Coal rush! The energy crisis unleashes the global hunt for polluting fuel

  • Tanzania expects thermal coal exports to double this year
  • European buyers are willing to pay the maximum, miners say
  • The loss of Russian energy leads to running for polluting coal
  • Landlocked Botswana also exports to Europe as prices rise

DAR ES SALAAM, 20 Sept. (Reuters) – The sleepy Tanzanian port of Mtwara traded mainly cashews until late last year. Now it is teeming with ships loading coal, as the Russian invasion of Ukraine leads a worldwide race for polluting fuel.

Tanzania traditionally exports thermal coal only to neighboring East African countries; Sending it further was out of the question, as it required transporting the material more than 600km from the mines in the southwest to Mtwara, the closest port in the Indian Ocean.

Europe’s paralyzing energy crisis has changed all of this.

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The prices of thermal coal, used to generate electricity, have jumped to record highs following the war, which has resulted in many European countries losing access to vital supplies of natural gas and coal from their main supplier, Russia.

Buyers in Europe and beyond are now vying to pay the top dollar for coal from often remote mines in places like Tanzania, Botswana and even potentially Madagascar. The recovery in coal demand, led by governments trying to wean themselves off Russian energy by keeping energy prices in check, clashes with climate plans to move away from the more polluting fossil fuel.

“European actors, after the Russian war, will go everywhere where there is coal,” Rizwan Ahmed, chief executive of the Bluesky Minings coal mine, said in Dar es Salaam, Tanzania. “They are offering to pay very good prices.”

Commodity trader Cargill has seen a notable increase in coal shipments to Europe in recent months, said Jan Dieleman, president of Cargill’s shipping division, with the company carrying 9 million tons of coal at the level. global in the period June-August compared to 7 million a year earlier.

“Europe is competing with other buyers and the alternative is more expensive, which is gas,” Dieleman said. “Europe should be able to source coal and we will see very strong flows into Europe from Colombia, South Africa and even further afield.”

While the window of opportunity may be short if the geopolitical winds were to change, some coal-rich countries see the margins to be gained as too good an opportunity to pass up.

On September 16, the first month’s physical thermal coal in the Australian port of Newcastle, a global benchmark, was trading at $ 429 per tonne, just below its all-time high of $ 483.50 in March and up from around $ 176 / ton this time last year.

Mtwara has seen 13 ships loading coal since November last year when it launched its first shipment of coal, according to a port official; the last, the MV Miss Simona, a bulk carrier with a capacity of 34,529 tons, docked last week, embarked and sailed for France.

Since the end of June, 57 freight orders – ship requests available – to ship Tanzanian coal have been seen on the spot freight market compared to just two in the same period last year, according to data platform analysis. Shipfix maritime and commodity.

Global imports of marine thermal coal reached 97.8 million tonnes in July, the highest level ever, and increased more than 9% year-on-year, according to an analysis by shipping broker Braemar. The volume dropped to 89 million tonnes in August, largely due to the export disruption of the major Australian producer.

Reuters graphics

A LAST RACE FOR COAL?

Tanzania expects coal exports to double this year to around 696,773 tons, the country’s Mining Commission told Reuters, while production is expected to increase by 50% to around 1,364,707 tons.

Aiming for substantial tax revenue from this increase in exports, the government is considering building a railway that would connect the coal-producing region of Ruvuma to Mtwara, said Yahya Semamba, acting executive secretary of the Mining Commission, a government agency.

Tanzanian miner Ruvuma Coal has already exported at least 400,000 tons of coal via a trader to countries including the Netherlands, France and India since November, according to trade data reviewed by Reuters.

Ruvuma Coal declined to comment on this story.

Coal miners are enjoying unprecedented profit margins in what some see as the latest hurray for an industry facing intense pressure to cut production; With coal at $ 75 per ton by the end of 2020, a coal mine could earn a cash margin of $ 15 per ton, said Rob West, an analyst at consulting firm Thunder Said Energy. But when prices hit $ 400 / ton, the cash margin increased to $ 235 / ton.

Indeed, traders in Europe are willing to pay double the price quoted by Asian buyers, according to some mining executives such as Ahmed of Bluesky, who said his company does not currently export through Mtwara, but plans to do so and has received inquiries from buyers in Germany, Poland and Great Britain.

Similarly, in landlocked Botswana, selling coal on the shipping market was unthinkable, with most exports going to neighboring South Africa, Namibia and Zimbabwe.

“First, the logistics would kill us. However, at current prices, we can make this thing work,” said MornĂ© du Plessis, CEO of Botswana-based Minergy (MIN.BT) coal mine.

Minergy exported two shipments of approximately 30,000 tons each from the port of Walvis Bay, Namibia, and sent two trains of coal to be exported from the port of Maputo, Mozambique.

The island nation of Madagascar, the world’s leading vanilla exporter, could become another newbie to the global coal scene.

“Current prices comfortably support a business case for Madagascar’s coal miners to start exporting coal for the first time in the country’s history,” said Prince Nyati, CEO of one of the companies developing a coal project in the country.

However, new entrants will have to prepare to retire or even cease production if market conditions turn unfavorable, Nyati added.

‘COAL HAS BEEN EMBRACED’

High demand and scarce coal supplies have reshaped trade routes, pushing global “dead days” for fossil fuel to record highs in July, according to Braemar research, referring to a measure of shipping levels in terms of use of the fleet and length of trips.

According to data from the Indian consultancy Coalmint, imports of thermal coal by the European Union from Australia, South Africa and Indonesia, which traditionally supply Asian markets, increased more than 11 times in the four months following the invasion of Asia. Ukraine by Russia.

The invasion forced EU nations to move to reduce dependence on gas from Russia, which reduced its vast supplies to the region. The ban on Russian coal imports has further increased pressure on electricity producers to find alternative sources of fuel.

Russia usually supplies around 70% of the EU’s thermal coal, according to the Brussels-based think tank Bruegel, while it typically supplies 40% of the block’s natural gas.

European countries have temporarily put aside environmental goals as they try to accumulate fuel and reopen out of service coal plants to prepare for what could be a difficult winter.

“Strong incentives have pushed coal and lignite production 25% above the levels of a year ago, despite a series of plant closures over the past three years,” analysts said of Europe. Bank of America.

The current increase in thermal combustion of coal could put countries on a collision course with ambitious CO2 emission reduction targets; In the EU, burning more coal will increase CO2 emissions by 1.3% per year if Russian gas supplies are completely cut off, according to energy think tank Ember.

Governments in Europe say this is a temporary change, although it could depend on how long the energy crisis will last. Germany is delaying the scheduled closure of some coal-fired plants to ensure the security of energy supply.

Minergy, Botswana’s coal mine, sees the coal market remain strong until at least mid-2023, if not more. It hopes to double its production capacity.

“The negative narrative surrounding coal has been abandoned and coal has been hailed as the go-to energy source in war-related energy crises,” the company said.

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Reports by Nuzulack Dausen in Dar Es Salaam, Sudarshan Varadhan in New Delhi, Helen Reid in Johannesburg, Jonathan Saul and Nina Chestney in London; Editing by Veronica Brown and Pravin Char

Our Standards: Thomson Reuters Trust Principles.

Nina Chestney

Thomson Reuters

He oversees and coordinates EMEA coverage of the energy, gas, LNG, coal and carbon markets and has 20 years of journalism experience. He writes about these markets, about climate change, about climate science, about the energy transition, about renewable energies and about investments.

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