Coal is back | MoneyWeek

There is a “iron law of electricity,” says Robert Bryce on Forbes. “When forced to choose between dirty electricity and no electricity, people will choose dirty electricity every time. “

Global demand for electricity jumped about 5% in the first half of the year as the pandemic ebbed. Add to that a wind drought in Europe and now we have a mad global race to secure supplies of natural gas, coal and oil ahead of the northern hemisphere’s winter.

Global references soar

Futures contracts on Newcastle Coal, an Australian benchmark for thermal coal prices, have fallen from $ 57 per tonne a year ago to around $ 240 per tonne. Thermal coal is the type burned in power plants. About 70% of Indian electricity and 60% of Chinese electricity comes from coal. Prices in China have also reached record highs, Shivani Singh told Reuters. Zhengzhou thermal coal futures for January delivery hit a record 1,669.40 (£ 189) per tonne last Friday.

Cold weather exacerbated existing supply problems caused by flooding in major mining areas. Higher demand and prices would usually lead to increased supply, says Andy Uhler for marketplace.org. But the disruption of Covid-19 and carbon emissions targets have kept Chinese mines from increasing production. American coal miners cannot easily increase their exports because building new coal infrastructure is politically toxic. Regulations also prevent Chinese energy producers from passing price fluctuations on to end users.

“Chinese authorities say it takes an additional 100 million tonnes” of coal to fill power plant shortages, Rachel Millard told The Daily Telegraph. Miners in Mongolia were given “a simple instruction: dig more coal, fast.” Indian power plants are also grappling with alarming supplies. Beijing imposed an “informal embargo” on Australian coal late last year, adds Chris Leung of DBS. China previously imported around 25% of its coal from Australia, but turned to Russian and Indonesian suppliers following a diplomatic row with Canberra.

These import restrictions can now be relaxed to cover the coal deficit. In the UK, “coal has dropped from 40% of electricity production in 2012 to just 1.8% in 2020,” Jon Yeomans explains in The Sunday Times. Yet despite all the talk about the disappearance of coal, fuel remains a “key source of basic energy” in developing countries. Some 480 gigawatts – the equivalent of 150 Hinkley Point C – new coal-fired power plants are planned around the world. The city’s businesses are under increasing pressure to divest themselves: Anglo Pacific has become the latest miner to announce the sale of its thermal coal assets.

The environmental arguments against fuel are clear, says Jim Armitage in the same article. Coal generated more than 14 billion tonnes of CO2 in 2019, compared to “12 billion for oil and eight billion for gas”. But the trend towards “prohibition” often pushes first-rate companies to offload their coal assets to less reputable operators: good for their environmental reputation, but “bad for the planet”.

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