South Africa benefits from Russia’s war as the world’s addiction to coal turbocharges

In Germany and Italy, coal plants that were once shut down are now being considered for a second life.

In South Africa, more coal ships are embarking on what is typically a quiet route around the Cape of Good Hope to Europe. Coal burning in the US is in the midst of its biggest upsurge in a decade, while China’s shuttered mines reopen and new plans emerge.

The world’s addiction to coal, a fuel that many thought would soon be on the road, is now stronger than ever.

Demand has been rising since last year amid a shortage of natural gas and because electricity consumption increased after pandemic restrictions were rolled back. But Russia’s invasion of Ukraine has turbocharged the coal market, creating a domino effect that leaves power producers pushing for supply and pushing prices to record levels.

The boom in the world’s dirtiest fossil fuel has enormous consequences for the world economy.

Higher prices will continue with rising inflation. But even with the recent surge, analysts say coal is still one of the relatively cheapest fuels.

This makes it more critical for energy supplies at a time when coal burning remains even the biggest single obstacle in the fight against climate change. Meanwhile, miners are struggling to dig up extra tons as utilities around the world demand more, setting the stage for the next phase of the global energy crisis.

“When you try to balance decarbonisation and energy security, everyone knows which one wins: keep the lights on,” said Steve Hulton, senior vice president of coal markets at market research firm Rystad Energy in Sydney. “That’s what keeps people in power and stops people from rioting in the streets.”

By 2021, the world is producing more electricity from coal than ever before, with an increase of 9% from the previous year, according to the International Energy Agency.

By 2022, total coal consumption – for energy generation, steel production and other industrial uses – is expected to increase by almost 2% to a record high of just over 8 billion metric tonnes and remain there for at least 2024.

“All evidence indicates that there is a widening gap between political ambitions and goals on the one hand and the realities of the current energy system on the other,” the IEA said, noting that the 2024 carbon dioxide emissions from coal will be at least 3 billion tons higher. then in a scenario that reaches non-zero in 2050.

The story of coal is inextricably linked to natural gas, often promoted as the cleaner burning alternative.

European energy crisis and the return of coal

When the world began to emerge from the pandemic in mid-2021, the demand for power increased as shops and factories reopened. But Europe, which had led the global charge away from coal, faced an unusual crisis for electricity and a shortage of natural gas.

At the same time, renewable energy was tight in the region and in some other parts of other world. The coincidence of events caused blackouts in some regions and sent gas prices to extremes around the world, which ushered in the energy crisis.

Suddenly, coal was back in fashion as a less expensive alternative. Thermal coal, the type burned by power plants, is one of the cheapest fuel sources “on the planet”, with costs at approximately $ 15 per million British thermal units, according to a report dated April 1 from Bank of America. That compares with about $ 25 for crude oil and the global price of $ 35 for natural gas, the report said.

The European Union, which has some of the most ambitious climate goals in the world, saw its coal consumption jump by 12% last year, the first increase since 2017 – albeit that profit from the low levels of 2020.

Coal consumption rose 17% in the US, and also increased in Asia, Africa and Latin America. India and China, which dominate world markets, were also major drivers for growing world demand.

Just a few months ago, negotiators in Glasgow for the COP26 climate conference were optimistic that they could “transfer coal to history.”

Instead, the climate talks ended in November with a drain on the language on the use of coal.

China, the US and India are the three biggest polluters, and all three have now promised to zero their emissions ahead in decades. However, India and China followed recent interventions to soften language on coal use, and the US played a role in accepting that weaker position, questioning the nations’ short-term commitment to curb coal.

And that was all for the recent further upheaval for the market.

The IEA returned its annual demand forecast in December. The agency now plans to issue a mid-year review in July – the first time ever to do so – to analyze the impact of the war. In all likelihood, demand will be higher than the December forecast, as Russia’s invasion of Ukraine triggers a chain reaction in global energy markets that brings coal further into the spotlight.

Can the EU give up Russian energy?

Europe is desperate for a way to reduce its dependence on Russia, a major supplier of fossil fuels. The EU is going to ban Russian coal, while also increasing its overall use of the fuel, as it seeks to reduce its use of Russian natural gas.

Europe’s movement is central to the idea that it will be able to pay more for non-Russian coal supplies than other buyers, a gamble that drives global markets and could cost from developing countries that may face shortages.

To secure energy for the coming winter, the German government plans to work with utilities such as RWE AG to reactivate decommissioned coal-fired power plants and slow down the dismantling of active facilities.

In Denmark, Orsted A / S supports coal reserves to be used instead of biomass, because the supply of carbon-neutral wood grains has been disrupted by the war. And Britain is exploring options to boost energy security, including opening Drax Group Plc coal-fired units.

“It’s the last hurray for coal in Europe,” said Emma Champion, head of regional energy transactions at BloombergNEF.

Even for the risky movement of Europe, the coal supply was already preachy. A power plant in Germany had to shut down last year when it ran out of coal. Scarcity also led to power outages in India and China, which together account for about two-thirds of global coal consumption.

The price of Coal

Prices reach stratospheric levels. Future prices for the Australian benchmark, which rarely breaks $ 100 per metric ton, rose to $ 280 in October, when utilities searched the planet for fuel. It fell back slightly, as relatively mild winter temperatures in the northern hemisphere somewhat reduced demand for power. But when Russia invaded Ukraine, concerns about supply pushed prices all the way down to $ 440, an all-time high.

The European market followed the same pattern, and even in the US, which is more driven by domestic demand, prices reached a 13-year high this month.

“The coal supply chain was simply not ready for that kind of shock,” said Xizhou Zhou, director of global power and renewable energy at S&P Global.

As coal grows in importance, supplies are unlikely to follow.

Miners are still worried about long-term demand prospects, especially as the United Nations reiterates its view that the world needs to phase out fuel. The report by the Intergovernmental Panel on Climate Change released this month showed that coal burning must reach zero by 2050 in order to achieve the goal of limiting global warming to 1.5 ° Celsius (2.7 ° Fahrenheit).

“To say that in the long run there is no demand for your product, but in the short term you can please increase it – that’s a lot to ask of a supply chain,” said Ethan Zindler, head of America research at BloombergNEF.

Added to the chaos, policymakers and companies in Japan and South Korea are also making moves to curb Russian coal imports. That will make even more of the world look for alternatives to the 187 million tons that Russia exported to power plants last year, which equates to about 18% of world trade in thermal coal.

It will not be easy to replace.

Global supply problems

Global production has still not returned to pre-pandemic levels. Miners are plagued by weather problems, labor shortages and transportation problems, as well as a lack of investment in new capacity.

Indonesia, the top carrier of coal for power stations, stopped exporting coal earlier this year to guarantee domestic supplies. Manufacturers in Australia, another major exporter, have flagged that they have limited ability to increase sales.

State-owned Coal India, the world’s largest miner, is restricting supplies to industrial users to prioritize power plants in an effort to prevent blackouts for millions of households. Richards Bay Coal Terminal exports to South Africa fell to 58.7 million tonnes in 2021, the lowest in 25 years.

“The global sea coal market remains very tight this year,” said Shirley Zhang, an analyst at Wood Mackenzie. “So finding alternative offerings would be extremely challenging, despite high prices.”

As global coal supplies sharpen and prices rise, emerging market countries may no longer be able to afford to buy the fuel to keep their economies afloat. Cash-strapped countries in South Asia, such as Pakistan, Sri Lanka and Bangladesh, are particularly exposed to price shocks and are already struggling with energy shortages.

Of course, as coal prices continue to rise, this could encourage countries to cut themselves off from fuel in the long run and replace it with more sustainable energy. And the greater geopolitical tensions brought about by Russia’s war reinforce the argument that adding more electric cars to roads and installing additional wind turbines and solar panels could stimulate energy independence.

The impact of China’s fuel demand

China is also at the center of fossil fuel production. Growing coal exports have been an obsession of Beijing since a shortage of fuel caused last year’s widespread power outages.

The nation mines half of the world’s coal, and production has increased just as a recent spate of pandemic lockdowns has slowed economic activity and curbed demand for power. But it is unclear whether production speeds are sustainable, with a top industry official recently saying the pressure has reached its limits.

For now, the most direct dynamic is a global battle over available coal supplies to prevent power shortages.

“I do not know if I even have an extra 200 tons,” said Ernie Thrasher, chief executive of Xcoal Energy & Resources, the top U.S. exporter. “There is physically no production capacity.”

To read: Bleak load shedding forecast for South Africa

South Africa benefits from Russia’s war as the world’s addiction to coal turbocharges

Source link South Africa benefits from Russia’s war as the world’s addiction to coal turbocharges

Back to top button