Russian coal will save Europe, 01/10/2021.
An energy crisis is rapidly unfolding in several corners of the planet. Green energy has not justified itself, and the only salvation in Europe, for example, is Russian coal. But until recently, coal-fired power plants were mothballed, and mines were closed. What happened and how should our country act in this situation?
European electricity producers were forced to ask Russian coal suppliers to increase supplies in order to alleviate the growing energy crisis in the European Union. It was reported by Bloomberg, citing two unnamed industry representatives. The Europeans needed additional coal due to the constant growth of exchange prices for gas, which in September surpassed the "psychological" mark of $ 1,000 per thousand cubic meters and, it seems, are not going to stop.
Difficulties in energy transition
The rise in gas prices immediately entails a rise in electricity prices, accelerating inflation - its indicators in some European countries are now at their maximum levels in the current century. For example, in Germany, September inflation was at a record level since 1997.
The high cost of gas is largely due to the insufficient filling of European storage facilities after last winter, which turned out to be quite cold. In addition, wind power turned out to be a weak link: due to the calm weather that has settled over Europe in recent months, its capacity cannot generate enough electricity to meet demand.
Therefore, on the eve of the new heating season, the Europeans already have to compromise with their own "green" course. For example, in the UK, the mothballed coal-fired power plant West Burton A was re-launched in early September. Then, the Drax group, one of the largest energy operators in the country, announced its readiness to increase the volume of coal generation.
But until recently, Great Britain, the birthplace of coal energy, announced that by 2024 it plans to completely abandon this not the most environmentally friendly method of generating electricity. Last year the share of coal in Britain's energy mix fell to a paltry 1.6%, and the country seemed to be successfully replacing industrial-era power plants with renewable power, most notably wind. But now it turns out that it was too early to bury the coal power industry.
The problems of alternative energy in the European Union were revealed last winter. After the share of solar-wind generation in Germany reached 33% by 2021, its massive refusal in January and February due to calm weather created significant energy risks for the whole of Europe, notes Alexander Osin, analyst at the Russian Stock Exchange Trading Operations Department. the market of the company "Freedom Finance". Gazprom helped to prevent the crisis, he said, by extending the terms of gas supplies to Europe to the physical limit of the throughput of European gas pipelines. However, six months later, the situation repeated itself.
Similar problems with energy supply have now arisen on the other side of Eurasia - in China, where coal-fired power plants have been actively decommissioned in recent years due to the need to improve the environment. The outgoing generation was replaced not only by gas, but also by renewable sources, and the result turned out to be about the same: in recent days, more and more news has been coming from the PRC about the growing shortage of electricity. Back in July, the authorities were forced to start blackouts in a number of major cities, including Beijing, and recently the problems have sunk to industry. In particular, they were forced to suspend the work of factories producing components for Tesla and Apple for several days.
Coal at any cost
The Ministry of Energy of the Russian Federation did not receive any requests from China and European states on the issues of increasing coal exports from Russia, the press service of the department reported on the eve. At the same time, it is known that the Chinese side has already submitted a request to Inter RAO, a Russian electricity export operator, with a request to increase the supply of electricity, and the Chinese are now looking for coal literally all over the world. A few days ago, the China Electricity Board announced that coal supplies would increase at any cost.
Such statements only exacerbate the situation on the market: in Europe, the price of coal has already reached its highest levels since 2008. Russian suppliers are quite capable of taking advantage of this situation, analysts say. “Russian coal miners will be able to increase shipments in the western direction without any problems, there is a safety margin, another 10-15 million tons can be added to the current plan by the end of the cold season,” says the General Director of Infra. Projects ”Alexey Bezborodov. However, he adds, there is no such reserve to the east. It will be possible to significantly increase exports only if China opens land border crossings - in this case, it will be possible to additionally ship about 10 million tons.
The upcoming winter, the expert adds, is likely to be very cold, based on the fact that the northern hemisphere has formed the thickest ice cover in the last nine years.
Therefore, until the end of the cold season, the price of thermal coal should remain above $ 100 per ton, and for coking coal - under $ 200, Aleksey Bezborodov predicts. “Further, - he believes, - there is no need to count on a strong decline, since prices are under strong pressure from accelerating inflation throughout the world - this is a new reality that will have to get used to”.
According to Mikhail Bespalov, an analyst with the investment company KSP Capital UA, in September, representatives of Russian Railways reported an increase in coal loading at the ports of the Azov-Black Sea basin, which indirectly confirms a likely increase in exports to Europe. In addition, railroad workers also recorded an increase in the volume of coal transported to China. In theory, Russian coal companies can increase supplies to Europe - there is no shortage of port capacity in this area, unlike the Far East, confirms the managing partner of FOK (Financial and Organizational Consulting) Moisey Furshchik. But the problem, in his opinion, is that Europe has already closed a significant part of coal generation, and it will not be possible to resolve the current situation only at the expense of coal.
Unlike many other markets, the energy sector did not feel the impact of the pandemic too much, the expert adds: mining enterprises were almost never quarantined, and pipeline capacities were not reduced. “Rather,” says Moisey Furshchik, “it was the combination of geopolitical games and too sharp reduction of coal and nuclear power generation by Europe. In addition, aggressive plans to achieve "carbon neutrality" have sharply reduced the motivation to build new terminals for receiving liquefied gas. As a result, the European energy system has become much less sustainable."
Russian coal miners are certainly capable of meeting the growing demand in Europe - but provided that the European authorities and energy companies reduce the influence of anti-Russian political rhetoric, said Mikhail Khachaturyan, associate professor of the Department of Management and Innovation at the Financial University under the Government of the Russian Federation. But, in his opinion, one should not seriously count on this, because most of the EU countries, following the example of Germany, have abandoned the use of coal in their energy systems. And Germany, in connection with the upcoming launch of Nord Stream 2 in the future several months, feels relatively safe, feeling the ability to dictate conditions to the entire European Union, since it is turning into the largest gas hub in Europe.
There is still enough coal for our age
One of the main questions that the current energy crisis poses for many countries is how productive it is to further build up renewable generation capacities. On the one hand, global concern about climate change problems in the coming years will not go away, on the other hand, expectations related to alternative energy are becoming less and less rosy before our eyes. Therefore, it is too early to write off traditional energy sources, including "dirty" coal.
Both in Europe and in China, the potential of renewable energy sources was overestimated: their capacity began to be perceived as a kind of constant value, although they strongly depend on weather conditions, notes Aleksey Bezborodov. According to him, the calculations for "green" energy did not stand up to the elementary laws of physics, although this was understandable even when the prices for gas and coal were at a low level.
For several years, the weather allowed increasing the capacity of wind and solar energy to the detriment of coal and gas, but the first cold year showed that this was a very reckless approach. Therefore, Bezborodov believes that coal will feel good for at least another ten years. “So far, research and innovations in the field of renewable energy do not demonstrate a convincing possibility of replacing coal capacities - only nuclear generation can do this,” the expert is sure.
It is already possible to predict a slowdown in the development of a green economy, which has not yet proved its own effectiveness, believes an independent industrial expert, candidate of economic sciences Leonid Khazanov. In his opinion, Europe and America will remember for a long time how last winter, due to severe cold weather, wind turbines stopped and many houses simply froze, and the transfer of electricity did not help much, again due to the fall in wind generation. “The plans to create hydrogen production facilities of various shades are still on paper only and, it seems, will not come true soon,” the analyst adds. “It will not be surprising if in Europe they continue to reactivate the shutdown coal power plants to secure the capacities operating on the power of wind and sunlight”.
The current situation is likely to lead to a revision of risk factors in the energy sector, which could lead to a slowdown in the transition to energy sources with less emissions, says Mikhail Bespalov. Nevertheless, the expert adds, the prospects of the coal industry against the background of the continuing trend towards "greening" the economy still look contradictory. There is no talk of a new inflow of investments into the industry and an increase in coal production.
Meanwhile, according to Alexander Osin, Russia has the potential to significantly accelerate coal production: in eight months of this year it has already increased by 8.7%, to 282 million tons, although one should take into account the significant effect of the low base - last year production fell by 10 %. At the same time, the prospects are seen quite confidently. According to the analyst, the management of Mechel recently released a survey, which states that demand for coal in Asia - for example, in India and Vietnam, where construction of "traditional" thermal power plants continues, will remain high in the next decade.
“The Russian coal industry has a strong sectoral lobby, which is currently relatively successful in opposing the influence of the 'green' initiatives of supranational regulators on the Russian market,” notes Alexander Osin. The risks associated with these initiatives and factors of non-market restrictions on investments in the coal industry, in his opinion, remain. At the same time, according to the analyst, in the medium term, one can expect a significant slowdown in the growth of investments in renewable energy - this relatively low-margin segment traditionally reacts negatively to the growth of inflationary fears, rates and required return on investments.
Text: Mikhail Kuvyrko