The war in Ukraine scrambled global energy markets, with one especially unloved commodity—coal—enjoying a renaissance as European countries look again at the dirty fuel to establish energy independence from Russia.
A surge in a benchmark thermal coal price to a record high of $446 a metric ton this week reflected this reordering of priorities among governments that have been trying to phase out the fossil fuel because of its contribution to climate change.
In the days after Russian troops crossed over Ukraine’s border, Poland asked Australia if it could supply coal that could displace Russian imports. Italy’s prime minister has suggested reviving coal-fired power plants because of fears of a breakdown in natural-gas supplies from Russia. Germany signaled that it might extend the lifespan of coal plants that were due to close by 2030, days after it suspended certification of a pipeline that would have doubled the volume of gas it imports directly from Russia.
The European Union imports more natural gas from Russia than from any other country, representing a key vulnerability to its economy if supply is cut off. Coal’s advantage is that power plants can switch from natural gas to the fuel at short notice. The difficulty is that Russia is also a major supplier of thermal coal to Europe.
Germany’s extended use of coal is the price Germany will pay for its solidarity with Ukraine, said Annalena Baerbock, Germany’s foreign minister and a member of the pro-environment Green Party.
Futures for high energy Australian thermal coal added more than $140 a ton on Wednesday, according to ICE Futures Europe. Australia is one of the world’s top exporters of coal. While prices were lower at $410 a ton on Friday, they remain well above the $134 a ton the commodity was fetching at the start of 2022. European prices also broke records.
“The price moves are just crazy at the moment,” said Rory Simington, a senior coal analyst at consulting firm Wood Mackenzie. “A hundred dollars—just insane.”
Coal isnt part of Western sanctions on Russia, but buyers in Europe and Asia are scrambling to address their exposure to imports from the country. Russia accounts for roughly 15% of thermal coal traded by sea and around 16% of metallurgical coal, which is used to make steel and has also experienced a rally in prices to a record high.
Buyers are concerned that financial restrictions on banks might prevent trades, or that coal could be included in a broader set of sanctions if the crisis deepens, traders and analysts say. Buyers also fear Russian coal won’t get delivered if the war escalates.
Denmark’s Arsted AS
recently said it has stopped sourcing coal from Russia for its power operations.
Illustrating the threat to supplies, a bulk vessel was recently struck by a shell in the Black Sea. KRU, a Russian steelmaking coal producer, had declared force majeure on cargoes to western Russian ports before the war began because of rail difficulties and some thermal-coal miners there have had to do the same, analysts say. KRU didn’t immediately respond to a request for comment.
“The thermal coal market was drum tight ahead of the invasion so there is no chance of the world replacing Russian thermal exports,” said Matthew Hope, an analyst at Credit Suisse.
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A key issue is Europe’s reliance on Russia’s mostly high energy coal, which is found in only a few parts of the world. Also, mining companies typically run their operations at close to full capacity, meaning they can’t produce more coal quickly.
That hasn’t stopped European countries from casting the net in search of new supply.
“Recent requests from Poland to Australia for coal from sources alternative to Russia show the world is increasingly looking to Australia for the resources needed to provide energy security,” Australia’s resources minister, Keith Pitt, said Friday. He said coal was leading a surge in Australia’s export earnings from natural resources.
Australian-listed coal stocks ended Friday as much as 40% higher than a week earlier. Shares in Glencore PLC, the world’s biggest exporter of thermal coal, a lot of which it produces in Australia, has also been rising.
Whitehaven Coal Ltd.
was among Australian producers to receive inquiries from Poland for coal, a said. Yancoal Australia Ltd.
has been fielding queries about coal supplies from trading partners as well, said its related.
The Whitehaven Co said recent tenders seem to be excluding Russian supplies as buyers self-sanction, tightening the market more.
“To deal with the immediate energy situation in Europe, all options should be explored—including increased use of coal in some countries temporarily,” said Jean-Sébastien Jacques, a former chief executive of Rio Tinto PLC, the world’s second-largest miner.
Mining companies might consider restarting idled operations or raising output at existing pits, but new coal mines are unlikely, Mr. Jacques said.
Many expect coal’s comeback to be short-lived. António Guterres, secretary-general of the United Nations, said the Ukraine crisis illustrates the pitfalls of relying on fossil fuels and should motivate governments to spend more on renewable energy.
But “we all need to acknowledge that the energy transition will take time, potentially decades,” said Mr. Jacques. “We have to be flexible and pragmatic on the way forward.”
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