© Reuters. FILE PHOTO: A truck drives past a coal dumping conveyor being produced at Canyon Coal’s Khanye plant near Bronkhorstspruit, about 90 kilometers northeast of Johannesburg, South Africa, April 26, 2022. Photo taken April 26, 2022. REUTERS / Siphiwe Sibeko / Fil
By Sudarshan Varadhan, Helen Reid, Nuzulack Dausen, Jonathan Saul and Nina Chestney
DAR ES SALAAM (Reuters) – Tanzania’s port of Mtwara was mainly trading in cashew nuts until the end of last year. It now bustles with ships laden with coal, as Russia’s invasion of Ukraine spurs a worldwide race for polluting fuels.
Tanzania traditionally exports only thermal coal to its neighbors in East Africa; Sending it further is unquestionable, as it requires transporting material more than 600 kilometers from its mines in its southwest to Mtwara, the nearest Indian Ocean port.
Europe’s crippling energy crisis changed all that.
The price of thermal coal, used to generate electricity, has skyrocketed to record levels in the aftermath of the war, leaving many European countries unable to access vital coal and supplies from a top supplier. Theirs is Russia.
Buyers in Europe and beyond are vying to pay the most dollars for coal from often remote mines in places like Tanzania, Botswana and potentially even Madagascar. Rising demand for coal, as governments are trying to cut Russia’s energy while keeping electricity prices in check, conflicts with plans to transition climate away from the most polluting fossil fuels.
“European players, after the Russian war, would go wherever there was coal,” said Rizwan Ahmed, chief executive officer of coal mining company Bluesky Minings in Dar es Salaam, Tanzania. “They’re offering a very good price.”
Cargill cargo trader Cargill has seen a significant increase in coal shipments into Europe in recent months, said Jan Dieleman, president of Cargill’s ocean freight division. Cargill’s ocean freight division, said the company shipped 9 million tonnes of coal globally in the June-August period compared with 7 million tonnes a year. earlier.
“Europe is competing with other buyers and the more expensive alternative, which is gas,” said Dieleman. “Europe will be able to supply coal and we will see very strong flows into Europe from Colombia, South Africa and even beyond.”
Although the window of opportunity could be short if geopolitical winds change, some coal-rich countries see the profits as too good an opportunity to miss.
Physical thermal coal for delivery last month at the Australian port of Newcastle – a global benchmark – was trading at $429/mt on September 16, just below an all-time high of $483.50 in March and up from about $176/ton this time last year.
Mtwara has seen 13 ships carrying coal since last November when it launched its first coal shipment, according to a port official; the latest, MV Miss Simona, a 34,529-ton bulk carrier, docked last week, loaded and set off for France.
According to analysis from cargo and marine data platform Shipfix since the end of June, 57 orders – which require available vessels – to transport Tanzanian coal have been seen in the spot freight market. compared to just two orders in the same period last year.
Global seaborne thermal coal imports hit 97.8 million tonnes in July, the highest on record and up more than 9% year-on-year, an analysis from shipping broker Braemar showed. Volumes fell to 89 million tonnes in August, largely due to export disruptions from major producer Australia.
ONE FINAL HOUR FOR COAL?
Tanzania expects coal exports to double this year to about 696,773 tonnes, the country’s Mining Commission told Reuters, while output is expected to increase by 50% to about 1,364,707 tonnes.
According to Yahya Semamba, acting executive secretary of the Mining Commission, a government agency that targets the significant tax revenue from this increase in exports, the government is considering building a railway linking the region. Ruvuma produces coal with Mtwara.
Tanzania-based miner Ruvuma Coal has exported at least 400,000 tonnes of coal through a trader to countries including the Netherlands, France and India since November, according to trade data reviewed by Reuters. .
Ruvuma Coal declined to comment for this story.
Coal miners are enjoying unprecedented profits in what some see as the ultimate stumbling block for an industry facing intense pressure to cut output; Rob West, an analyst at consulting firm Thunder Said Energy, said that at a coal price of $75 a tonne at the end of 2020, a coal mine could earn as much as $15 a tonne. But when the price reached $400/ton, the profit margin increased to $235/ton.
In fact, traders in Europe are willing to pay double what Asian buyers quote, according to some mine executives such as Bluesky’s Ahmed, who said his company does not currently export via Mtwara, but planned to do so and received a request from the buyer. in Germany, Poland and the UK.
Similarly, in landlocked Botswana, selling coal on the sea market was once unthinkable, with most exports going to neighboring South Africa, Namibia and Zimbabwe.
“Before that, logistics would kill us,” said Morné du Plessis, CEO of Botswana-based coal miner Minergy. However, at current prices, we can make this work.”
Minergy exported two shipments of about 30,000 tons each from Namibia’s Walvis Bay port and sent two coal shipments from Mozambique’s Maputo port.
The island nation of Madagascar, the world’s top vanilla exporter, could become another new player in the global coal market.
“Current prices comfortably support coal miners in Madagascar starting to export coal for the first time,” said Prince Nyati, CEO of one of the companies developing coal projects in the country. in the history of the country”.
However, new entrants will have to be willing to withdraw or even stop production if market conditions turn unfavorable, Nyati added.
‘COAL IS CONNECTED’
High demand and scarce coal supplies have redrawn trade routes, driving a global “day of tons of death” for fossil fuels to record highs in October, according to Braemar research. 7, according to Braemar’s research, refers to a measure of transport in terms of fleet utilization and length. of trips.
European Union thermal coal imports from Australia, South Africa and Indonesia – countries traditionally supplying the Asian market – have increased more than 11-fold in the four months after Russia invaded Ukraine, company data shows. Indian consultancy Coalmint suggests.
The invasion has forced EU nations to cut their dependence on gas from Russia, which has reduced its huge supplies to the region. The bloc’s ban on Russian coal imports adds to the pressure on power generators to find alternative fuel sources.
Russia typically supplies about 70% of the EU’s thermal coal, according to Brussels-based consultancy Bruegel, while it typically supplies 40% of the bloc’s natural gas.
European countries have temporarily shelved environmental goals as they seek to stockpile fuel and reopen mothball plants in preparation for a tough winter.
“Strong incentives have pushed coal and lignite production up 25% from a year earlier, despite a series of plant closures in the past year,” said analysts at Bank of America (NYSE:). the past three years”.
The current increase in thermal coal burning could expose countries to ambitious CO2 reduction targets; In the EU, burning more coal would increase CO2 emissions by 1.3% a year if Russia’s gas supplies were completely shut down, according to the energy organization Ember.
Governments in Europe see this as a temporary change, although that may depend on how long the energy crisis lasts. Germany is delaying plans to close some coal plants to ensure electricity supply security.
Minergy, the Botswana coal miner, sees the coal market continuing to grow strongly until at least mid-2023, if not longer. It hopes to double its production capacity.
“The negative narrative surrounding coal has been phased out and coal is seen as the primary source of energy during energy crises arising from war,” the company said.