The future doesn’t look bright for coal
Moves by China, India, Japan and South Korea to end imports of coal bodes ill for the SA industry
Resource Generation’s proposed but long-delayed Boikarabelo coal mine in SA’s Waterberg Coalfield has hit trouble after a member of its funding consortium pulled out.
According to a company release to the Johannesburg and Australian stock exchanges, the Industrial Development Corporation has cancelled all previously approved facilities due to its view that “the market conditions under which the Boikarabelo Coal Project would operate have deteriorated materially”.
The proposed coal mine is intended to supply domestic and overseas markets. Resource Generation is now seeking an urgent meeting with its working capital lender.
The material deterioration of the SA coal market in recent weeks started with China’s surprise announcement that it is targeting net zero emissions before 2060 — an important statement from the world’s largest thermal coal importer.
After this, the International Energy Agency (IEA) released the 2020 edition of its influential World Energy Outlook. This annual report is often held up by the coal industry as evidence of a growing future for coal, but its response this year has been muted as the report highlights that overall coal demand peaked in 2018, and under its base scenario the IEA expects it will never rise above pre-Covid levels again.
Under its 2050 net zero emissions scenario, coal demand collapses globally by 2030. This is a change in stance from the IEA, which in 2019 did not see global coal demand peaking until 2025-2030 in its base scenario.
China’s net zero announcement was followed by a statement from Japan that it is targeting net zero emissions by 2050. Two days later South Korea followed suit. Japan and South Korea are the world’s third- and fourth-largest importers of thermal coal respectively.
South Korea’s move follows an announcement from its state-owned power generator, Kepco, that it will end construction of coal power plants overseas, and that the proposed Thabametsi coal power plant will either be cancelled or converted to a liquefied natural gas project (the former seems more likely).
Meanwhile, Eskom is attempting to line up green finance to relieve its huge debt issues in exchange for a staged coal-fired power phase out. The long-term domestic market for SA coal is looking poor, and there is bad news on the coal export front. India — by far SA’s largest coal export destination — is stepping up efforts to reduce reliance on thermal coal imports in the wake of Covid-19 to protect domestic jobs and improve energy security.
Pakistan is moving away from imported coal to focus on domestic coal, renewables and hydro for the core of its power generation system. Pakistan is SA’s second-largest coal export destination. South Korea is third, and its net zero emissions by 2050 target will see its coal-fired power plants replaced by renewable energy.
Outside SA’s three biggest export destinations, there is rapidly declining hope for further opportunity in other markets. Bangladesh is planning to cancel 13,000MW of proposed coal plants — its entire pre-construction project pipeline.
The Philippines has just announced it will not build any more coal power plants. And Vietnam is set to cancel or postpone up to 17,000MW of coal power proposals. Increased exports to Vietnam have helped prop up overall SA exports in 2020. However, Richards Bay exports over January to September were still down 1.3% on the previous year after export tonnage declines in both 2019 and 2018.
Furthermore, SA won’t have any increase in short-term Vietnamese demand to itself. Indonesia is targeting Vietnam, Pakistan and Bangladesh as concern builds that it is about to start losing its biggest markets of China and India. Exporters in SA, Indonesia, Australia and Russia will be eating into each other’s markets as the Asian seaborne thermal coal pool dries up.
The Institute for Energy Economics and Financial Analysis (IEEFA) warned about the worsening long-term outlook for SA coal exports in a report published in September 2019, but events are moving even faster. Coal miners hoping that export markets will make up for the declining outlook for SA coal domestically will be disappointed in the long term.
A controversial move to fast-track mining, water and environmental licences is part of the SA government’s rescue plan for post-Covid economic recovery. However, coal mining is unlikely to be part of the long-term solution to the nation’s unemployment woes. In fact, as the decline of coal accelerates even faster, the focus will need to be on transitioning existing coal-mining jobs to new industries with a brighter future.
• Nicholas is energy finance analyst at IEEFA.
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