Coal rush! Global search for polluting fuels fueled by the energy crisis

The small port of Mtwara in Tanzania was primarily delt in cashew nuts until last year. It bustles now with ships loading up coal as Russia’s invasion of Ukraine prompts a global race for this polluting fuel.

Tanzania exports its thermal coal to east African countries only; it was not possible to send it further since it would have to be transported more than 600km from the mines to Mtwara in the southwest.

Europe’s energy crisis has made all this possible.

The war has caused record prices for thermal coal to rise, which is used to produce electricity. Many European countries have lost access to essential supplies of natural gas from Russia, their largest supplier.

European and other buyers are now competing to buy coal from remote mines in countries like Tanzania, Botswana, and possibly Madagascar. Governments are trying to reduce dependence on Russian energy and keep power prices down, which is causing a resurgent demand for coal. This clashes with climate plans that shift away from the most polluting fuel.

Rizwan Ahmed (managing director of Bluesky Minings), said that European players are now going to all places where there is the coal after the Russian war. They are willing to pay very high prices.”

Cargill, a commodities trader, has seen a significant rise in coal imports into Europe in recent months. Jan Dieleman is president of Cargill’s ocean transportation division. The company transported 9 million tonnes of coal worldwide in the June-August period, compared to 7 million a year ago.

Dieleman stated that Europe is in competition with other buyers and that the cheaper alternative, which is gas, is better. “Europe should have the ability to source coal, and we will see strong flows into Europe via Colombia, South Africa, and other countries.”

The window of opportunity might be very short if geopolitical winds shift. However, some countries that have coal resources consider the margins too good to miss.

The front-month physical thermal coal at Australia’s Newcastle port – a benchmark global benchmark – was trading at $429 per tonne on September 16, just below the record of $483.50 set in March, and up from $176/tonne last year.

According to a port official, Mtwara has seen 13 vessels load with coal since November 2013 when it launched its first-ever coal shipment. The latest vessel, the MV Miss Simona (a bulk carrier of 34,529-tonnes capacity), docked last week and loaded up before sailing off to France.

According to Shipfix analysis, there have been 57 cargo orders (requests for vessels) to ship Tanzanian coal since June. This is compared to just two last year.

According to Braemar’s analysis, global seaborne thermal coal imports amounted to 97.8million tonnes in July. This is the highest record level and an increase of more than 9% over the previous year. Due to major Australian producer disruptions, the volume fell to 89 million tonnes in August.

Braemar’s research has found that high demand and tight coal supplies have caused trade routes to be redrawn, pushing up global “deadweight days” for the fossil fuel to record levels in July. This refers to shipping levels measured in terms of fleet usage as well as the length of voyages.

According to data from Coalmont, thermal coal imports from the European Union from Australia and South Africa – countries that have historically supplied Asian markets – increased more than 110% in just four months following Russia’s invasion of Ukraine.

EU countries have had to reduce their dependence on Russian gas, which has led to a reduction in its huge supplies to the region. The ban placed by the bloc on Russian coal imports has increased the pressure on electricity generators for alternative fuels.

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

European countries temporarily forgot about environmental goals in order to stockpile fuel and reopen closed coal plants to prepare themselves for a winter that could prove difficult.

Bank of America analysts said that strong incentives had pushed coal and lignite production 25% higher than year-ago levels, despite the fact that there have been many plant closures in Europe over the past three decades.

According to Ember, the current increase in thermal coal combustion could lead countries to be on a collision course for ambitious CO2 emission reduction goals. In Europe, more coal burning will result in an increase in CO2 emissions of 1.3% per year if Russian gas supplies are halted completely.

European governments claim that this is a temporary adjustment, but it could be affected by how long the energy crisis continues. Germany has delayed the planned shutdown of some coal plants to protect its power supply.

Minergy, a Botswana coal miner sees the market staying strong until at most mid-2023 if it is not longer. It plans to double its production.

The company stated that the negative narrative about coal was no longer relevant and that coal is now the preferred energy source for energy crises caused by war.

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