If you play the commodity markets, here’s a tip — now is the time to go long on coal. Driven by the uncertainties of the conflict in Europe and the resultant supply chain disruptions, as well as soaring energy prices, there has been a global return to this traditional fossil fuel. Coal prices have soared to record levels, as the world’s major energy consumers, led by the China, the US and Europe, have rapidly shed their “green” concerns and switched back to anthracite. Global warming can wait.
Coal prices breached the $200 per short tonne (0.907 metric tonnes) mark in the US, with high grade Northern Appalachia coal averaging $204.95 in the first week of October — the first time that the oldest fossil fuel known to man had crossed the milestone since coal started being mined in the US back in the 18th century. And it doesn’t look like sinking too much in the future either. Currently, March 2024 futures for US coal are trading at over $220 per metric tonne.
The prices are going up — and staying up — because coal is the most widely available — and cheapest — energy source going around. And when push comes to shove, the big energy consumers are taking care of requirements first, and worrying about the planet later.
China was the first to retract, way back in April, soon after Russia’s February 24 blitzkrieg into Ukraine. It announced that it will be adding 300 million tonnes of coal mining capacity. It already holds the world record in coal output, having mined more than 4 billion tonnes in 2021. In the first quarter of 2022 alone, it has created more than 8.6 gigawatt (GW) of thermal power capacity. Bloomberg reported that “the world’s biggest energy user is expected to add 270 gigawatts of thermal capacity in the five years through 2025 (China Energy Engineering Corp.).”
China, of course, has a deep economic interest in thermal energy, particularly coal-based plants. Not only is it the world’s biggest coal-based power generator, at more than 4,600 terawatthour of coal-based power, its capacity is five times as much as that of India, which has about 947 TWH. The US is close behind with 774 TWH, followed by Japan and South Korea. China is also the biggest producer and exporter of thermal power plant equipment, and Chinese banks have financed about 70 per cent of the new coal-based plants being built around the world at the moment.
Europe, till 2020 the leader in the transition to green energy, is not far behind in the turnaround. European coal imports have surged more than 35per cent this year, as most EU nations re-opened mothballed coal-based power plants and ramped up output in running ones to deal with soaring natural gas prices. Germany is forecast to become the world’s third biggest importer of coal, behind China and India, by 2023.
The breach of the Nord2 gas pipeline from Russia has worsened the situation. With winter almost here, coal usage is set to surge further. That’s not all. According to the UN, the Nord2 rupture may have led to the largest single release of methane into the atmosphere ever recorded. Global warming, anyone?
India’s situation
India is not exempt to the global trend too. At last week’s IMF-World Bank meeting, Finance Minister Nirmala Sitharaman, while speaking to reporters, pointed out that the western world was moving to coal. “The matter of fact, it (coal) is now reviving itself as a thermal unit. So, it’s not just India, many countries have gone back. And coal is now going to be back again, because I think gas cannot be afforded. Or it is not available as much as you want,” PTI quoted her as saying.
Given that high capacity storage is still elusive, India’s large renewable capacity addition will not be matched by consumption of renewable-based power, given the intermittency issues with solar and wind power.
Power Minister RK Singh has said that India plans to increase its coal-based power generating capacity by 25 per cent by 2030, taking installed thermal power capacity to over 265 GW by the end of this decade.
In addition, India has as many as 99 coal mine projects in the pipeline. These new mines will have a combined production capacity of 427 million tonnes of coal per year when they are commissioned. In addition, India has offered 16 coal bed methane blocks for auction for exploration licences.
So far, India has manage to stick to its glide path for meeting its nationally determined contributions to reducing greenhouse emissions and cutting back the carbon intensity of its economy. But the conflict in Europe and West’s attempt to economically throttle Russia by reducing its energy purchases from that country, have led to spiralling energy prices. Given that increased energy consumption is not only a prerequisite for overall growth but human development, and given that India ranks 104 out of 140 countries in per capita energy consumption, increasing energy consumption is a development imperative for India.
However, India is also one of the most vulnerable countries in the world to climate change. The UN’s Intergovernmental Panel on Climate Change (IPCC) report released earlier this year points out that India will be among the nations most “economically harmed” by climate change. The report pointed out that about 35 million people could face annual coastal flooding by the middle of the century, while at the same time, at least 40 per cent of the population will be living with severe water scarcity.
The thing is, while India can control its developmental choices by increasing or decreasing dependence on fossil fuel power, it has little control over climate change mitigation, unless other nations also do their bit. But as recent events have demonstrated, when push comes to shove, it is clearly every country for itself.
The writer is a senior journalist