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Interview

Thai miner Banpu ends new coal development in green shift: CEO

Somruedee says company aims to have cleaner energy account for half of profit by 2025

Banpu has ceased mining for coal in Thailand after its reserves ran dry. All coal mining is now done in Indonesia and Australia. (Photo courtesy of Banpu) 

BANGKOK -- Thailand's biggest coal producer, Banpu, will no longer start any new coal developments as the company pivots toward green energy, company CEO Somruedee Chaimongkol said in an interview.

"We will only produce from our organic reserve that we have," said Somruedee. "We have no plan to invest more in the coal mine assets."

Banpu will instead shift resources toward natural gas and renewable energy. The plan is to have low-carbon green businesses contribute more than half of overall income by 2025.

The shift away from coal comes as the fossil fuel faces a global backlash from industry and investors seeking to cut carbon dioxide emissions. Coal is often cited as one of the world's worst polluters, with the U.N. saying its transportation, storage and usage accounts for about 40% of greenhouse gas emissions. 

Banpu, which operates mines in Indonesia and Australia, sold 38.8 million tons of coal last year, making it one of the largest producers in Southeast Asia. But the volume is just a fraction of the global leader, Coal India, which provided 600 million tons a year.

Banpu CEO Somruedee Chaimongkol is bullish on the company's pivot to low-carbon businesses. (Photo courtesy of Banpu)

Of the $2.2 billion in revenue Banpu earned in 2020, the coal business accounted for about 80%. The company's capital spending totaled roughly $2 billion between 2016 and 2020. Somruedee did not disclose how much Banpu will invest in natural gas and renewables over the next five years.

Big-name miners have drastically reduced their footprint in coal. Among the Anglo-Australian contingent, Rio Tinto completely exited from coal mines while BHP Group is selling off its stake in a thermal coal project.

Philippine conglomerate Ayala says it will eliminate coal-fired power generation from its portfolio by the end of the decade. But compared to their Western peers, Southeast Asian coal mining companies do not seem so eager to let go of coal operations, making Banpu's announcement significant.

At the same time, Somruedee stressed that Banpu has no plans to completely exit coal due to the strong demand in the Asia Pacific region.

"We don't exit because we have responsibilities to our customers," she said.

Banpu exports coal to other Asian countries as well. Because Banpu will only produce coal from existing reserves, which will deplete every year, Somruedee projects that the share of green businesses in the portfolio will steadily climb.

Based on a five-year plan crafted in March, Banpu plans to have green businesses make up more than 50% of total earnings before interest, taxes, depreciation, and amortization by 2025. Last year, coal made up 60% of the EBITDA while natural gas and renewable energy contributed to 35% combined.

By 2025, the share of coal will decline to about 40% of EBITDA, said Somruedee. Natural gas would meanwhile boost its share of the income to between 20% and 25% while renewables would account for another 15% to 20%, she added.

Gas-fired power plants would contribute 10% while energy technology, a category that includes power-storage batteries, would be at 5%. Since gas-fired plants cause less greenhouse emissions than coal plants, that would square the 50%-plus goal for green businesses.

Banpu sees the U.S. natural gas business as a segment that can offset coal. Starting with a 2016 investment into a shale gas venture, the company has accumulated interests in natural gas projects to the tune of over $1 billion.

Although natural gas accounted for only 5% of revenue in 2020, the segment contributed 10% to the EBITDA that year, demonstrating that gas has a higher profit margin than coal.

In the U.S., President Joe Biden's administration pledged to attain net-zero greenhouse gas emissions by 2050. Somruedee expects some impact to the U.S. gas business, but predicts that the effect will be minimal due to the persistent demand.

"I believe that the U.S. will still need to continue using gas," she said.

Banpu looks to participate not just in gas production in the U.S., but also in distribution and power production as well.

"We will look at the opportunities to grow the portfolio on the gas business in the U.S., which can be upstream, midstream and downstream," she said.

The private-sector corporation was founded in 1983 to carry out a coal mining operation at Banpu Mine in northern Thailand as a government contractor. Banpu has ceased mining for coal in Thailand after reserves ran dry. All coal mining is now done in Indonesia and Australia.

Banpu's renewable energy business mostly entails solar farms in China and Japan. The earnings from both countries' operations only amounted to around $27 million last year. The company plans accelerate its shift into this sector by purchasing more renewable power plants already in operation.

In June, Banpu spent about $75 million acquiring an Australian solar farm, lifting the total output capacity of the renewables business to 1.07 gigawatts. The company plans to raise the green energy electricity output -- which includes gas-powered power plants -- to 6.1 GW by 2025.

Somruedee said Banpu is looking at acquisitions in green energy "because we can invest and we can get cash flow immediately and a lot of opportunities are available."

There is little time to waste as investors and financial institutions have taken a less forgiving stance toward coal businesses in the wake of the global decarbonization trend.

"We realize that the banks also go for [sustainability] and ESG as well," said Somruedee, using the acronym for environmental, social, and governance metrics. She added that Banpu will apply funds raised from lenders and the market toward green businesses while coal operating expenses will be self-funded.

However, many market watchers do not believe that Banpu is going fast enough.

In April, Banpu decided to invest about $80 million in the Nakoso integrated coal gasification combined cycle plant operated in part by the Mitsubishi group in Japan's Fukushima Prefecture. Because the state-of-the-art plant reduces greenhouse gas emissions, Banpu considers it a green business.   

But last month, Group of Seven leaders agreed to end new government support of overseas coal power projects by the end of the year, throwing cold water on high-efficiency coal plants as well.

Even if Banpu attains its 2025 targets, "their coal business is huge," said Athaporn Arayasantiparb, managing director of Thai analytics company MCorp Review.

"Coal is still profitable, but those earnings won't be as appreciated by investors," Athaporn added. "There are many competitors in the green space."

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