• 2020 March 26

    Coal is flooded by oil

    The fall of oil market has surprisingly made coal a more expensive fuel as compared with oil and LNG. This fossil fuel can thus loose some of its markets as renewable energy is getting cheaper. In this case, investments in non-dedicated terminals can prove to be inefficient.

    Dealing for fall

    The plunge of oil prices has unexpectedly made the coal acknowledged as the cheapest option for energy more expensive than oil when it comes to energy equivalent. According to calculations of Bloomberg analysts, Australia’s coal currently costs $66-67 per  metric ton, the equivalent of $27-28 per barrel of oil while Brent futures were below $25.9 a barrel. However, it should be noted that from the environmental point of view, coal is considerably inferior to other popular types of fuel, first of all gas.

    Another problem of coal which has nothing to do with the coronavirus and oil crisis is related to the fact that generating power from renewables involving solar and wind technologies is getting cheaper. According to the Forbes analysts, “even for coal power plants that are already built and in operation, it would be cheaper to build new clean power capacity than produce power from those coal facilities in 60% of cases. By 2030 at the latest, it will be cheaper to build new wind or solar capacity than to continue operating coal in every single market in the world”.

    All the above-mentioned factors suggest that coal loosing certain markets amid today’s crisis might not fully return there upon normalization of the situation. Of course, complete rejection of coal is hardly possible worldwide: the population of Asian countries continues growing, so does their economy. Therefore, a certain niche will remain for coal. The more so as energy diversification is still in force. Yet, only high quality but cheap coal will be in demand.

    Assistance of ‘specialists’

    The demand for coal is expected to decrease in Europe in the mid-term and the demand stagnation in Asia in the long term. To prevent complete removal of coal from the global energy industry it is necessary to reduce the cost of its logistics and to raise the level of its quality. The technology used for coal transshipment, cleaning and storing is crucial. If an outdated technology of grabbing is involved it is hard to speak about competitiveness.

    Nevertheless, instead of investing in wagondumpers, shiploading machines, conveyors, heating and cleaning systems and other equipment, many coal terminals of Russia continue purchasing new cranes for grab discharge operations and some “cosmetic” technologies like dust barriers and water cannons (that is good in itself but does not convert a terminal into a dedicated one). Such investors expect the government and Russian Railways to make enormous investments in development of railway approaches either hoping for unceasing growth of the coal market with minimum of expenses from their side or counting on here-and-now profit. The former is not likely to happen with the latter not meeting the long-term state interests.

    Russia’s dedicated coal terminals can be counted on fingers. The largest ones are Vostochny Port (Primorsky Territory) and Rosterminalugol (Ust-Luga port in the Leningrad Region). According to the Institute of Natural Monopolies, that list also includes Daltransugol (Vanino port) and Trade Port Posiet (Posiet port).

    It should be noted that, according to the media statements, the Ministry of Transport and the Ministry of Energy have drafted a method for allocation of quotas on cargo transportation by railways in the eastern direction in view of insufficient throughput capacity.

    In this respect and in view of possible budget reduction amid the coronavirus and oil crisis (that can affect investments in development of transport approaches) we call on an insight into reasonability of providing carrying facilities to non-dedicated terminals the owners of which do not think about the future. The more so as there is no place for them in that future.

    Vitaly Chernov