The European Union (EU) will face difficulties in finding competitively-priced, alternative coal import sources to Russian coal amid a tight market that is seeing increasing demand and higher prices following the bloc’s embargo on Russian coal imports.
The EU, in retaliation for Russia’s war in Ukraine, has imposed the fifth round of sanctions this week, which threatens to isolate Russia’s economy.
As part of the sanctions package, Ursula von der Leyen, the president of the European Commission, announced a statement on banning Russian coal imports.
European Union envoys are expected to approve ban on Russian coal imports that would be effective from mid-August, a month later than initially planned, according to news reports, following pressure from Germany to delay the measure.
Sanctions “double-edged sword” for EU and Russia
As a substantial part of the EU’s coal imports come from Russia, the world’s third-largest coal exporter, it could be costly for the bloc to fill the supply gap after the sanctions.
“European consumers will have to brace for high power prices throughout this year as supply shortages in countries that rely on coal generation will spread across the continent via its well-connected power grids,” Rystad Energy said in a note.
According to Carlos Torres Diaz, head of Rystad Energy’s Power Market Research team, the latest sanctions are a double-edged sword.
“Russian coal exports are worth an estimated €4 billion per year and there is no easy like-for-like replacement for Russian coal in Europe’s power mix. European consumers from large companies to households should expect high prices for the remainder of 2022 as coal and gas are essential to meet the continent’s power demand,” he said.
The ban comes amid increasing coal prices and tight supplies.
API2 Rotterdam Coal Futures, the benchmark for European coal prices, jumped over $300 per ton in May contracts, the highest in three weeks after the sanctions decision was announced on Tuesday.
Rystad Energy said the tightness makes it quite challenging to find alternative sources of coal supply readily available in the market, meaning European consumers will need to pay a premium to attract flexible sources of supply into its ports.
Suppliers into the seaborne thermal coal market are already maxed out in terms of export volumes, so there is a real shortage of coal available to fill the Russian gap, it added.
The US could act as a potential coal exporter to Europe but not in the required quantities.
According to the International Energy Agency’s Coal 2021 report, global coal production failed to keep pace with rebounding coal demand in 2021, especially during the first half of the year, cutting into stock levels and pushing up prices.
Global total coal production is calculated as 7,560 million tons in 2020 and 7,889 million tons in 2021.
China’s coal production in 2021 amounted to 3,925 million tons, followed by 793 million tons in India, 576 million tons in Indonesia, and 470 million tons in Australia among Asia Pacific countries.
US coal production is estimated to be around 528 million tons, Russia produced 429 million tons and 329 million tons came from the EU.
Russia’s coal production is forecast to reach 445 million tons in 2024 and is expected to drop by 44 million tons and 82 million tons in the US and the EU, respectively by 2024.
According to the European Commission’s website, Russia accounts for 45% of coal imports in the EU. However, dependency stands at 70% in terms of thermal coal imports used in electricity generation, Brussels-based think-tank Bruegel said in an analysis.
The EU generated around 15% of its power from coal in 2021, the EC said.
As coal production has shown a downward trend in the EU in line with climate targets, demand has not fallen at the same pace, which has led to more Russian coal imports in the bloc.
Despite the fact that South Africa and the US were the biggest coal exporters to the EU in the 1990s, Russia has played a major role in filling the gap between the EU’s consumption of hard coal and its domestic production.
The EU’s hard coal imports from Russia rose from 8 million tons, corresponding to 7% of total EU imports in 1990, to 43 million tons in 2020, accounting for 54% of total imports, according to Bruegel.
EU accounts for 26.3% of Russia’s coal exports
Data obtained from the Energy Information Administration (EIA) by Anadolu Agency showed that Russia had exported 262 million tons of coal in 2021, increasing 7% year on year.
China, the largest coal producer and consumer in the world, imported 62.8 million tons to become the biggest importer of Russian coal.
The EU imported 69 million tons of coal from Russia, accounting for 26.3% of the country’s total coal exports.
Among EU countries, Germany imported the largest quantity from Russia at 22.3 million tons, followed by the Netherlands with 15.8 million tons.
Poland and Italy are also Russian coal importers, at 9.1 million tons and 5.8 million respectively.
Export capacities of countries
Currently, Indonesia has the highest coal export capacity worldwide at an estimated 440 million tons in 2021, followed by Australia with 376 million tons, according to the IEA.
The export capacity of Indonesia is estimated to drop down to 415 million tons in 2024 while exports to Australia are expected to reach 388 million tons in 2024 from 376 million tons in 2021.
US coal export capacity, the world’s fourth-largest coal exporter, was estimated at 80 million tons in 2021 but is forecast to drop to 57 million tons by 2024.
South Africa and Columbia’s export capacities are also forecast to fall to 63 million tons and 54 million tons respectively during the same period from 72 and 58 million tons, respectively.
According to Bruegel’s analysis, though Russian imports make up a significant share of thermal coal consumed in the EU, industrial signals suggest that Russian imports could be replaced relatively quickly.
“Most prominently, the German association of coal importers has said Russian coal can be substituted in a few months. It is unclear, however, how much of a buffer EU coal stocks would provide for the transition phase. The reported 2.6 million tons stocked in ports would cover about three weeks of Russian imports, but more coal should be sitting in the stocks of power plants,” it said in the analysis.
Anadolu Agency website contains only a portion of the news stories offered to subscribers in the AA News Broadcasting System (HAS), and in summarized form. Please contact us for subscription option
Source: Anadolu Agency