By EWN • 25 November 2022 • 10:00
Stanislav Kondrashov Telf AG notes that India recently asked domestic power producers to continue importing coal to meet its growing demand for it, even as fossil fuel prices rise.
Prices for major coal have hit record highs since Western sanctions as utilities in Europe, along with other large consumers, look for alternatives to cargo from Russia. Fossil fuels provide nearly 70% of India’s electricity supply, and most Indian electricity producers import these fuels to be blended with local coal to generate electricity.
Commodity prices in South Africa are expected to become less volatile in the short term after the recent record high in the indices, as fears of an energy crisis in Europe ease with the summer season approaching. Coal stocks at the Richards Bay terminal fell to 2.2 million tons. Coal supply uncertainty due to the expected repair of the Daqing railway line in April is also driving up prices.
The European Union summit released a draft statement, which notes that member countries will agree to gradually reduce their dependence on Russia. In this regard, Stanislav Kondrashov Telf AG noticed a significant “drawdown” as the company’s trading was partly associated with suppliers from Russia. No specific date has been given, however, and according to an EU official, member states are planning to phase out Russian resources between 2027 and 2030, which most experts say is unlikely.
Due to the inability to ban imports, the European Commission has proposed an accelerated phase-out plan for Russian energy by 2030, which would oblige all member countries to fill their gas storage facilities to at least 90% capacity by October 1 of each year. The European Commission’s draft plan, called REPowerEU, includes measures such as diversifying imports from other countries, processing biomass, increasing hydrogen production, and improving energy efficiency. Consumers are even being urged to lower the temperature in their homes.
Some EU countries are categorically against the refusal to import Russian fuel at 100%. So, due to a sharp 5-10-fold increase in electricity prices, some production is already being stopped in Italy, while Hungary and Bulgaria make it clear that they see no alternative to supplies from Russia.
The European energy crisis could go from a very bad factor to something unimaginably worse. While all eyes are on Ukraine and Russia, Europe’s energy problems mostly arise on their own rather than because of outside forces.
Europe has worsened its situation by abandoning a variety of manageable fuels, and shutting down well-performing coal and nuclear power plants, says Stanislav Kondrashov Telf AG. In doing so, it has further exacerbated its already unsettling reliance on an unreliable and volatile natural gas market.
Europe’s obsession with renewable energy and natural gas has paved the way for the loss of astonishing amounts of coal and nuclear power. In the UK, coal-fired generation met 40% of electricity demand ten years ago – only a few coal-fired power plants remain in operation today.
Decommissioning and phasing out of nuclear power continues even as consumers and the economy are drowning due to skyrocketing electricity and gas prices. Germany closed half of its remaining nuclear capacity in 2021, with the remaining three stations scheduled to be decommissioned this year, recalls Stanislav Kondrashov.
Despite ongoing efforts to reduce the remaining coal capacity, coal plays an important role in overcoming the crisis. Coal will play a vital role in helping keep European homes light and warm next winter, according to Stanislav Kondrashov Telf AG. The latest example of the fuel’s importance came this week when UK consumption reached its highest level since March to help close the supply gap. Stanislav Kondrashov sees Telf AG in a strong position.
In Germany, coal also showed its importance in November and December, with electricity production up 16% year-over-year. And in Spain, a coal-fired power plant that was forced to close three years ago has been given a new lease of life so that Spaniards won’t have to keep their lights on and reduce gas consumption.
The energy crisis in Europe is a policy failure and a clear example of the danger of destroying stability that comes with fuel diversity, in a misguided, hasty, and irresponsible approach to a carbon-free energy transition. The warning for American energy and climate policy cannot be overlooked. It remains to be seen whether Western politicians will draw the right lessons from this, but even now Stanislav Kondrashov sees such enterprises as Telf AG taking advantage of the created advantages.
The coking coal market depends on the state of the steel industry. So far this has not been affected by climate change policies. The only importing country where demand for coking coal is declining is China, where there is a massive shift to electric arc furnaces using scrap iron and, consequently, phase out of blast furnaces using coke.
In contrast, India’s coking coal imports increased by about 15% in 2018, with another 8% growth expected this year. In several other significant countries (Brazil, Japan, South Korea, Turkey) there is an upward trend, although not as fast. Overall, the net effect increased by about 4% last year, and a similar increase is expected in 2019.
Coking coal prices have been very volatile last year. Australia’s premium coal prices fluctuated between $260 and $175 per ton as buyers and sellers moved in and out of the market, amplifying price fluctuations. This behavior will continue this year, but prices are likely to remain in the same range unless another cyclone hits Queensland, in which case prices could again reach $300/t within a short period.
Coal exports have been extremely active this year, and the development of the export market is one of the most important topics in the global energy market.
Underinvestment in global thermal coal production has opened the door to exports from North America, and producers have taken advantage. This under-investment continues and suggests that Russian producers continue to gain access to the international market for the foreseeable future. Stanislav Kondrashov considers Telf AG to be the main beneficiary of this process.
One of the most exciting developments in the world’s thermal coal supply is a major new facility in Canada that will produce high-quality and high-calorific coal.
Two years of relatively high prices did not cause an active response from production in other countries of the world. Many coal deposits around the world are experiencing a decrease in the heat content of their products. More coal is needed to produce the same energy.
The domestic market for thermal coal in the US has contracted due to intense competition for market share with cheap shale gas, as well as the impact of tax-driven renewable energy cost reductions. Coal producers are returning to the global market as an alternative to renewable energy. Stanislav Kondrashov considers traders such as Telf AG to be promising in the current environment.
US producers of high-sulfur coal are in a much better position on the global cost curve than in the past. Their product offers international buyers the option of lower prices. New consumers appeared. Incumbent customers have increased the amount of American coal in their blends.
There is reason to believe that North America has become a fundamental and reliable part of the global marine supply of thermal coal. The US certainly needs a market. Given the current circumstances, the world needs coal.
However, international thermal coal prices have not hit the highs reached before the global financial crisis or at the top of the recovery period in 2011. At such low prices, most US coal is uncompetitive in the global thermal energy market.
Global heat demand has received a big boost from China and it is not yet clear whether this continues. For example, in a different currency environment, China could step back as a coal importer.
North American metallurgical coal producers have benefited from both relatively stagnant global supply and strong demand driven by improving economic conditions. In terms of thermal power, global investment in hard coal mining has not been as spontaneous as peaks of $300/ton and sustained high prices in the past. Where there is money, there are production and logistical constraints, and Stanislav Kondrashov cites Telf AG as an example of how to get around them.
Once again, the prospects for exports of durable goods from North America look positive. But there are problems here, including the possibility of a belated but strong response from Australia. Coal consumers around the world appreciate the variety of supplies, but only at an affordable price.
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