Net-zero: king coal

By Richard North - August 28, 2023

Clean, green renewables are on the rise. Coal, the dirtiest fuel, is dying. Or so the energy transition line goes, reports the online trade journal Freight Waves.

The reality, though, is somewhat different. Citing the International Energy Agency (IEA) market update, the journal tells us that global coal production, consumption, and seaborne volumes are all at all-time highs in 2023.

Highlighted in the IEA press release accompanying its update, is the rather startling (to some) fact that global coal consumption climbed to a new all-time high in 2022 and will stay near that record level this year.

Coal consumption in 2022 rose by 3.3 percent to 8.3 billion tonnes, setting a new record. In 2023 and 2024, small declines in coal-fired power generation are likely to be offset by rises in industrial use of coal, the report predicts, although there are wide variations between geographic regions.

The rise in the industrial use of coal was very much a feature of the Indonesian market, with recent reports (such as this one) telling us that the so-called “captive coal plants” will have a combined capacity of 13 GW, accounting for more than two-thirds of the 18.8 GW of new coal power in the pipeline.

The irony, as I have already observed is that most of the plants feed the nickel, cobalt and aluminium smelters that the government is promoting in an effort to turn Indonesia into a manufacturing hub for “green” electric vehicles (EVs) and batteries.

The strong growth in Asia for both power generation and industrial applications is outpacing the decline in the use of coal in the United States and Europe. China, India and Southeast Asian countries together are expected to account for 3 out of every 4 tonnes of coal consumed worldwide in 2023.

In the European Union, growth in coal demand was minimal in 2022 as a temporary spike in coal-fired power generation was almost offset by lower use in industry. European coal use is expected to fall sharply this year as renewables expand, and as nuclear and hydropower partially recover from their recent slumps. In the United States, the move away from coal is also being accentuated by lower natural gas prices.

Effectively, as Bloomberg reports, coal cargoes unwanted in Europe are heading to Asia, a process which, earlier in the year, was speeded up as Asian utilities stockpiled fuel to support the increased demand for electricity-driven air conditioning, amid what it described as “sweltering temperatures”.

Just about every exporter has been stepping up to the plate. Shipments of about 7 million tons of Colombian coal were being diverted to Asian countries instead of ports in Europe. Destinations included China and India,

When it suited them, European customers had welcomed coal imports from Colombia, increasing uptake 23 percent to about 30 million tons in 2022, after the continent had been plunged into an energy crisis following the Ukraine invasion. When natural gas prices dropped, power plants switched back to the alternative fuel.

A similar dynamic was seen with South Africa, where coal sales to Europe rose eight-fold during the first half of 2022 compared with the previous year, the demand driven by the ban on Russian coal. The increase measured at 720 percent, from half a million tonnes in 2021 to 4.1 million tonnes in the first half of 2022. Yet, no sooner did European demand drop, then coal exports shifted to Asia.

Thus, as succinctly put by Freight Waves, coal isn’t dying yet globally, just in the West. It’s still alive and kicking in Asia – and still growing globally as a result. That’s bad news for greenhouse gas emissions, it observes, pausing only to rejoice at the “good news” for owners of the dry bulk ships that transport coal, particularly as America exports more of its own mining output via long-haul voyages to Asia.

And it isn’t only the Americans which are taking to the high seas. In May it was being reported that Russia had exported almost 20 percent more coal by sea for the early part of the year.

Shipping amounted to 69.9 million metric tons from Russian ports in January-April 2023, or 18.3 percent more than during the same period the previous year.
Said the Moscow Times, the coal export data demonstrated Moscow’s ability to offset scaled-back imports from Western countries that had imposed sanctions in retaliation to Russia’s “military campaign” in Ukraine.

As with the overall consumption figures, therefore, the reduction in demand from Europe and North America has been offset by Asia, where demand continues to rise. Seaborne coal volumes are predicted to reach 1,335,000 metric tons this year, topping 2019’s record of 1,331,000 tons.

Another happy contributor to this rise is Australia, exports from which are set to rise for at least the next three years on growing demand from India and Southeast Asia.

Thermal and metallurgical coal will both rise steadily by volume until at least 2025. Exports of thermal coal are expected to rise 7.3 percent this year, with shipments of metallurgical coal climbing by 2.6 percent. Chinese imports of Australian coal have also begun to increase, after an informal ban was lifted earlier in 2023.

Australia is the world’s second-biggest coal exporter and shows no sign of winding down its shipments. The Labor government under Prime Minister Anthony Albanese has attempted to re-brand the nation as a critical minerals and clean energy “superpower,” and is continuing to support growth of the coal and gas sectors.

With net-zero ambitions having absolutely no impact on international coal trading, therefore, one can see why the cultists are resorting to such schemes as the Just Energy Transition Partnerships, trying to cut off consumption at the point of use rather than at the production end.

In the queue is Vietnam which agreed to participate in the scheme on 14 December last year, with a non-binding political declaration. Senegal followed in June just gone.

As with South Africa and Indonesia, though, there are serious political hurdles which could derail Vietnamese plans before they are even published in the coming November, when the government is expected to come up with its transition proposals.

Significantly, any short-term successes in energy transition programmes could sow the seeds of the failure of the entire programme, as export prices respond to changes in demand.

Already, as Europe walks away from the market, thermal coal prices have dropped over 60 percent to near a two-year low. The decline is expected to continue in view of supplies normalising and improving in 2023.

According to the World Bank, coal prices are forecast to fall 42 percent in 2023and 23 percent in 2024.

The anticipated increase in demand from China is likely to be offset by weaker demand elsewhere, as utilities switch back to natural gas. Exports from major producers (particularly Australia, and Indonesia) are anticipated to rise, further dragging down the export prices.

A further indication of where prices are going comes from the Newcastle (thermal) coal futures on the Intercontinental Exchange, New York, They have dropped to $145.10 a tonne from $388.82 on 1 January.

Hard coking (metallurgical) coal prices on the Dalian Commodity Exchange have dropped from 2,075 Chinese yuan ($290.24) to 1,401 yuan ($195.97) for the third-month contract. Soon after the Ukraine war broke out last year, thermal coal prices topped $400 and metallurgical coal at $600.

Bearing in mind that even (or especially) the UK, with its advanced energy transition programme, has vastly under-estimated the costs and difficulties of moving to renewable electricity (not factoring in balancing costs and grid expansion), and green policies are said to be driving Germany into recession, developing countries may well find that funding their programmes is beyond their means.

Pricing is already proving to be a problem in Vietnam, even without coal price fluctuations, with the government’s renewables policy on hold, hampered also by the electricity grid struggling to handle the varying power loads from solar panels and wind turbines.

Already, Vietnam’s thermal power emissions are rising after the country’s imports of thermal coal soared to their highest levels in three years. Imports rose to more than 3 million tonnes in both May and June this year from a monthly average of around 1.5 million tonnes throughout 2022.

When confronted with falling coal prices, the political hurdles that are currently hampering the JETP programme will doubtless intensify. It may take much longer, as a result, to displace king coal, which may still be reigning supreme for the foreseeable future, as countries such as Sri Lanka are priced out of the market.