employees are preparing for the new storm.

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31.10.2014 kl 16:10

"I am very uneasy," said Geir Hekne (H), deputy chairman of the Longyearbyen Community Council. "I'm crossing my fingers and have never hidden the fact that I am a strong supporter of coal mining in Svalbard."

Establishing a dialog
A community in turmoil will meet Prime Minister Erna Solberg (H) when she comes to Longyearbyen on Sunday. News of the serious situation at Store Norske is creating concern in Svalbard.

Svalbardposten wrote on Oct. 16 that coal prices are at least $10 a ton less than Store Norske needs to avoid operating at a loss. Prices have fallen and forecasts are showing the decline may continue. For the new Lunckefjell mine, the price is now 40 percent below what was predicted when mine was being planned.

Store Norske's board of directors met at 9 a.m. Monday at Gardermoen Airport to discuss the economy. When the parties dispersed seven hours later there was a resolution on the table that the board may enter into a dialogue with the government, employees and bankers to ensure operation in 2015.

READ MORE: Missing $ 10 per ton

Awaiting the storm
"The picture has changed," said Annette Malm Justad, the board's chairwoman, til Svalbardposten after the meeting. "The price has been declining, and it is now accelerating in connection with the fall in oil prices and raw materials."

She called the situation serious. The seriousness is also reflected in the local community. For Hekne, a recent downsizing by Store Norske is fresh in his memory. He said he believes there will be "unintended consequences for the community" if its cornerstone company and the economic engine are reduced to a minimum.

"It is with the gravest concern I am looking at the developments," he said.

Arild Olsen, a union stewart at Store Norske, said employees already see the seriousness of the situation and have already been "fighting tough" for a long period.

"It's only noting that the tough times are not over and there are going to be even tougher times to come," he said.

"As a steward there is nothing to do but to prepare my members for the storm and ensure that the union will work for further operations," he said.

In addition, employees are facing the end of a policy as of January 1 that makes it possible to commute to the mainland while working 14-days-on, 14-days-off shifts still being eligible for Svalbard's lower income tax rate.

Uncertainty for Ispallen
Coal prices during the past year been as low as nearly $71 a ton. Recent predictions suggested the price was increasing, but now that has turned around. In addition, Store Norske's production was lower due to problems in the new Lunckefjell mine. During the summer it became clear the company needed hire 30 miners for a one-year contract to extract coal from the fringe areas in Svea Nord. Therefore, there has been an increase in operating costs.

Øystein Noreng, a professor emeritus and expert on energy, said he doesn't believe it will be easier for Store Norwegian in the future.

"I think we are moving towards a surplus of energy in the world with a lot of oil and natural gas, where consumption is stagnating while supply increases," he said. "This is what you'll have for a decade. Coal prices will continue to fall."

Noreng said he's also not particularly confident there will be more coal mines.

"I'm not sure about that," he said.

Storer Norske is working toward establishing Ispallen as its next major coal mine when the Lunckefjell mine and the last remnants of Svea are emptied out in a few years.

The key
Coal prices fell sharply as cheap, Colombian coal found its way to Europe after the shale gas revolution in the United States. Now a troubled gaze is also being directed eastward after China introduced an additional tax on coal from Australia and it is questionable whether even this coal will find its way to the European market. Noreng said it will depend on shipping costs.

Store Norske is the main business enterprise in Svalbard for employees, schools and kindergartens, contractors and welfare. In addition, it ensures transport and economies of scale.

"This is not a good signal. As a community, we assume that we must come up with a plan that relates to our overall plans," said Longyearbyen Mayor Christin Kristoffersen (Ap), adding she is afraid opponents of coal will use this as an opportunity to liquidate Store Norske.

"But it's hard to see clearly what we will do without an industrial engine. To achieve the goals we have set for ourselves, we need Store Norske," said Kristoffersen, who maintains the coal company plays a key role in how Norway will succeed in the Arctic.
She said she is not feeling as certain that Ispallen will be the next mining project on Svalbard.

"If we get to Ispallen it will certainly be necessary that we are able to produce coal for industrial use," she said.

The alternative, she said, would be going directly to Bassen in Operafjellet because the distance there is shorter and operations will therefore be cheaper.

'Looking at all solutions'
"Our ambition is to continue operating in 2015 and 2016. Until a month ago, the market had expected it to improve, but now it has turned around. We will work together with the administration hard as rocks to see what opportunities are available," the chairwoman said, adding:

"This is not good news, but I think that our ambition is to ensure future operations and see what we can do in the short term."

What about Ispallen?

"There it is about looking at all solutions," Justad said. "Now we must to look at the broad term. What I am thinking about now is at least I'll help find solutions."


Translation: Mark Sabbatini

Se bildet større

"Our ambition is to continue operating in 2015 and 2016", says Chair Annette Malm Justad, here together with CEO Per Andersson in Store Norske.. FOTO: Anders Fjellestad

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