Shortage of natural gas supply, the decrease in electricity production from renewable sources and China's decision to import less coal from Australia pushed coal prices to new highs, reaching 180 dollars per ton in Europe.
Problems in the coal market started after a slow-down in importing Australian coal by China, Brian Ricketts, The European Association for Coal and Lignite (EURACOAL) Secretary-General, told Anadolu Agency on Monday.
Australia, the world's largest coal exporter, usually sends a large portion of its supply to China, Ricketts said and added that this year China first started inspections on Australian coal, which slowed down deliveries.
"Then an unofficial instruction to stop imports of Australian coal to China created a big disruption to the coal market," Ricketts said.
The disruption didn't change the need for coal globally, it just changed the patterns and route of coal distribution, he added.
As China started buying coal from other countries, Australia turned to new customers. New buyers means the coal travels a longer distance to reach its destination, thus increasing the delivery time and increasing the prices accordingly, Ricketts said.
China's reasoning for changing coal suppliers is more political than anything else, according to Ricketts.
Australia's call to investigate the origins of COVİD-19 and the country's cooperation with the US to acquire nuclear subs under a new defense pact both angered China, he said and added, "So there is a geopolitical background to what's happening in the coal markets in that part of the world."
"That started to push coal prices up. Then more recently, there has been a squeeze on European gas," he said.
Natural gas is coal's biggest competitor in the power generation market. So, as natural gas prices started to increase, it gave new opportunities for coal use and coal exporters also started raising their prices, Ricketts added.
"At the same time, carbon prices have been skyrocketing, which would normally reduce demand for coal and increase demand for gas. But if there isn't enough gas, then everybody ends up having to pay both higher fuel costs and very much higher carbon prices, so hence electricity rates shoot up in and around Europe," he said.
Last year, due to the effects of COVID-19 with economies slowing down and the reduction in power demand, coal prices fell below 40 dollars. Ricketts pointed out that coal prices haven't seen that low since the 1990s.
This year prices went back up to 180 dollars per ton in Europe "because of what's going on between Australia and China and the gas squeeze." he said.
There is a coal supply problem in China, "stemming from their refusal to take Australian coal and they now face power cuts because there isn't enough coal for power generation. So major cities have been suffering from blackouts in China," Ricketts said.
China is the world's largest coal producer, but the country can't produce enough to satisfy its domestic demand.
Coal is a cheap commodity and normally, new supplies would bring the price back to long-term marginal cost. But, "we are not quite in a normal world anymore because environmental, social and corporate governance (ESG) requirements on companies mean that big international mining companies now don't invest in coal. So only private companies and state-owned companies are in the position where they can invest, and there isn't really enough of them to respond to these events," Ricketts said.
Globally, "in the short term, governments will value the security that coal offers, that's clear. They will do whatever is needed to keep plants running during the crises period. Still, in the medium to longer-term, the trend is toward phase-out of coal in Europe, and nobody has suggested anything other than that," he said.
Although coal in power generation will be scaled back globally, there is still room for it.
The capital cost of renewable is very high, and eventually, the consumer ends up paying for the premium to cover the capital cost of renewables, he said and added, "coal doesn't need to compete with renewables because renewables aren't able to supply continuously. So there are gaps when coal can generate. It can be complementary rather than competing."
* Writing by Zeynep Beyza Kilic
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