Coal Rush! Energy crisis sparks global hunt for polluting fuels

  • Tanzania expects thermal coal exports to double this year
  • European buyers willing to pay top dollar, miners say
  • Loss of Russian energy leads to run on dirty coal
  • Landlocked Botswana also exports to Europe as prices rise

DAR ES SALAAM, Sept 20 (Reuters) – Until late last year, Tanzania’s sleepy port of Mtwara dealt mainly with cashews. Now it’s crawling with coal-laden ships, as Russia’s invasion of Ukraine drives a global race for dirty fuel.

Tanzania traditionally exports thermal coal only to neighboring countries in East Africa; sending it further was out of the question, as the material had to be transported by truck more than 600 km from the mines in the southwest to Mtwara, the nearest port on the Indian Ocean.

Europe’s crippling energy crisis has changed all that.

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Prices for thermal coal, used to generate electricity, reached record highs following the war, leading many European countries to lose access to vital natural gas and coal supplies from their main supplier, Russia.

Buyers in Europe and beyond are now vying for the premium price for coal from often remote mines in places like Tanzania, Botswana and potentially even Madagascar. The upsurge in demand for coal, driven by governments trying to wean themselves off Russian energy while controlling electricity prices, is clashing with climate plans to move away from the dirtiest fossil fuel.

“European players, after the war with Russia, go wherever there is coal,” said Rizwan Ahmed, managing director of coal miner Bluesky Minings in Dar es Salaam, Tanzania. “They offer to pay very good prices.”

Commodity trader Cargill has seen a marked increase in coal shipments to Europe in recent months, said Jan Dieleman, president of Cargill’s shipping division, the company shipping 9 million tonnes of coal globally. between June and August, against 7 million per 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.”

Even if the window of opportunity can be short in the event of a change of geopolitical wind, some countries with coal resources see the margins to be gained as too good a chance to miss.

First-month physical thermal coal at the Australian port of Newcastle – a global benchmark – was trading at $429 a tonne on September 16, just below the record high of $483.50 in March and up from around $176. per tonne at the same time last year.

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

Since the end of June, 57 freight orders – requests for available vessels – to ship Tanzanian coal have been registered in the spot freight market, compared to only two in the same period last year, according to the platform’s analysis. marine data and Shipfix raw materials.

Global imports of marine thermal coal reached 97.8 million tonnes in July, the highest level on record and up more than 9% year-on-year, according to analysis by shipping broker Braemar. The volume fell to 89 million tonnes in August, mainly due to disruptions in exports from the main Australian producer.

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A LAST HURRAY FOR COAL?

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

Targeting significant tax revenue from this jump in exports, the government plans to build a railway that would link the coal-producing region of Ruvuma to Mtwara, said Yahya Semamba, acting executive secretary of the Mines Commission, a body governmental.

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

Ruvuma Coal declined to comment for this story.

Coal miners are enjoying unprecedented profit margins in what some see as a last hurrah for an industry facing intense pressure to cut production; with coal at $75 a ton at the end of 2020, a coal mine could earn a cash margin of $15 a ton, said Rob West, an analyst at consultancy Thunder Said Energy. But when prices reached $400/tonne, the cash margin increased to $235/tonne.

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

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

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

Minergy exported two shipments of approximately 30,000 tons each from the Namibian port of Walvis Bay, and sent two trains of coal for export from the Mozambican port of Maputo.

The island nation of Madagascar, the world’s largest exporter of vanilla, could become a relative newcomer to the global coal scene.

“Current prices comfortably support a business case for coal miners in Madagascar 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 be prepared to withdraw or even cease production if market conditions turn unfavorable, Nyati added.

“THE COAL HAS BEEN KISSED”

Strong demand and tight coal supplies reshaped trade routes, pushing global ‘deadweight ton days’ for the fossil fuel to record highs in July, Braemar research found, referring to a measure shipping levels in terms of fleet utilization and trip length.

European Union imports of thermal coal from Australia, South Africa and Indonesia – which traditionally supply Asian markets – have increased more than 11 times in the four months since the invasion of Ukraine by Russia, according to data from the Indian consulting firm Coalmint.

The invasion forced EU countries to reduce their dependence on Russian gas, which reduced its vast supplies in the region. The bloc’s ban on Russian coal imports has further increased pressure on power producers to find alternative sources of fuel.

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

European countries have temporarily shelved environmental goals as they seek to stockpile fuel and reopen mothballed coal-fired power plants to prepare for what could be a harsh winter.

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

The current ramp-up of thermal coal combustion could put countries on a collision course with ambitious CO2 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.

European governments say this is a temporary change, although it may depend on how long the energy crisis lasts. Germany is delaying planned shutdowns of some coal-fired power plants to ensure security of electricity supply.

Botswana coal miner Minergy sees the coal market remaining strong until at least mid-2023, if not longer. She hopes to double her production capacity.

“The negative narrative surrounding coal has been abandoned and coal has been adopted as the energy source of choice in energy crises resulting from war,” the company said.

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Reporting 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: The Thomson Reuters Trust Principles.

Nina Chestney

Thomson Reuters

Oversees and coordinates EMEA coverage of the electricity, gas, LNG, coal and carbon markets and has 20 years of journalism experience. Writes on these markets as well as climate change, climate science, energy transition, renewable energy and investments.

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