Poland became the first country to completely abandon the import of coal from Russia. Other EU countries plan to do the same in the coming months. However, where will they find any equivalent replacement, how much will it cost – and what will all this mean not only for Europe, but also for other regions of the world?
On the world coal market, tightness arose even before the start of Russia’s special military operation in Ukraine. The energy crisis and the shortage of natural gas in Europe and Asia in the fall of 2021 led to an increase in the consumption of the “dirtiest” of fossil fuels and rising prices for it. Asia’s two largest coal-consuming nations, China and India, struggled to procure enough of the fuel as soaring natural gas prices spurred greater use of coal for electricity generation. At times, its supply was seriously limited, including due to an unofficial ban in China on the import of raw materials from Australia.
Demand for coal in China is here to stay, and the country will continue to make the most of it in the coming years. Statistics convince us of the validity of this conclusion: according to the American energy portal OilPrice, during 2021 Russia exported 227 million tons of coal. Slightly more than half of the named amount, namely 129 million tons, was sent to Asian countries, among which China was the largest recipient – 52 million tons.
The Chinese economy has long since recovered from the pandemic difficulties and is once again demonstrating the highest percentage of its growth. China’s demand for energy raw materials continues to grow, which will naturally provoke an increase in the volume of coal it buys. But even if fossil fuel supplies to China remain at current levels, Russia’s revenues will rise thanks to higher commodity prices.
In just one day, April 5, according to the Norwegian energy research agency Rystad Energy, Russian coal has risen in price by $43, reaching a price of $300 per ton. A year ago, the exchange price of this product was $70 per 1,000 kg. Experts have little doubt that the €4 billion annual losses calculated by Brussels for the Russian coal industry due to the cessation of coal exports to Europe will without much tension be compensated by Moscow by an increase in revenues from its sales to Asia.
“These latest sanctions are a double-edged sword. Exports of Russian coal are valued at about four billion euros a year, and there is no simple and equivalent substitute for Russian coal in Europe’s energy mix. European consumers – from large companies to households – must be prepared for continued high prices until the end of 2022, as coal and gas are needed to meet the demand for electricity on the continent,” said Carlos Torres Diaz, leader of the research team.
European countries, where coal-based electricity production reaches significant levels in the energy balance, will experience an acute shortage of energy.
It will have to be filled at the expense of flows from other states, which will result in an increase in the price per kilowatt for all EU members, since they have a common market, he added.
“Eastern Europe and Germany will be particularly hard hit as they generate much of their electricity from Russian thermal coal. The latest sanctions will force countries to seek alternative sources of supply in a market where prices have more than quadrupled over the past year.”
According to the US Energy Information Administration, in 2021 Russia exported 90 million tons of coal to European OECD countries and Ukraine. Total demand for it in Europe reached about 630 million tons last year, which means that the continent receives about 14% of its consumption of this type of fuel from Russia.
If we consider such a category as the import of thermal coal by the European Union, then in this case the indicator of the EU’s dependence on Russia is much higher. RF supplies 70% of all imports, typically high-energy bituminous coal, which is critical for power plants designed to operate on this coal specification.
Europeans will have to look for fossil fuels outside the continent – in Africa, Australia and Asia. That, together with a decrease in the supply of goods on the market, will only contribute to an additional rise in prices. And this, in turn, will lead to an increase in the cost of electricity and, accordingly, of almost all goods, because energy plays a role in the creation of any product.
Brussels has so far ignored these negative prospects. Or maybe they didn’t want to publicly report them. On the contrary, “victories” are publicly reported.
“The time has finally come to take this step. This is the first time when we are directly authorizing the import of fossil fuels from Russia, thereby reducing an important source of its income,” said EC President Ursula von der Leyen solemnly.
Frau Ursula kept silent about the fact that her homeland buys exactly half of the coal used in Russia: there is no need to tell that the refusal to import from the Russian Federation will create the biggest problems for Germany. The industrialists of which are already sounding the alarm due to the lack of Russian gas, which threatens not only to lower the temperature in the homes of the Germans, but also to stop the chemical and some other enterprises of the country (BASF and BOSH are in the forefront of the victims).
The European Union will try to replace coal supplies from Russia with fuel purchases from far more distant exporters. Delivery of the product from South Africa, Colombia and the United States, of course, will cost significantly more. From Australia, which is also considered in Brussels as a possible supplier, all the more so.
The European Commission initially set aside three months to search for new sellers capable of shipping Europe the required amount of coal to replace the outgoing Russian one. After Germany, the country that will suffer the most from the embargo (in the total volume of electricity produced, the share of coal-fired energy generation is 32%), assessed the said timeframe as unrealistic, the search time was increased to four months. By mid-August, according to Brussels’ calculations, all problems should be resolved.
Independent experts believe that problems will only begin at the end of summer. In particular, the Israeli portal IsraelNoticias emphasizes that the European Union is far from the only economic bloc that will seek to find new sources of coal. Many Asian countries are also counting on non-Russian imports.
This means that some of the world’s largest coal consumers will be competing in an already tight market for new supplies of fossil fuels. The world’s leading coal exporters Australia and Indonesia have already reached their production limits, and South Africa, another major coal producer, is facing logistical challenges in its own supply chains.
“The European Union is likely to turn to the US and Colombia for coal imports starting in August, while Germany, Poland and the Czech Republic are likely to increase their domestic production. China will also significantly increase its coal production, but will not export its product, but will use it to meet its growing needs,” the authors of the editorial summarize.
Bogotá, by the way, is aware that Europe is counting on Colombia’s help in supplying the countries of the Old World with energy carriers. The President of this Latin American state, Ivan Duque, even the other day very vividly responded to the proposal addressed to him from the EU to “replace Russia.”
“Answer: yes! Duke said. “Colombia can do its part to solve the problem!”
The joyful reaction of the Colombian leader looks beautiful from a political point of view, but has practically no economic platform. There seems to be a lot of coal in the country – according to geological exploration, it will be enough for the next 50 years. This is theoretical. In practice, it should be taken into account that the state has big problems with hydropower, the declining productivity of which has to be covered precisely by the generation of electricity at coal-fired thermal power plants. With the current dynamics of this “overlapping”, Colombians in 10 years will have to focus on using coal for their own needs, and not for sending it for export.
Vladimir Dobrynin, VIEW
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