Building Character in the Coal Sector

When contemplating the challenges and unimaginable (or at least plain undesirable) difficulties that we can face from time to time, there will often be that one voice claiming it all to be ‘character building’.  Either sardonically or optimistically.

And reflecting on character building jobs brings me to the coal sector and the IPCC report.

If you are in the sector your character has probably had a thorough makeover. As much as you’ve done all the things in your power to make the best of tough circumstances, the market is the market and it hasn’t been attractive. If it would just change for the better then the future may seem a little less intensely focused on character improvements. With the forecasts pointing to more positive demand and price signals commencing next year some relief seems on the way. The apparently imminent Free Trade Agreement with China may also remove the recently announced tariffs, which is more good news (or the reversal of concerning news at least). Then the IPCC report lands to remind your character that it may still need architectural advice.

With the market downturn the coal sector swiftly moved to address the cost equation. It swiftly dealt with the big stuff (the major service contracts, take or pay arrangements) and the comparatively easy stuff (contract re-negotiations of service and materials suppliers). Resolving more complex operational performance issues, such as bottlenecks and systemic efficiency issues, followed fast on the heels. More than a few operating strategies have been changed (e.g. revisiting overburden removal models, asset management strategies) to fit the times (and will need to be rethought again). Some have seen the necessity, or taken the opportunity, to rethink their whole operating model.

We know that many continue to struggle to make all their results and changes stick, but it is clear that the sector faces the prospective upturn in a much fitter state. More performance oriented, with cost structures more capable of securing a return, and operations capable of delivering the product quality and consistency that the market will increasingly be looking for. So a fitter sector overall as it faces the future.  But with IPCC recommendations what future?

What we do know is that, despite environmental concerns, coal is expected to be an important part of the international energy equation for some time to come, especially in our region. This fact underpins the forecasts demand and price growth in the near term. The projections for availability, growth, and feasibility of alternate fuels reinforce the continued relevance of coal for some time to come.

While the headline for near to medium term performance in the sector is apparently ‘looking up’, the sensitivities in the international market abound.  The regulatory, environmental, trade relations, clean coal technology availability/investment, energy substitution and currency dimensions all represent quite material areas of uncertainty and risk. The next decade of coal industry leadership is going to face a much more complex strategic equation than simply ‘boom or bust’. The green shoots we’ll see next year will need more subtle nurturing than that. And some new capabilities to match.

Times have undoubtedly been tough. There are a lot of characters who I am sure are feeling thoroughly renovated, and who will be proud of the significant improvements they have led to make the best of these tough times. If your character resides in the coal sector, then it will be important to reflect on the positives of what you’ve achieved.

And if this character building thing has become a bit of a habit, then that is a good thing. Success in the future will hinge on a mixture of the strategy development and scenario management skills for constructing your long term perspective, the capabilities to scan and read market and technology signals to understand which scenarios may be prevailing, and making sure your lower cost operating model also has the built in flexibility to swiftly adapt to twists and turns as scenarios become clearer. Think of it as further extensions to the building work that character has been undergoing for a while.

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