Coal rush!

It looks like the world is finding it increasingly difficult to wean off its coal habit as demand for the dirty fuel renegades against green promises. Whereas, Moody’s is maintaining low credit ratings for thermal coal mining companies predicting a declining demand on the back of government policies to cut down coal use, and falling gas prices; according to the Global Energy Monitor, nearly 400 new coal mining proposals could increase coal output by 30 percent.

Most of these are concentrated in coal-rich China, Russia, India and Australia. But this is opposed to the global 1.5C target –limiting global warming to well below 2 degrees—which would radically involve the world shift to renewables and reach net zero emissions by 2050. Based on that target, coal output should reduce by 11 percent annually over the next decade. The plan is to reduce all fossil fuel consumption by 6 percent every year to tackle global warming. But surely, only one of the two things can happen: either coal output increases keeping in mind the proposals that are under consideration or it could decline given the 1.5C targets.

Existing demand is rising. The pent-up demand from pandemic restrictions lifting in China, Europe and other countries and economies opening back up is powering coal comeback to fuel growing industrial and cooling needs. Prices have been spiralling out of control. Between just Mar-21 and Jun-21, prices for coal spiralled with Australian coal prices increasing by 37 percent versus South African coal that also saw prices swelling by 25 percent. In just one year, the value of coal has grown 149 percent (for Australian coal) and 99 percent for South African coal. Coal is the most expensive it has been in a decade.

Analysts believe this is temporary. The price surge has been triggered by China’s strange timing to stop buying high quality coal from Australia in the midst of massively rebounding demand in home-country. The blame lies at the fraying of political relations between two countries, the cost of which is being borne by importers and industries hungry for coal. These coal users have been relying on the low-calorific value Indonesian alternatives that is not piquing their appetite as it cannot compete with the superior Australian coal quality. But when rainfalls befell Indonesian islands, US coal miners have come to the rescue.

While the world is certainly still reliant on fossil fuels, and the current price rally shows just how much, countries are spending a whole lot of money to make renewables happen. Once real capacity in solar, wind and hydro comes in, and it becomes fairly reliable to move to these sources of fuel (changing weather conditions can throw a wrench in the plans where consistent and secure supply may become difficult to achieve), it will get easier and easier to move away from coal. That is when coal mining economies will really start to feel the heat.

Climate change targets notwithstanding—and the long-term view continues to be that coal will get a cold shoulder eventually—right now, coal is still a dependable fuel, now just more expensive.