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Coal Is Staging A Major Comeback

·5 min read

Despite big promises to move rapidly away from coal, the “dirtiest fossil fuel”, many countries around the world continue to rely heavily on coal production and imports for their energy needs. This is not surprising from the likes of China and Australia, who make no secret of their reliance on coal, but is more worrying when coming from European states that just last year announced aims of weaning themselves off coal by the middle of the decade. An increase in coal production, import and export figures this summer suggests that the world is far from over its coal addiction.

China’s coal imports climbed this summer as it opted to purchase discounted Russian supplies following Europe and the U.S. move away from Russian energy. In July, China imported 15 percent more coal from Russia than the previous year, an estimated 7.42 million tonnes, making it the highest import level in five years. Many expect China to continue increasing its import of cheap Russian coal as it stockpiles supplies for the winter months. The country’s demand for coal already rose this summer as China faced a record heatwave.

As the Russian invasion of Ukraine led to the U.S. and E.U. imposing sanctions on Russian energy, Putin introduced significant discounts on its oil, gas, and coal to appeal to alternative markets. Russian thermal coal traded at $150 a tonne in late July, dramatically lower than supplies from Australia’s Newcastle port, which cost around $210 a tonne on a free-on-board (FOB) basis.

Not only have China’s coal imports from Russia risen in recent months but so have the country’s production levels. According to data from the National Bureau of Statistics, China mined 2.19 billion tonnes of coal from January to June, an increase of 11 percent year on year. While many worry that this reliance on coal will negatively impact China’s decarbonisation goals, experts in the sector believe that China is still on target to stop market expansion within the next few years, with China’s president, Xi Jinping, announcing strict controls on coal for the 14th Five Year Plan period (2021–2025).

Related: Goldman Warns EU Energy Price Freeze Could Backfire

As well as China, Australia has also seen growth in its coal market. Australian coal stocks have gone up by around 150 percent, to reach $5.47, since the start of the war on Ukraine. Australian coal producer Whitehaven has seen its shares increase by 200 percent since January. Although analysts worry that the stock is highly speculative. One Australian stock analyst Under, Peter Chilton, explained: “It’s a good company but there’s been a great deal of share price exuberance, which is not sustainable.”

Despite its distance, many European powers are now turning to Australia to fill the gap caused by sanctions on Russian coal. In addition, Australia continues to provide several Asian countries with their coal supplies. Other major Australian coal producers New Hope, Terracom, and Yancoal, have all also seen an increase in their share prices in recent months. This has shocked many analysts who were expecting coal shares to drop following an increase in the number of climate pledges made by governments worldwide after the COP26 climate summit last November.

But it’s not only traditional coal-producing states that are relying on coal, as many European powers seem to be going back on their climate promises by welcoming coal once again in the face of scarcity and rising prices. In a report by the International Energy Agency (IEA), published last month, the organisation warned that global coal demand could once again hit an all-time high, with E.U. consumption rising by an estimated 7 percent, adding to a 14 percent increase in 2021. Many European countries are now expecting to continue using high levels of coal until at least 2023, as they face gas shortages and rising energy costs.

In Germany, the financial officer of energy firm RWE, Michael Muller, said that the company will continue to burn more coal in the short-term to meet the country’s energy demand as it faces severe gas shortages. Germany has already recommissioned some of its coal-fired power plants, and RWE is expected to boost production further. Muller stated, “RWE is actively supporting the German government, or European governments, in managing the energy crisis.” He added, “so we’re also bringing back additional coal capacity to manage that situation.”

Meanwhile, in the U.K., which pledged to close the doors of all its coal plants a year earlier than anticipated by 2024, energy firms are now being asked to ramp up their coal production to help the country avoid blackouts in the winter months. The closure of a coal-fired power station in Nottinghamshire will now be delayed and several other plants will be on standby to provide the National Grid with more power if required. At present, the delays are not threatening the U.K.’s 2024 goal, but if Europe sees energy shortages and high prices continue into the next year this could soon change.

As traditional coal-producing countries continue to rely heavily on the fossil fuel, several European countries are also increasing their coal usage in the face of energy shortages. The war in Ukraine and severe weather conditions across Europe this summer have seen state powers that previously pledged to rapidly move away from coal coming to rely on coal-fired power plants once again.

By Felicity Bradstock for Oilprice.com

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