South African thermal coal prices, after easing from their March 2022 peak levels, have again rebounded, spurred by a surge in European gas rates as Russia announced that it will curb LNG flows across the region.
The July-index for South African RB1 (6000 kcal/kg NAR) grade rose sharply by $42/t d-o-d to $352/t FOB as Europe is a key buyer of its thermal coal.
Low to mid-CV grades also rose simultaneously. Prices of the 5500 kcal/kg NAR were assessed at $225/t FOB, up by $20/t w-o-w, while that of 4800 kcal/kg NAR were at $145-150/t FOB, up by $10/t w-o-w.
As per CoalMint data, during the first five months of the year, South African coal exports to Europe have risen to 3.7 mnt, recording a whopping rise of nearly 500% y-o-y.
During 1-20 June this year, exports to The Netherlands were at 0.4 mnt, followed by Spain at 0.2 mnt, Poland and Italy at 77,626 t and 45,000 t respectively, CoalMint data showed.
Europe has already been preparing for the sanctions on Russian energy exports that are supposed to kickstart from mid-August. However, the recent development has resulted in a sharp rise in already elevated energy prices.
Europe’s strong demand for coal
Following a sharp rise in natural gas prices in 2021, several parts of Europe now rely heavily upon coal-fired power generation and have revived several coal-based power plants to replace gas imports.
Germany and Austria last week announced their emergency measures to cope with lower Russian gas flows going ahead, including the increasing use of coal-fired power plants to produce energy.
The Netherlands, on the other hand, will lift all restrictions on production for coal-fired power stations to 2024, making the power stations run at full capacity as against the previous maximum of 35%.
How much does Europe rely on Russian gas?
The gas sourced from Russia is a major fuel for power generation across Europe. For instance, Germany relies on Russia for 55% of its gas imports, Austria, for 80%, Bulgaria for 90%, Italy for 40%, and the Netherlands for 15%.
The Nord Stream 1 is a key offshore natural gas pipeline that runs under the Baltic Sea from Russia to Germany. The pipeline had pumped 59.2 billion cubic metres (bcm) of natural gas to consumers in Europe in 2021.
Russian gas supply via the Nord Stream 1 pipeline has remained under pressure ever since the sanctions imposed by western countries. The latest development cuts Russian gas supply to about 40% of the pipeline’s capacity.
Natural gas prices continue to trade over 100% higher since last year, while prices in the US rose further last week after Freeport LNG, one of the largest US operators of liquefied natural gas export terminals, announced it will keep its operations offline until September with only partial operation through year-end.
Outlook
With the elevated LNG prices and curtailed supplies, Europe’s reliance on coal is likely to rise further in the coming months as it continues to secure fuel for the winter heating season.
South Africa is seen as a key source of thermal coal, followed by Australia as both geographies produce high-CV grades. However, this may also result in keeping thermal coal prices high as global supply continues to fall short of demand.
Leave a Reply