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Coal prices have exploded following sanctions against Russia.

The life of BHP’s Mt Arthur mine may be cut short after the NSW Government announcement that coal producers must reserve 10 per cent of their output for domestic use.

The major miner currently holds a permit to extract ore from Mt Arthur until 2026, but last year announced its plans to seek an extension to 2030.

However, BHP vice president of NSW energy coal Adam Lancey has said the 2030 plan could not be guaranteed if the State Government compelled BHP to sell 1.5 million tonnes a year  to domestic customers at no more than $125 a tonne.

The Mt Arthur mine, which employs about 2000 people, is the biggest coal operation in the NSW Hunter Valley.

“In light of these (NSW Government) directions, we are actively reviewing operational plans and existing commitments to understand their implications,” Lancey wrote in a note to staff, obtained by The Australian Financial Review.

“And, while I would like to avoid this scenario, the findings of this review may lead to a reassessment of our pathway to 2030 plan.

“Our primary concerns relate to the potential impacts on Mt Arthur Coal’s operations and business model, including what to do if our production costs are above the price cap.”

Other concerns noted by Lancey included “understanding potential impacts on local communities and infrastructure such as the rail network, our long-standing commercial partnerships and our ability to meet our obligations to customers, and the energy market more broadly”.

The plan to reserve coal to stay in Australia  is aimed at driving down the cost of running coal-fired power stations to tame soaring energy bills facing homes and businesses.

Earlier this month, BHP told shareholders it expected the cost of producing coal at Mt Arthur to rise to as much as $US91 a tonne ($128) – above the Federal-Government-mandated $125-per-tonne cap.

“We have written to the NSW Government to make our position clear, and I am actively engaging with Government representatives to convey our concerns in person,” Lancey said.