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© 2022 Access Intelligence, LLC – All Rights Reserved
Mar 8, 2022
by Darrell Proctor
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The war in Ukraine is having a global impact on energy prices, not only driving the cost of oil higher, but also sending coal prices to record levels as demand for the fuel grows during a period of diminished supply.
The Newcastle (Australia) futures price of thermal coal for power generation hit $435/ton on March 7, the highest price ever, with coal’s price up nearly 70% this month and more than tripling since the start of this year. Supply disruptions in top coal-exporting countries such as Indonesia and Australia have contributed to the rise.
The U.S., while relying on domestically produced coal, is not immune to rising prices. Coal from the Illinois Basin hit $92.50/short ton (st) last week, the highest price since at least 2005. Coal from Central Appalachia reached $93.40/st.
The U.S. plan to ban imports of Russian oil and gas, announced by President Biden on March 8, is designed to hurt Russia but does not wield the impact of a similar ban by European nations, which are more dependent on imports of Russian fuels. “We’re banning all imports of Russian oil and gas and energy,” Biden said Tuesday from the White House. “That means Russian oil will no longer be acceptable at U.S. ports, and the American people will deal another powerful blow to Putin’s war machine.”
Europe, though, has not yet moved to ban Russian imports, though UK officials on Tuesday said they would phase out imports of Russian oil by the end of the year. Robert Habeck, Germany’s economy minister, last week said Russia’s invasion of Ukraine could boost demand for coal, with Europe needing to burn more coal due to higher prices for natural gas. Prices for gas in Europe hit a record above €335 per megawatt hour this week, a level at which it is cheaper for some power stations to burn coal instead of gas, even when considering the cost of carbon permits.
German Chancellor Olaf Scholz on Monday said Europe has exempted Russian energy supplies from sanctions because there is “currently no other way of securing Europe’s supply of energy for heat generation, for mobility, for power supply and for industry.”
“Biden’s decision to ban U.S. imports of Russian oil is noteworthy, but movement toward a European ban on imports of Russian oil and gas would be the real show-stopper, given Europe’s relatively high dependence on energy supplies from Russia,” said Jason McMann, head of Geopolitical Risk Analysis for Morning Consult, a business intelligence company, an email to POWER. “Such a move, if it materializes, would have major economic and geopolitical ramifications.”
The U.S. imports about 700,000 barrels per day (b/d) of oil from Russia. Europe, by comparison, brings in about 4.5 million b/d of Russian oil.
“We can take this step when others cannot,” Biden said Tuesday in announcing the U.S. move. “But we’re working closely with Europe and our partners to develop a long-term strategy to reduce their dependence on Russian energy as well.”
Many countries already were wrestling with energy crises before Russia invaded Ukraine. Some, particularly in Europe, are revisiting their strategies and timetables to reduce their use of fossil fuels, recognizing that weaning themselves off Russian oil and gas requires using other energy resources—and realizing they can burn coal now, while bringing more renewable energy will take time.
Some countries have said they need to burn more coal to ensure energy security, if they’re going to reduce their use of Russian natural gas. The International Energy Agency (IEA) in a report last week noted that trade-off, writing “The faster EU policymakers seek to move away from Russian gas supplies, the greater the potential implication, in terms of economic costs and near-term emissions.”
The global use of coal for power generation this winter has reached record levels, on the heels of a 2021 in which the use of coal grew for first time in several years. The IEA on Tuesday reported that coal has been a catalyst as countries rebuild their economies after months of pandemic-induced declines. Coal-fired power generation in Europe rose 18% last year above the prior year’s levels, and coal has even had a bit of a resurgence in the U.S., with coal-fired generation increasing last year for the first time since 2014.
Coal-fired generation reached an all-time high in India in 2021, jumping 13% above its 2020 level.
IEA on Tuesday said that global energy-related carbon dioxide (CO2) emissions rose by 6% in 2021, to 36.3 billion tonnes, the highest level ever. The agency’s analysis showed that last year’s recovery in energy demand, and weather-related issues that upended markets and led to spikes in the price of natural gas, “led to more coal being burned despite renewable power generation registering its largest-ever growth.”
IEA said that worldwide, renewable energy sources and nuclear power provided a higher share of global electricity generation than coal in 2021, with renewables-based generation hitting an all-time high, exceeding 8,000 terawatt-hours (TWh) in 2021, a record 500 TWh above its 2020 level. The agency noted, though, that higher prices for natural gas caused generators to burn more coal, and “the costs of operating existing coal power plants across the United States and many European power systems were considerably lower than those of gas power plants for the majority of 2021.”
IEA said global increases in emissions were mostly driven by China, “the only major economy to experience economic growth in both 2020 and 2021,” according to the agency. IEA said China’s emissions of CO2 increased by 750 million tonnes between 2019 and 2021, noting “the emissions increases in those two years in China more than offset the aggregate decline in the rest of the world over the same period. In 2021 alone, China’s CO2 emissions rose above 11.9 billion tonnes, accounting for 33% of the global total.”
Electricity demand in China grew by 10% in 2021; IEA said the “increase in demand of almost 700 TWh was the largest ever experienced in China. With demand growth outstripping the increase in supply from low emissions sources, coal was used to meet more than half of the rise in electricity demand. This was despite the country also seeing its largest-ever increase in renewable power output in 2021.”
—Darrell Proctor is a senior associate editor for POWER (@POWERmagazine).
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