Energy market madness leads to record-breaking coal consumption

Global coal-fired power generators are producing more power than ever before in response to rising electricity demand after the pandemic and rising gas prices following the Russian invasion of Ukraine.

The world’s coal-fired generators produced a record 10,244 terawatt-hours (TWh) in 2021 surpassing the previous record of 10,098 TWh set in 2018 (“Statistical Review of World Energy”, BP, July 2022).

Coal power generation is on track to hit a record high in 2022 as generators in Europe and Asia cut back on expensive gas after the Russian invasion and US and European sanctions imposed in response.

By contrast, mine production was still below the record set between 2012 and 2014 because older, less efficient coal generators were replaced by newer, more efficient generators that needed less fuel per kilowatt.

Global coal mine production reached 8,173 million tons in 2021 compared to 8,180-8256 million tons per year between 2012 and 2014.

But mine production is also likely to set a new record this year as rising demand for coal power generation has outpaced improvements in efficiency.

charcoal resistance

The advent of coal has baffled policymakers in the United States and the European Union who expected it to wane as part of their plan for net zero emissions.

Between 2011 and 2021, coal generation grew more slowly (1.2% per year)…

… from hydro (2.0%), gas (2.8%), wind (15.5%) and solar (31.7%).

As a result, coal’s share of total generation worldwide fell by 36.0% in 2021 from a recent peak of 40.8% in 2013.

But the explosive growth in demand for electricity (2.5% annually) ensured that there is a growing demand for all generation sources.

Coal production and generation are set to continue to rise until at least 2027 as the increasing demand for electricity is overshadowed by efficiency improvements in combustion and the deployment of gas and renewable energy as alternatives.

Turbo

The rapid recovery after the pandemic has driven these trends, increasing demand for electricity and reliance on coal generation, and raising coal consumption to a record level.

The Russian invasion of Ukraine and the resulting decrease in gas exports have increased demand, as generators are trying to reduce consumption of expensive gas and countries are trying to localize their energy supplies.

In Europe, governments are encouraging coal-fired generators to stay in service longer rather than shutting them down if gas flows from Russia stops in the winter of 2022/23.

In response to shortages and security concerns, China and India are encouraging local miners to increase production to record levels to ensure they have sufficient fuel stocks and reduce their dependence on expensive imported coal and gas.

China’s coal production jumped to a record 2,192 million tons between January and June, compared with 1949 million tons in the same period a year ago and 1,758 million before the epidemic broke out in 2019.

India’s production jumped to a record 393 million tons between January and May, compared with 349 million tons a year earlier.

fuel shortage

Despite the rapid growth in domestic coal production in China and India, there is still a shortage of fuel globally, which has pushed coal prices to their highest levels in real terms in more than 50 years.

US and EU sanctions intensified upward pressure on prices by redirecting Russian coal to Asia and coal from Australia and Indonesia to Europe, resulting in longer and more expensive journeys.

Coal is the largest and most expensive commodity to transport for its value, so long journeys have a direct and significant impact on the landing price paid by energy producers. Related: Germany approves $15 billion bailout for Uniper

High gas prices in Europe are driving up coal prices in their wake as coal-fired generators scramble to secure fuel so they can run their units for as many hours as possible.

Front month futures prices for gas delivered in northwest Europe rose to 157 euros per megawatt-hour from 41 euros at the same point in 2021 while coal prices rose to 53 euros from 16 euros.

If the Northern Hemisphere winter of 2022/23 is colder than usual, coal, gas and electricity shortages are likely to become severe and likely to force some form of energy rationing or allocation. The global coal shortage is part of a broader energy shortage evident across the crude oil, diesel, gas and electricity markets.

In each case, the shortage stems from the strong cyclical recovery from the pandemic and was exacerbated by the Russian invasion of Ukraine and the sanctions imposed as a result.

Standard prices send a strong signal to producers to increase production and to consumers to conserve as much fuel as possible.

However, like crude oil and diesel, rebalancing the coal market is likely to require a significant slowdown in major economies to relieve immediate pressure on inventories and give production time to keep pace with consumption.

by Zerohedge.com

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