Coal crunch: Asia faces winter of discontent
China and India are struggling to obtain enough coal to get through the winter and power their pandemic recoveries. Soaring prices are exacerbating the energy crisis and raising urgent questions about climate goals.
As winter approaches, the skyrocketing prices of oil, gas and coal have left governments across Asia scrambling to contain a huge energy crisis. Suppliers have been unable to keep up with surging electricity demand from the reopening of economies after closures for the coronavirus pandemic.
US oil prices crossed $80 (€69.38) a barrel on Monday for the first time since late 2014. Natural gas futures settled at their highest level since December 2008 this week, while the price of coal in China hit a record high on Tuesday, rising by over 11% in one session.
“The sharp increase in the price of thermal coal has created significant problems for Asian economies,” Rajiv Biswas, Asia-Pacific chief economist at research house IHS Markit, told DW. He said some power stations in China and India were “more reliant on imported coal for logistical reasons, and are more vulnerable to sharp rises in prices.”
China’s energy crunch has forced production curbs across several industries such as cement, steel and aluminum, as power producers suddenly cut back on electricity supply — unable to afford the spiraling price of coal.
“Normally, producers would absorb the higher prices themselves,” Ghee Peh, a financial analyst for the Institute for Energy Economics and Financial Analysis, told DW. “But this year, when it became unprofitable, they weren’t motivated to produce more power.”
Power cut, manufacturing halted
Blackouts prompted the Chinese government to act, and on Tuesday Beijing said it would force industrial and commercial consumers to buy electricity at market prices — allowing power firms to pass on the coal price increases.
China’s woes have been exacerbated by floods that shut dozens of mines, along with supply chain issues and Beijing’s unofficial boycott of coal imports from Australia. Part of long-running tensions with Canberra, the embargo saw imports from down under drop from 4.5 million metric tons per month in June last year to almost zero today.
Coal is vital for China’s energy security. It currently makes up almost 60% of the country’s energy consumption. Despite being the largest coal producer, the Asian powerhouse relies on imports to help meet its needs. Low stockpiles could lead to a 12% cut in China’s industrial power consumption in the fourth quarter, according to some analysts and traders.
India’s stockpiles run low
Despite being the world’s second-largest coal producer, India has also struggled with low stockpiles as a result of the pandemic. Such is the supply crunch, the government this week ordered power producers to step up imports.
According to government data on coal at thermal power stations, 85% of the 135 federally monitored power stations face a “critical or supercritical” shortage of coal, the broadcaster NDTV reported.
India, too, has seen blackouts, prompting reassurance from coal minister Pralhad Joshi that the state-run Coal India, which supplies 80% of the country’s power, has more than three weeks of coal stockpiled.
Coal accounts for nearly 70% of India’s electricity generation, with about 75% mined domestically from the world’s fourth-largest reserves.
Indonesia — the world’s largest thermal coal exporter — is a “net winner” in Asia’s coal crunch, Peh said. The country helped fill the gap caused by China’s boycott of Australian coal. Indonesia is also benefiting by helping to alleviate India’s tight coal supplies.
Cambodia, like other Asian countries, is planning to increase the share of its coal-fired electricity by almost half, to 75% of its total power supply after 2030.
Coal production hiked
In fact, almost half of the world’s coal producers are expanding production, according to the latest Global Coal Exit List (GCEL), an annual analysis by the German environmental group Urgewald and other organizations.
According to GCEL, the global capacity for electricity produced by coal has increased by 157 gigawatts (GW) over the past six years. A further 480 GW is in the pipeline, much of it in Asia.
Coal’s continued vital role in the energy mix flies in the face of climate commitments by Asian governments and coal producers. A 2018 report by the UN’s Intergovernmental Panel on Climate Change (IPCC) warned that the use of coal for electricity and heating must be cut by three-quarters to meet the goals set in the Paris Climate Agreement. According to the GCEL report, only 49 of 1030 coal producers listed have announced a date for the phaseout of coal.
International Energy Agency Executive Director Fatih Birol told Agence France-Presse earlier this week that “real global action” was urgently needed, not just words, and singled out reliance on coal once again.
“Today one-third of emissions come from the coal use in electricity generation. This is the main issue,” Birol warned, before acknowledging the difficulty of retiring coal-fired power stations before their investments have been repaid.
Energy transition could take decades
To meet its commitment to become carbon-neutral by 2060, China would need to cut demand for coal by over 80%, a target that seems far-fetched as production is growing.
Biswas, from IHS Markit, expects coal to “remain the backbone of the power-generation capacity in some of the largest Asian economies, notably China, India and Indonesia” for some time, and estimates that the transition to cleaner energies will only take place in the “medium term.”
According to Urgewald, even when countries such as Bangladesh and the Philippines do a U-turn on plans for new coal-fired power plants, new gas-fired facilities are often connected to the grid, rather than renewable energies.
Source:dw.com