Apparently, China wants to cut down on coal usage by slashing industrial output and lowering the demand for the fuel in an attempt to see some blue skies on the horizon. Through the currently hazy air though, one only has to look back the past two years to feel just how important coal still is to the world. And China should be worried given that it burns more coal than the rest of the world combined; consuming the most coal of any other country.

The rest of the world is not far behind, though. Getting over this long-time addiction therefore may not be that easy. Even as European leaders headed into the United Nations Climate Change Conference, COP 27 wanted to limit global warming to 1.5 degrees Celsius—an elusive benchmark that can only be achieved if greenhouse gas emissions are cut in half. In fact, a UN environmental report says there may not be any credible path to 1.5 after all. The significance of coal as a dependable, affordableand "easy" fuel has only grown. Relentless demand and price rallies following suit reflect that.

Coal prices slumped when covid hit as demand dropped due to massive cross-country lockdowns and mobility restrictions but as factory doors opened, prices shot up immediately. Bulk of the demand originated from China whose own production was not enough to cater to industrial demand. Prices began to ease when China ramped up production but then the Russia-Ukraine war hit and all bets were off. Coal prices skyrocketed in Feb of 2022.

The spike in prices came off of fears that coal supplies will dwindle from these two countries due to war-propelled disruptions while larger economies particularly those in Europe that depended on fuels from Russia wanted to place sanctions on the country. Australian coal (at Newcastle port) reached the peak price of $440 per ton at the time and coal prices from other countries (such as South African Richards Bay) experienced similar rallies.

To ease concerns of supply shortages and running coal prices, Asian and European countries moved to alternative sources of coal and made plans to keep their own coal plants—earlier planned to be shut down—running just a little while longer. Prices eased until they began their rally once again as demand surged. Just last month in September, Australian coal reached $457 per ton as fears that there may not be enough coal supplies during winter resurfaced.

When these fears dissipated, coal prices have now begun their journey down south once again. At the moment, coal prices are comfortably trailing pre-Russia war levels. Europe’s demand is being fed by Columbia, South Africa and North American countries with some cargoes still coming from Russia while both South Africa and Indonesia are feeding most Asian economies (China, India, Japan) in the world hungry for coal.

The problem is clear. Despite promises to curtail demand, fuel switching is simply too big a dream especially when there is a recurrent energy crises; more often than now shadowing over accomplishing promised climate change goals. The refocus on coal for instance has come on the heels of the alternative, lesser of the two evils gas vanishing from the market and becoming too expensive to buy. Countries had to go back to coal. As it stands, most European countries have announced plans to extend the lifetime of their coal plants that were planned to be closed down or capped off production. Meanwhile, developing countries are still waiting on climate change financing, more recently arguing that the decided number may not be enough for adaptation, damages, and loss from coal transitioning.

Evidently, coal prices stepping off the burner do not indicate coal burning will slow down.

Comments

Comments are closed.