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Strong overseas demand for Australia coal deprives local utilities of fuel

[SYDNEY] Strong Asian demand for coal from Australia is depriving domestic power generators of fuel and driving electricity prices higher, energy providers and mining sources said.

Local power companies are typically unable or unwilling to match the price premiums some Australian coal has been fetching in Asian markets, where less-polluting high energy, low emissions (Hele) plants are being introduced at a rapid rate, said three coal mining sources.

Australian Newcastle thermal coal cargo prices , a benchmark for Asia, have jumped by more than 20 percent since July to over US$100 per tonne on strong demand from overseas buyers.

The shortage in one of the world's top producers of the commodity comes as the nation battles to avoid blackouts that have become more frequent following a decade of uncertainty over carbon policy.

The shortfall in coal is most acute in New South Wales, the nation's most populous state, according to the Australian Energy Council, which represents power suppliers that generate most of the country's electricity.

"Many ... generators would like to run flat out (at their maximum rate), but they can't because they don't have enough fuel," said Matthew Warren, the council's chief executive.

"This rationing of fuel creates scarcity which has pushed up wholesale (electricity) prices."

Coal supplies in New South Wales are constrained as around 80 per cent of the state's output is already contracted for export, according to Mr Warren.

Domestic coal buyers are also reluctant to enter into long-term 'take or pay' supply contracts, expecting more coal-fired plants to be phased out by a national push toward renewable energy sources over coal.

Under such contracts, buyers must take delivery of a set amount of coal or pay a penalty.

"We just don't see new development of coal as economically rational, even before factoring in a carbon cost," Andy Vesey, chief executive of Australia's biggest power producer, AGL Energy, said this week.

AGL faces government pressure to sell rather than close one of its coal-fired plants to help keep the lights on in a market short on stable power supplies.

In contrast, Japan, Australia's largest overseas thermal coal market, taking more than a third of all exports, has plans for an additional 45 coal plants.

Data from the Department of Industry shows Australia is forecast to produce around 251 million tonnes of thermal coal this year and export 201 million tonnes.

Coal exports through the Port of Newcastle jumped to 14.2 million tonnes in July from 12.3 million tonnes in June, port figures showed.