All of a sudden coal, so long the Cinderella of fossil fuels, is not just in demand but in desperately short supply. A chance combination of crises in big producing and exporting countries has pushed the price of European imports to almost $140 per tonne – double the level of a year ago. But according to Gerard McCloskey, publisher of McCloskey’s Coal Report, there is no quick fix to the coal crunch, and prices may still have a long way to go.
For weeks South Africa has suffered rolling blackouts caused in part by a shortage of coal, prompting the government to threaten to commandeer coal exports to solve the domestic crisis. Gripped by unusually bitter snowstorms, China has recently banned coal exports for the next two months. And in Australia, the world’s largest exporter, torrential rains have hit production.
Although some of the issues are weather related, in an interview with lastoilshock.com and Global Public Media, McCloskey highlighted obstinate export capacity bottlenecks that are unlikely to be eased quickly. At Newcastle in New South Wales, for instance, port capacity is so tight that the queue of bulk carriers waiting to load coal has been known to stretch almost to Sydney – 150km to the south. In these circumstances, says McCloskey, there is no obvious ceiling for coal prices and some important markers might even double again from current levels.
Export coal prices are known as ‘free on board’ (FOB), meaning they exclude cost of shipping and insurance and are therefore substantially lower than import prices. The price of FOB coking coal (for steel-making) could rise from about $115 today to $210, says McCloskey. FOB steam coal (used for power stations, cement works etc), which has doubled in the past year, could jump another $30 to $150. That would inevitably put further upward pressure on import prices around the world.
Although the immediate causes of the coal market chaos are above ground – weather, mining and transport capacity – there is a small but growing body of opinion that coal production could reach its geological limits much sooner than commonly expected (‘The great coal hole’).