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Coal Is Back?

A few months ago, we wrote a blog arguing that despite everything, coal was set to make a comeback – at least in the short to medium term. We also factored into the market outlook growth in coal and demand for coal ETRM solutions over a short time scale. We suspected that not only would coal make a recovery expedited by the impact of the Russia-Ukraine war and shortage/price of natural gas but that some firms may be tempted to spin off coal trading operations and keep them at arms length thus creating a market for ETRM’s that handle coal. So far, it seems that we were correct in our assessments and today I happened across an article on European gas hub stating that coal is back and drawing similar conclusions. “The amount of news stories about the European coal market has grown exponentially in 2022. Today coal-fired generation, just like in the old days, catches everyone’s attention as it is one of the region’s best hopes for running the energy system smoothly (as far as possible) during the coming winter season,”they say. Indeed, the article goes on to say that “this year’s appetite for gas alternatives is so strong, and not only in Europe, that the world’s consumption of coal may rise in 2022 to the record level it reached nearly a decade ago, as forecasted by IEA. As recently as in 2020, many analysts and commentators would probably not have bet a penny on such outcome.”

We did.

It’s not only in Europe where conditions have forced the comeback of Old King Coal but use of coal in Asia-Pacific is accelerating as well. Reuters published a story about China’s increased coal production – up 16%. According to another article, “China approved the construction of 8.63 gigawatts (GW) of coal power in the first quarter of this year, nearly half the amount seen in all of 2021..,” and it produced about 5.4 petawatts from coal in 2021 according to the website statista.com with steadily rising coal generation for power over the years. In fact, it says that power production from coal in China stood at 63.6% in 2021. Meanwhile, India generates 75% of its power from coal and Reuters also reported that it too is considering building new coal plants as it generates the cheapest electric power and the Government recently gave India’s coal mines permission to boost production by up to 50% without seeking new permits. While political pressure grows, energy security so far is trumping climate concerns and coal still has a huge role in electric power generation in most parts of the world.

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However, the increased use of coal has also impacted coal prices which have soared especially since the start of the war. This was reflected in BHP’s record dividend payment on the back of an annual profit surge in which coal reversed a half billion loss to become a 9 billion profit. We do expect to continue to see coal demand and production growing in the short to medium term along with potential demand for ETRM solutions despite the rise in coal prices. On the other side of the coin, this will also drive ETRMs focused on CO2 and emissions as it looks like more carbon offsets will be required to cater for the increased coal use.