How will the Russia-Ukraine conflict affect the global coal market?
The conflict between Russia and Ukraine continues, and the game between Western countries and Russia over the energy field continues.
According to reports, the European Union may make a decision on sanctions in the oil sector at a meeting next week. In early April, the European Council passed the fifth round of sanctions against Russia. Under the plan, the EU will impose a coal embargo on Russia after a 120-day transition period. In the five rounds of sanctions that have been carried out since February 24, the EU has successively adopted a ban on the export of specific refining technologies, a comprehensive ban on new investment in the Russian energy industry, and a suspension of purchases, imports or transshipments from Russia or Russia since August. Sanctions such as coal and other solid fossil fuel exports from Russia.
Russia accounts for about 45% of EU coal imports, and in 2021 about 15% of the EU’s electricity will come from coal, according to official figures. The EU accounts for about 26 percent of Russia’s coal exports, with Germany the largest importer among member states, followed by the Netherlands.
Under the influence of the geopolitical situation, the global coal trade pattern is changing. Both the EU and Russia face the problem of adjusting domestic consumption and finding new trading partners. In Germany and Italy, coal-fired power plants that were once out of production are being considered for restarting. In the Netherlands, some coal-fired power plants have been operating for extended periods of time.
Wang Yongzhong, director of the International Commodities Research Office of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, pointed out in an interview with a reporter from the 21st Century Business Herald that for European countries, in order to make up for the coal supply gap, they will turn to Australia, South Africa, Indonesia and other countries to import coal. . At the same time, considering the risk of shortage of oil and gas, coal is a more suitable alternative energy from the perspective of price and production capacity. Therefore, European countries may “sacrifice” environmental goals in the short term and switch to restarting coal power and focusing more on development. nuclear power.
“In the longer term, taking into account the net zero emission target and energy security factors, geopolitical conflicts will become the ‘catalyst’ for the EU to accelerate the development of renewable energy.” Wang Yongzhong added.
Changes in the global coal trade pattern
In recent days, the supply bottleneck caused by the epidemic, the ban on Indonesian coal exports, and sanctions and counter-sanctions under the geopolitical situation have been superimposed, which have continued to disrupt the global coal market and the existing coal trade pattern. In March, South African coal prices tripled year-on-year, hitting a record high.
Both the EU and Russia are looking for alternatives to energy cooperation. Currently, more and more coal ships are sailing from South Africa to Europe. In Russia, boosted by its price cut strategy, India’s total coal imports from Russia have increased significantly.
India’s March coal imports from Russia jumped to the highest level in more than two years, according to commodity intelligence firm Kpler. Kpler Chief Dry BulkanalystMatthew Boyle said that India imported 1.04 million tons of coal from Russia in March, the highest since January 2020, with about two-thirds of the cargo coming from Russian Far East ports.
However, looking at 2021 data, India’s coal imports from Russia only account for about 2% of its total imports. “This is mainly constrained by factors such as price and transportation distance,” said Lin Boqiang, dean of the China Energy Policy Research Institute at Xiamen University.
In the case of China, the country’s coal imports account for about 10 percent of consumption. According to data released by the General Administration of Customs of China, in the first quarter of 2022, China‘s coal import volume fell by 24.2% year-on-year, while the import value increased by 66.3% year-on-year. In March 2022, China‘s coal imports fell by 39.9% year-on-year, while the import value increased by 4.8% year-on-year.
“The decline in China‘s coal imports is mainly due to factors such as soaring international coal prices and upside-down coal prices at home and abroad, which have inhibited import demand,” said Qian Xuming, a doctoral tutor and director of the Energy Research Program at the Middle East Institute of Shanghai International Studies University.
With the addition of internal and external factors, what is the prospect of Sino-Russian coal trade? Wang Yongzhong told reporters that considering multiple factors such as geographical distance, economic complementarity, and geopolitical relations, Russia may rely more on the Chinese market in the future. If the price is right, China will continue to steadily increase coal imports from Russia, but considering the pressure from Western countries And other factors, China‘s coal imports from Russia are unlikely to increase significantly.
International coal prices are expected to fluctuate at high levels
From the perspective of the global coal supply and demand structure, Russia, the third largest coal exporter in the world, exports about 54% of its coal to Asia. Among Asian countries, China and India account for about 66% of global coal consumption.
In 2021, coal will account for 56 percent of the country’s total energy consumption, according to China‘s National Bureau of Statistics. This rate has continued to decline from over 70% in the mid-2000s. Total global coal consumption for power generation, steelmaking and other industrial uses is expected to grow by nearly 20% in 2022 to a record high of around 8 billion tonnes, according to data released by the International Energy Agency in December 2021. Among them, India’s coal demand will increase by 4% per year, and demand will increase by 130 million tons between 2021 and 2024. Coal power generation accounts for about 70% of India’s electricity generation.
For most Asian countries, considering the stage of economic development, it is not realistic to significantly reduce coal consumption in the short term. For European countries, their economy is highly service-oriented and technologically advanced, with few heavy chemical industries, little demand for coal, and more reliance on natural gas. According to official statistics, in 2020, the EU’s imports of coal, oil and natural gas from Russia accounted for about 19%, 36% and 41% of its imports, respectively.
“Under the current geopolitical risks, coal is cheaper and more abundant than oil and gas, and it is less difficult to find alternative supplies. Therefore, European countries may face the risk of oil and gas shortages. The demand will increase.” Wang Yongzhong said.
Bank of AmericaA report released on April 1 showed that the cost of thermal coal fired at power plants is about $15 per million British thermal units, compared with about $25 and $35 for international crude oil and natural gas, respectively.
In the medium and long term, the importance of energy security under geopolitical conflicts becomes more prominent. Wang Yongzhong pointed out that the EU and other countries and regions will increase their determination and efforts to accelerate the development of renewable energy, whether from the perspective of climate goals or the realization of energy independence and autonomy.
Objectively speaking, energy decarbonization is not something that can be achieved overnight. Lin Boqiang pointed out that seeking a greener future is the main direction for countries to promote energy transition. However, for the EU and other countries, there are still many challenges ahead to strike a balance between climate goals, energy security and economic development.
Previously, in the context of carbon neutrality, global coal production and investment were somewhat restrained. At present, coal supply and demand are facing adjustments under the geopolitical situation. Energy sanctions imposed by the United States and the West on Russia have increased coal demand and restricted coal supply, while changes in transportation distance and trade chain have raised coal transportation costs. Driven by many factors, Wang Yongzhong told reporters that the global coal supply will remain tight this year, and the international coal price is expected to fluctuate at a high level.
(Article source: 21st Century Business Herald)