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Supply issues nudge Eskom closer to coal cliff

The warning had long been sounded that a “coal supply cliff” would hit SA in 2020, when many of the major mines supplying Eskom would run out.

Under the leadership of former Eskom boss Brian Molefe and then public enterprises minister Lynne Brown, the power utility said in 2016 that supply was secure and the “cliff ” had been consigned to history.

However, this week Eskom confirmed it would move 1- million tonnes of coal from its stockpile in Limpopo to its Mpumalanga power stations by road, with plans to soon move much of it by rail.

It is a drastic and costly step for a utility in the grip of a financial crisis. It is also a stark indication that the cliff is not history but is in fact fast approaching.

The supply crunch results from a deadly cocktail of policy uncertainty in the mining sector mixed with growing negative sentiment towards coal as being dirty, and an added splash of self-sabotage from Eskom.

Investment in the sector has declined and existing supply is dwindling. No substantial projects are in the pipeline, even though the country remains heavily dependent on coal for power supply.

“Eskom is in trouble,” says Xavier Prevost, senior coal analyst at XMP Consulting. “We don’t have a future for coal mining in this country, although we still have coal resources that haven’t been explored yet.” The problem, Prevost says, is lack of financing. “If you invest in coal you expect a return. The last few years, there was no hope to get a good return when you had the commodities cycle paired with the political situation.”

Rosemary Falcon, director of the Fossil Fuel Foundation, concurs, saying “overshadowing all of this is the finance. Banks have not put money into coal.”

A lack of investment in coal projects raised the prospect of a coal cliff, forecast for 2020, around the time when most of Eskom’s cost-plus mines would run out.

In the past, Eskom had shared the cost of developing large coal mines so that a secure supply of coal would be fed to the utility’s power stations at cost, plus a little extra in order to sustain the mines.

Large coal mines, from the major coal companies, supply more than 80% of Eskom’s coal. But without renewed support from the utility, investment in new coal reserves or projects has dried up. All the while existing supply dwindles.

Prevost says Molefe pushed the cliff forward in 2016 when he announced his intention to cut ties with cost-plus mines. The former CEO’s comments — that Eskom did not want to own the bakery (the mines) when it simply wanted to buy the bread — were prominently reported at the time. Eskom would instead buy from smaller producers, according to Molefe.

But Prevost says smaller mines can only supply some 20% of Eskom’s needs.

“But even so, they have the alternative to export if the prices are more favourable.” Molefe said the coal cliff was merely a mechanism for Eskom to pay more for coal.

“I’m convinced the market will make sure it gets mined,” he reportedly said.

Eskom has reversed its stance on cost-plus mines. In May CEO Phakamani Hadebe said coal “is not like buying bread ” and he is in the process of getting approvals to invest in such projects.

But Prevost fears it is too late. Major mining firms have failed to invest in new projects, if not having divested altogether.

Falcon says that Eskom’s hands are tied by its procurement policy, which requires it to source coal from companies that are more than 50% black owned.

Mining companies in SA have subscribed to a black ownership target of 26%, as required. Multinational mining firms, such as Anglo American, have in the meantime exited their coal investments in SA. In January it sold its last Eskom-tied mine. Its thermal collieries have been acquired by Seriti Resources, which is 84% black owned.

It looks like disaster is at the door, as evidenced not just by Eskom’s trucking of coal from Limpopo to Mpumalanga, but by other signs of supply stress, such as a tender put out by the utility for 100-million tonnes of coal for long-term supply.

But all is not lost. There is some 200 years’ worth of coal in SA, Falcon says. But she says the situation requires political will and financial backing.

A huge amount of coal is available in the Waterberg, where black-owned Exxaro already mines coal for Eskom from its Grootegeluk mine.

This is the coal mined with the intention to supply the long-delayed Medupi power station, and which will now be trucked to Mpumalanga as a short-term measure.

Elsewhere in Limpopo there is a whole string of potential. The problem is the rail line capacity to get the coal to the places where it is needed.

“There’s a lot of work being done on the amount of coal and quality of coal,” says Falcon.

To set up a mine would take four years, but the difficulty is to get the line to the power station. And in that scenario it would make sense to put one or two small independent power producers up there, she says.

Elsewhere too, like in the Free State and the coal fields of Mpumalanga, coal resources that could not be mined or used before may become viable with new industrial processes.

“So there is a lot of coal around but no major developments to feed the existing power stations,” Falcon says.

To overcome a potential coal cliff, there are two places to look. The small coal producers are one. But Falcon says it is unlikely they can come up with the goods. “They are too many, too small and not grouped together ,” she says.

They all have different quality coal and they all want to export anyway, Falcon says.

The alternative is that Seriti and Exxaro take new exploration and new mining areas that could fill the gaps.

On the environmental question of coal, Falcon says new technology enables coal to be burned efficiently, but it requires money. “Coal is being threatened by everyone because it is dirty, but it doesn’t have to be.”

Eskom’s board and executive committee are in the process of putting together a long-term strategy, with the aim to complete it by September.

With the ANC’s new leadership in place and President Cyril Ramaphosa’s particular emphasis on reviving the mining industry, Prevost says the appetite for investment is growing but is yet to bite.

The problem, however, is that Eskom, and SA, cannot afford to wait.

By Lisa Steyn. Published by Business Day, 19 July 2018.

This month's top international coal headlines

  • Gap between Australian and South African coals still wide — Platts CTI
  • Richards Bay sluggish — Platts CTI
  • South African coal positioned poorly — Platts CTI
  • High South African FOB prices giving Australian coal inroads into India: trader — Platts CTI
  • Lack of new coal projects, growing Asian demand bullish for prices: Glencore — Platts CTI
  • Abbott is right: Paris climate treaty fails to fight global warming
    — Bjorn Lomborg
  • July traded thermal coal derivatives fall 20% on year to 60.95Mt: LEBA
    — Platts CTI
  • South Africa’s June thermal coal exports up 2.5% on month — Platts CTI
  • Other origins to compete with S Africa — Platts CTI
  • SA June thermal coal exports up on the month, H1 flat — Platts CTI
  • Pakistan’s pivot to coal to boost energy gets critics fired up — Bloomberg
  • Indonesia keeps faith with coal to meet growing energy demand
    — The Financial Times
  • The coal comeback — Estevan Mercury
  • If Germany Can't Quit Coal, Can Anyone Else? — WIRED
  • Forever Coal: return of the offender — Energy
  • The future of coal — Chatham House
  • Anglo completes sale of South African thermal coal mine — Platts CTI
  • South African trade, CIF ARA futures illiquid — Platts CTI
  • South African coal gains interest from India and Pakistan — Platts CTI
  • FOB Richards Bay cargo trades at $105/mt, up $1 — Platts CTI

2018 archive

July 2018
  • Glencore’s H1, 2018 coal production totals 62Mt, up 1.5% — Platts CTI
  • Anglo draws line in sand for thermal coal — Mining Weekly
  • Contemporary Coal Dynamics in Indonesia — Stockholm Environment Institute
  • S African thermal coal market softening as key Indian market looks elsewhere — Platts CTI
  • New SA underground coal mine plans for production start-up by year-end
    — Mining Review Africa
  • Premature coal retirements to weaken grid reliability and increase consumer costs — World Coal
  • Coal still crucial to South African energy plan — IHS Markit
  • Eskom to review coal purchase plan as part of broader overhaul — IHS Markit
  • Eskom's decision not to give workers bonuses is a declaration of war
    — COSATU
  • Eskom to truck coal to fuel-starved plants, as talks remain deadlocked
    — IHS Markit
  • Lack of investment stymies S African coal producers — Mining Weekly
  • Supply issues nudge Eskom closer to coal cliff — Business Day
  • Thermal Coal Remains King — The Coal Hub
  • South32’s Apr-Jun SA thermal coal production down 4% year on year
    — Platts CTI
  • WCA comments on the IEA's 2018 World Energy Investment report
    — World Coal
  • WCA announces leadership transition amid resurgence in coal fundamentals — World Coal
  • GE and SEPCOIII to build first ultra-supercritical power plant in Pakistan
    — World Coal
  • Hurting for buyers, US coal miners are learning to love India — Bloomberg
  • Ramaphosa embarks on Eskom overhaul — Reuters
  • SA mines relying heavily on unskilled workers despite Industry 4.0 gaining traction — Mining Weekly
  • TDS, Newrak awarded construction contract for Exxaro’s Matla Mine 2 and Mine 3 — Mining Weekly
  • Coal to remain a significant energy source for decades – WCA — Mining Weekly
  • Indian buyers wait for South African price correction — Platts CTI
  • South African coal trades high, discounts widen — IHS Markit
  • Anglo reaffirms view to stay away from Eskom supplies — Platts CTI
  • Industry gripped by pricing uncertainty as JRP talks flounder — IHS Markit
  • Costly SA coal losing significant market share in Pakistan — IHS Markit
  • CIF ARA price hits fresh six year high — Platts CTI
  • South Africa coal exports drop to 10-month low in May — Platts CTI
June 2018
  • Market Demand Study: Australian Export Thermal Coal
    — Minerals Council of Australia
  • SA supply woes offer Botswana coal export options
    — South African Coal Report
  • Global thermal coal demand likely to outstrip supply in H2 2018: Citi
    — Platts CTI
  • Atlantic thermal markets retrace gains, s. Africa hit hardest — Platts CTI
  • Natural gas could warm the planet as much as coal in the short term
    — Science
  • South African coal price too high for buyers — Platts CTI
  • Trump’s new oceans policy washes away Obama’s emphasis on conservation and climate — Science
  • Asia's thermal coal demand poised to grow — Mining Weekly
  • South African coal remains at near-record highs — Platts CTI
  • US and Russian thermal coals compete for Jorf Lasfar tender — Platts CTI
  • New draft Mining Charter poses problems for greenfield projects
    — South African Coal Report
  • Last month, we were told that it was the end of the Arctic — Bjorn Lomborg
  • Climate Talks Stall as $100 Billion Still Out of Sight — Bloomberg
  • Privileged coal: the politics of subsidies for coal production in Colombia
    — Stockholm Environment Institute
  • Alive and kicking: China hydrocarbon demand — S&P Global Platts
  • Taiwan April thermal coal imports at six month high: customs — Platts CTI
  • European thermal coal price relaxes following six-year highs — Platts CTI
  • Developing the Botswana coal industry — Minergy Coal
  • WCA responds to BP Statistical Review of World Energy 2018
    — World Coal Association
  • BP Statistical Review of World Energy 2018 — BP
  • Uneconomic coal could be squeezed out of European Union power markets by 2030 — Forbes
  • Tipping Point: Strategies for a New Energy Future — IHS Markit
  • The Shale Gale turns 10: A powerful wind at America’s back — IHS Markit
  • Vessel queue at Richards Bay Coal Terminal falls — Platts CTI
  • Limited South African cargoes available — Platts CTI
  • Zululand Anthracite Colliery to expand operations in KZN — Mining Weekly
  • Capital may become expensive for coal projects as lenders pull out — SACR
  • South African export markets up 10 cents — Platts CTI
  • Coal rallies to six-year high as heatwave fires up China demand — Bloomberg
  • World Energy Outlook 2018 — IEA
  • Eskom’s plan to recover R1bn short-circuited — BusinessLIVE
  • Administration Proposes Emergency Measure to Save Coal and Nuclear. How Will It Impact Consumers? — InsideSources
  • Prepare for greater generation competition, Radebe tells Eskom
    — Mining Weekly
  • Commission approves NBC, ECM merger without conditions — Mining Weekly
  • China remains dominant coal consumer, producer — Mining Weekly
  • South African April thermal coal exports down 8% on month at 6.6Mt
    — Platts CTI
May 2018
  • Germany again delays coal exit ‘masterplan’ as coalition disagrees — Platts
  • South African coal remains bullish — Platts CTI
  • South Africa promises friendlier investment environment for coal
    — IHS Markit Coal & Energy
  • The plethora of better alternatives to wind and solar power and electric cars
    — The Energy Collective
  • Poland’s stunning e-mobility plans — Energy Post
  • 11 ways the Paris climate deal is working in the real world
    — Climate Home News
  • South African prices resist downward pressure — Platts CTI
  • Vessel queue at Richards Bay Coal Terminal rises on low availability
    — Platts CTI
  • Atlantic thermal coal sentiment weakens in reaction to China price cap
    — Platts CTI
  • Emissions rally lifts power but coal stays ahead of gas — argusmedia.com
  • South African coal prices kept high on unclear outlook — Platts CTI
  • South African price softens — Platts CTI
  • South African coal prices kept high on unclear outlook — Platts CTI
  • South Africa coal offered higher — Platts CTI
  • Tight supply out of South Africa, more coal to Eskom — Platts CTI
  • South African prices fall for first time since early May — Platts CTI
  • South African thermal coal prices continue uptick, supply concerns linger
    — Platts CTI
  • Spot market strength this summer could lead to price spike
    — IHS Markit Coal & Energy
  • Tight thermal coal supply out of South Africa fuels bullish sentiment
    — Platts CTI
  • Countries in and around the Middle East are adding coal-fired power plants
    — U.S. Energy Information Administration
  • South African prices hit new record high — Platts CTI
  • RBCT prices hit six-year high, eye Eskom tender result — IHS Markit
  • FOB Richards Bay price assessed at new record high — Platts CTI
  • Industry sentiment turns bullish for near-term prices — IHS Markit
  • Contradicting fundamentals point to increased uncertainty in 2018
    — IHS Markit
  • Eskom’s procurement plans drive Richards Bay prices to six-year highs
    — IHS Markit
  • South African coal price at record high — Platts CTI
  • Demand for South African coal dries up on surging prices — Platts CTI
  • South African prices near record high — Platts CTI
  • India's 'preferred origin' — Platts CTI
  • South African thermal coal price rises, discounts begin to widen — Platts CTI
  • Eskom move could spark coal investment — South African Coal Report
  • Global Energy & CO2 Status Report 2017 — International Energy Agency
  • The One Nation Returning To Coal — Oilprice.com
  • Eskom introduces measures to address imbalance in coal stock levels
    — World Coal
  • Coal departures from RBCT rise despite supply tightness — Platts CTI
  • Poor demand in European thermal coal market, Richards Bay bullish
    — Platts CTI
  • European thermal coal market well supplied, Richards Bay offered higher
    — Platts CTI
  • War on coal making the world's top mine owners a lot richer
    — Bloomberg News
  • FOB Richards Bay market continues to rise — Platts CTI
  • African coal boosted further by reports of Eskom spot purchasing — Platts CTI
  • South African Q1 thermal coal exports up 5.7% on year — Platts CTI
  • South African prices continue to rally — Platts CTI
  • South African Q1 thermal coal exports up 5.7% on year to 19.6Mt — Platts CTI
April 2018
  • Tight supply in SA — Platts CTI
  • South African coal discounts narrow — Platts CTI
  • FOB Richards Bay traded — Platts CTI
  • Richards Bay to hover near 2-month highs on Eskom buying — IHS Markit
  • Anglo stays course on thermal coal — South African Coal Report
  • CIF ARA prices higher on strong bids — Platts CTI
  • US coal exports to Asia ‘More than doubled’: EIA — IHS Markit
  • Tight South African supply keeping prices high — Platts CTI
  • South32 Jan-Mar South African thermal coal output stable — Platts CTI
  • South African coal supply tight — Platts CTI
  • Vessel queue at Richards Bay Coal Terminal rises: cFlow — Platts CTI
  • A new coal war frontier emerges as China and Japan compete for energy projects in Southeast Asia — South China Morning Post
  • Key Electricity Trends 2017 — International Energy Agency
  • Letter: Only coal provides reliable power — The Virginian-Pilot
  • RBCT prices supported as Eskom grabs supplies from export market
    — Platts CTI
  • Chinese import restrictions widen — Newswire
  • Converting coal to hydrogen — Gippsland Times
  • Mozambique thermal coal to compete with South Africa for MENA market
    — Platts
  • US coal finding its way into Europe, Mediterranean markets — Platts CTI
  • Indian market opens for Australian coal — Platts CTI
  • The Economic Impacts of Climate Change — Review of Environmental Economics and Policy
  • Fewer And Fewer People Die From Climate-Related Natural Disasters
    — Bjorn Lomborg
  • South African, Colombia coals compete for weak Indian spot demand
    — Platts CTI
  • Coal is here to stay! Botswana to drive the future of coal power demand
    — CNBC
  • China is massively betting on coal outside its borders — even as investment falls globally — CNBC
  • Abandon coal and the lights go out — The Daily Telegraph
  • IMO 2020, a shipping regulation that may reshape global coal trade — Platts
  • Atlantic thermal coal markets concentrate on Richards Bay — Platts CTI
  • Mid-CV South African coal prices buoyed by tight supply — Platts CTI
  • Richards Bay mid-CV supply tightness driving up price — Platts CTI
  • South Africa’s Feb thermal coal exports rise 1% to 6.2Mt — Platts CTI
March 2018
  • Eskom reverts to cost plus for coal purchase — Miningmx
  • Vessel queue at Richards Bay Coal Terminal eases on week — Platts CTI
  • Limited offers for FOB Richards Bay coals — Platts CTI
  • SA coal mining set for growth — Mining Weekly
  • South African coal preferred choice for South Asia market — Platts CTI
  • 3% global power demand gain met by renewables, coal in 2017: IEA
    — Platts CTI
  • Deflated sentiment in CIF ARA spot market as demand wanes — Platts CTI
  • WCA responds to State of global coal fleet report — World Coal
  • Vessel queue at Richards Bay Coal Terminal up on week — Platts CTI
  • Coal ahead of gas in UK, German power markets — Platts CTI
  • China thermal coal prices stabilise — Platts CTI
  • UK GAS-Prices edge lower on weaker demand; softer coal, power markets
    — Reuters
  • US coal interest wanes on lower South African prices — Platts CTI
  • China approves three coal mine projects — China Coal Daily
  • Coal’s future in Asia is far from bleak — S&P Global Platts
  • South African coal favoured for South Asian import market — Platts CTI
  • The world cannot keep ignoring the Asian coal story — World Coal
  • Australia’s Universal Coal acquires SA North Block Complex, eyes exports
    — Platts CTI
  • Green Mythology and the High Price of European Electricity — Energy Matters
  • The World Is Mostly Run On Fossil Fuels — Bjorn Lomborg
  • ICE Feb thermal coal derivatives trade marginally up from Jan at 143Mt
    — Platts CTI
  • China thermal coal prices retreat further — Platts
  • South African coal volatility — Platts CTI
  • Atlantic thermal coal derivatives trading down 10.4% on year in Feb: LEBA
    — Platts CTI
  • China to cut 30 Mtpa steel capacity, 150 Mtpa coal capacity in 2018
    — sxcoal.com
  • Industrialisation and prosperity to drive global energy demand — World Coal
  • The future of “dirty” coal in South Africa vs reliable renewable energy sources — Mining Review
  • Anglo American completes sale of Eskom-tied thermal coal ops
    — Independent Online
  • Anglo American concludes sale of three coal mines in South Africa
    — MINING.com
  • Impossible for Gupta-owned Optimum Coal to do business — Miningmx
February 2018
  • Vessel queue at Richards Bay Coal Terminal eases on week: cFlow — Platts CTI
  • South Africa’s January thermal coal exports fall to 6.16Mt — Platts CTI
  • South African price volatility keeping buyers at bay — Platts CTI
  • Underinvestment in thermal coal may boost short term prices — SACR
  • Minergy CEO: “Coal is here to stay” — World Coal
  • Asian coal demand to offset EU and US decline — Nikkei Asian Review
  • Trump proposes FY19 budget proposal for Office of Surface Mining Reclamation and Enforcement — World Coal
  • A nuclear deal with Moscow would not only squander billions, but would compromise SA's sovereignty — Daily Maverick
  • Energy Access Outlook 2017 — IEA
  • Industrial action at Optimum coal mine in South Africa — Platts CTI
  • Richards Bay stocks plentiful despite South Africa coal mine strike: source
    — Platts CTI
  • CIF ARA market pushes higher despite little March interest — Platts CTI
  • Strong South African coal bids boost markets amid tight supply — Platts CTI
  • RB prices likely to edge up on limited supplies, Newcastle — SACR
  • South African coal sales climb to record $10.3bn in 2017 — MCR
  • New SA president likely to address mining charter issues
    — McCloskey Coal Report
  • Leon expects mining industry to have a future under Ramaphosa’s Presidency — Mining Weekly
  • Arbitrage opportunity for South African coal to India — Platts CTI
  • Vessel queue at Richards Bay Coal Terminal rises to 25: cFlow — Platts CTI
  • FOB prices push CIF ARA market higher — Platts CTI
  • Global thermal coal demand to outstrip supply, grow by 5% in 2018: Noble
    — Platts CTI
  • Atlantic thermal coal derivatives trading rises 55.4% on month to 70.8Mt: LEBA — Platts CTI
  • CIF ARA spot market loses ground, futures recover — Platts CTI
  • The Future of Coal in South Africa — Mining Journal Africa
  • Indian demand for South African coal rises: sources — Platts CTI
  • South African mining industry makes compelling case for protection of coal
    — African News Agency
  • Vessel queue at Richards Bay Coal Terminal up one to 15: cFlow — Platts CTI
  • Solar And Wind Are Taking Over The World — Bjørn Lomborg
  • Growing hope Ramaphosa will fix S. Africa’s mining charter problem
    — McCloskey Coal Report
  • Eskom struggles to compete for coal supplies amid export rally
    — McCloskey Coal Report
  • South Africa to benefit from coal demand surge in India, Pakistan
    — McCloskey Coal Report
January 2018
  • Is Global Warming Making Us Hungrier? — Bjørn Lomborg
  • Richards Bay Coal Terminal (RBCT) exported a record 76.47Mt of coal in 2017 — Platts CTI
  • Anglo American continues exit from South African coalWorld Coal — Platts CTI
  • RBCT reports record high 2017 coal export volumes — Platts CTI
  • Richards Bay terminal reports record high 2017 coal export volumes at 76.5Mt — Platts CTI
  • Cyril Ramaphosa to tackle Mining Charter impasse — BusinessLIVE
  • Anglo American 2017 coal production falls 6% on year to 81.82Mt — Platts CTI
  • Vessel queue at Richards Bay Coal Terminal drops to 16: cFlow — Platts CTI
  • CIF ARA spot coal price retraces on lower bids, offers — Platts CTI
  • Indonesian miners aim for higher production — Platts CTI
  • India’s electricity generation — World Coal Association
  • India's self-sufficiency goals, renewable energy, overcapacity, and railway system — Coaltrans
  • South32 flags downside risk over weaker domestic demand
  • Eskom’s financial woes threaten to push South Africa off ‘coal cliff’
  • RBCT coal vessel queues total 22, up five from last week: cFlow — Platts CTI
  • Roadmap to nowhere: the myth of powering the nation 100% with renewable energy — Energy Post
  • CIF ARA coal markets stagnant despite early morning deal — Platts CTI
  • China buying, India struggling — Platts CTI
  • Komipo buys 130,000 mt of South African coal — Platts CTI
  • Atlantic thermal coal trading limited as prices drop — Platts CTI
  • Coal prices face moderate correction — Platts CTI
  • South African coal competitively priced to India — Platts CTI
  • Slack demand keeps CIF ARA coal trading light — Platts CTI
  • Steam coal prices look overcooked — McCloskey Coal Report
  • Indian buyers resist rising South African market — Platts CTI
  • Global primary energy demand — World Coal
  • South African, US coals flow to India — Platts CTI
  • Vessels delayed at Richards Bay Coal Terminal: cFlow — Platts CTI
  • Steam Coal Outlook 2018 & Beyond — Coal Asia

2017 archive

 

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