Seriti Resources coal
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The coal sector is living under the constant threat of being blamed by environmentalists as being responsible for a world disaster called global warming.

Cliques are telling industry and government to change and adopt the ‘new energy economy’ or as America’s infamous politician and activist Alexandra Ocasio Cortez calls it, ‘The New Energy Deal’.

This article first appeared in Mining Review Africa Issue 1, 2020

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She states that the only solution to avoid devastation to the world is to accept that renewable energy is the way to go for all energy needs, given that it is becoming so cheap, and so fast that the move to a world that no longer needs oil, natural gas, or coal is unavoidable.

By Xavier Prévost, senior coal analyst at XMP Consulting

The industry’s answer is, as Lars Schernikau puts in:

  • Coal’s importance will further increase in absolute and relative terms for decades to come
  • Man-made CO₂ has no effect on global temperatures and combustion of fossil fuels does not influence the weather
  • We cannot stop the advance of coal; we can only make this process as environmentally sustainable as humanly possible

The Massachusetts Institute for Technology (MIT) in “The Future of Coal” 2007 states:

“Coal is likely to remain an important source of energy in any conceivable future energy scenario. Accordingly, our priority actions are to reduce the CO₂ emissions that coal use produces.”

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We strongly believe that it is still sustainable as part of South Africa’s energy mix. Contrary to the idea that ‘coal is dead’, South African reserves and resources are abundant and can provide low-emitting, cost-effective, reliable and sustainable power well into the future, using Clean Coal technologies (CCTs).

Coal mining, power generation, industrial utilisation and allied industries provide more than 700 000 jobs and this figure should increase as more mines and industries open in the future.

It is well recognised that seven times that number is the approximate quantity of dependents on average allied to every person in employment.

One further fact not understood by the public is that, for every mine or industry job, many more jobs are created in support industries. This includes transport services, retail shopping complexes, schools, hospitals, and building-related activities.

For these reasons, coal is the mainstay of our economy. If mines, for example, were to be closed, or become unproductive, many jobs would be lost, increasing unemployment and poverty. Coal supplies 95% of electricity consumed by the country. Electricity from coal is still the cheapest in the world.

Because of the current lack of incentives and funds to implement new projects in the country, production is not growing and because some of the large, older mine’s output is decreasing, our yearly production has not improved for years.

The reality is that the 2020 ‘Coal Cliff’ is here! Some banks do not fund power stations, but funding for mining is still available.

Coal prices, drivers of a successful industry, have regularly increased in the local market, where some grades now show higher prices than similar grades in the export market. Mines are also currently selling more to that market, although the future of Eskom is still uncertain.

Despite Eskom and the renewables industry assertions that they should be used in power generation, we know that, as in the EU, it can only happen at great peril to the economy, so demand for coal remains.

In countries such as China and India, use is growing, because there have no alternatives. A technological new solution will hopefully be found, but it is not here yet.

I am confident about the future of the industry. As Reuters Refinitiv declares in the article:

“Coal may be dying, but growth in the seaborne market says not yet”; it is a bit of a surprise to look at the actual volume of coal being shipped around the globe and see that it is growing so far this year.

In the first seven months of 2019 a total of 870.8 Mt of coal, thermal and coking, was imported from the seaborne market, according to vessel-tracking and port data compiled by Refinitiv.

That's 2.1% higher than the 852.6 Mt in the same period in 2018. This is not a massive increase, but the fact that the seaborne market is stronger in 2019 does challenge the narrative of a dying industry.

The overall picture for seaborne coal does remain gloomy, but as the growth in the market so far this year shows, coal remains sticky in the global energy system and any death may be lingering.

The local industry will, for many years to come, will be the reliable supplier of cheap inland energy and a large source of profit for big and small producers.

The DMRE 2018 production statistics showed that of the five main commodities; coal, gold, PGMs, diamonds and iron ore, coal was the highest value earner with R145.6 billion (37.5% of the total).

Observing current seaborne and inland coal prices, sizes and qualities available to the markets, let us try to provide an illustration of the status of coal supply and a foretaste of future developments.

Before 2009, inland market prices increased at approximately 10% per annum. From 2011 to 2015 by 8% and then again by 5% in 2016 to 2018.

As transport plays a big role, with logistics and fuel costs ever-growing, mines closer to market have had an advantage when determining delivered price to end-users.

Coal exports, once best money-makers, are now in decline and cannot expect to support the industry as in years past.

In the seaborne market, steam coal prices fluctuate extensively, mainly due to the influence of China. The markets for exports’ displaced tonnages are new developments in NE Asian countries.

Trade to the Pacific, eastern Mediterranean and Indian Ocean will grow, while exports to Europe will be replaced by growth in exports to India, Latin America and other small markets.

Exports in the future will be dominated by low-cost mined coal. Minimum contractual tonnages and sunk costs in rail, barge and terminal will promote exports at very marginal profit levels.

The future shows substantial growth in prices and tonnages in the inland market, while export prices will remain static or decrease. This will generate an almost price equivalence between inland and export, resulting in an accelerated growth of the local market at the expense of exports.

The message for the industry is that, to cope with an expanding local demand and higher future prices, our coal production which has been sluggish since 2013, requires more capital and the implementation of new projects and mines as soon as possible. If this does not happen and soon, alternative imports from new Botswana’s mines will reap the benefits.

About the author

Born in La Paz, Bolivia, Xavier Prévost obtained an M.Sc degree in Engineering Geology from the University Of San Andres in 1968, a Diploma in Mining and Exploration from the Montanistische Hochschule in Austria, a Graduate Diploma in Engineering from Wits’ Leadership in Coal Technology Programme and an M. Engineering degree from Wits in 2002.

He has been involved in coal since 1977 and established the Geological Survey’s National Coal Database (NCDB) which he managed from 1979 until 1989. After a brief spell at General Mining (Genmin) as IT Exploration Manager, Xavier joined the Minerals Bureau - Department of Minerals and Energy in 1995, as Chief Mineral Economist for Coal and Hydrocarbons. In 2007, he was employed as Coal Senior Analyst at Wood Mackenzie, a global energy company involved in coal consulting and research in Southern Africa. Since 2009 Xavier has been consulting privately through his company, XMP Consulting.