Monthly Coal News Commentary: April – May 2017
According to NITI Aayog, coal will remain India’s main energy source for the next three decades although its share will gradually fall as the country pushes renewable power generation. India aims to double its output to 1.5 BT by 2020. Based on a quantitative model NITI Aayog said that by 2047, coal’s share of India’s energy mix would shrink to 42-48 percent, from about 58 percent in 2015. India aims to cut thermal coal imports to zero by the end of this fiscal year and use its abundant domestic stockpiles to address its electricity needs. However, India will have to start importing again after its coal production peaks in 2037, according to NITI Aayog. Imports could rise to as much as 62 percent by 2047 from over 25 percent now if the country does not make its coal mining more efficient. This is not what western activists campaigning against fossil fuels in general and coal in particular would like to hear. A number of ‘not for profit’ organisations have been trying to ‘name and shame’ countries and companies that invest, produce and use coal. Few years ago the UK based not for profit organisation called ‘carbon tracker’ issued reports that India is among countries that has most of what it called ‘un-burnable carbon’. Most recently another UK based ‘not for profit’ organisation called ‘Influence Map’ has issued a report naming the Government of India and the state owned LIC as the top two investors in coal resources. While India has no reason to be ashamed of its natural endowment of coal or the use of it to improve the quality of life of its people as it is within its means, it is not clear if those who set up activist organisations against fossil fuels ever look within to see how much fossil fuel based energy they consume to sustain their jet-set lifestyles and to run activities against fossil fuels (using infrastructure underwritten by fossil fuels). By most account this energy alone could light up the first electric bulbs of millions in rural India!
Moving on to coal imports, state-owned power plants imported around 12 MT of coal during FY17, less than a quarter of the volume imported in the previous fiscal and far less than the anticipated 25 MT expected during the year. This year, it is expected to turn zero as these companies have decided to stop imports. According to figures compiled by the CEA, the state sector power companies imported around 7 MT during FY17 while the central sector generators imported around 5 MT. Nevertheless, the private sector power generators imported substantial volume of coal, around 54 MT during the year, of which around 9 MT by independent power producers were for blending with domestic coal, while the rest at 45 MT were by power plants built to consume imported coal. Bulk of the coal by private power companies was imported by Adani for its Mundra facilities. It imported close to 36 MT last year. Government has said it is aiming to bring down to “zero” thermal coal imports of power PSUs like NTPC in the current fiscal, a move that would reduce the country’s import bill by around ₹ 170 billion. CIL has been looking at the South Asian region to clear surplus stock and for future contracts. CIL has conveyed to the coal ministry that it is exploring the possibilities of exporting coal to neighbouring nations, but nothing concrete has taken shape. The government had said CIL is examining opportunities to export coal with high ash content or high-grade fossil fuel to the neighbouring nations. CIL is reportedly planning to conclude an agreement with the government of Bangladesh this year to start export of coal to that country. Demand for thermal coal recently began picking up, but CIL still has a 69 MT stock as carryover from the previous year’s production. Bangladesh is an immediate consideration, as thermal power giant NTPC, the largest client of CIL, has entered the country by setting up an BIFPC. This is a 50:50 JV between NTPC and the BPDB, to construct two 660 MW coal-based units at Khulna, for an estimated cost of $2 billion. To finance this JV, India’s Exim Bank will provide a $1.6 bn loan. BHEL another Indian government-owned company, was awarded the contract to construct these power plants. With these developments, CIL seems optimistic that BIFPC will prefer Indian coal over others. Last year, CIL had sent a team to Bangladesh to check the feasibility of export. According to BPDB, the installed power capacity of Bangladesh is 12,339 MW, of which coal-based plants comprise only 250 MW or about two percent. By that country’s Power System Master Plan, 2010, the demand in 2030 will be about 30,000 MW and installed capacity is targeted to reach 40,000 MW. Of this, coal-based generation capacity is expected to be 15,000 MW. Quality is an issue that CIL has ignored until now. In this context the news that all mines of CIL have been re-graded following complaints from consumers, including power sector players, about the slippages in fuel grade is welcome development. The re-grading of CIL mines was done this year by engaging four independent scientific bodies. Currently, third party sampling assessment is continuing. The government’s next target is to supply superior quality of coal to power producers to improve electricity generation and reduce pollution. CIL, which accounts for over 80 percent of domestic coal production, is targeting 1 BT output by 2020. The government’s next target is to supply superior quality of coal to power producers to improve electricity generation and reduce pollution. Recently, fuel quality watchdog Coal Controller had downgraded 41 percent of samples from the mines of CIL. In most cases, downgrading has been of one to two grades.
Meghalaya government said that coal mining could be legally carried out by MMDC in the state where mining of coal was banned three years ago by the National Green Tribunal. Under provisions of the Mines and Minerals (Development & Regulation) Act 1957, MMDC was eligible to apply for coal mining lease under existing laws and with the consent of the people. Once the MMDC has taken the mining lease, the mines need not be routed through auction. India is in the process of throwing open commercial coal mining to private firms for the first time in four decades, with the aim of shifting the world’s third-biggest coal importer towards energy self-sufficiency. The government is working on various auction models with regard to sale of coal blocks for commercial mining by private companies. An inter-ministerial panel under the chairmanship of coal secretary and members from ministries like power and finance would consider the auction models for commercial mining. India is in the process of throwing open commercial coal mining to private firms for the first time in four decades, with the aim of shifting the world’s third-biggest coal importer towards energy self-sufficiency. The government had said that opening up of commercial coal mining to private companies will bring in competition in the coal sector and may also reduce power tariff. The government had said it wants to convey to potential investors that sustainable and efficient mining, not revenue maximisation, is the idea behind commercial coal auction. As per the Coal Mines Special Provision Act of 2015, the government can open up commercial coal mining for private players. State-run power generating companies will now have the flexibility to swap their coal supplies and divert them to more efficient power plants. CIL signed agreements for aggregation of contracted quantity of coal with state and central power generating companies for flexible movement of coal that would help reduce the cost of power generation. The move will allow all coal linkages given to plants of state and central utilities like NTPC to be combined. That is, if a utility has many plants all over the country and has different FSA for each plant, all these linkages will be considered as one FSA. The utilities will have the option of deciding the effective way of utilising the coal, so that efficient plants are run at higher capacity to reduce costs. The Union Cabinet approved the proposal for allowing flexibility in utilisation of domestic coal amongst state-owned power generating stations. The scheme is gradually proposed to be extended to enable coal swaps between government-run and private power plants. Improvement in coal quality and efficiency in supply chain have lowered power generation cost of NTPC stations. Data shows that coal cost for generating power has declined by ₹ 0.39/kWh to less than ₹ 2/kWh in FY17. According to the data, overall cost of power production for NTPC stood at ₹ 2.01/kWh in FY15 which has declined to ₹ 1.94/kWh in April-February of FY17.
Rest of the World
China’s coal output rose 9.9 percent in April from a year earlier to 294.5 MT the National Bureau of Statistics said. It is the second straight month that output has registered a year-on-year increase as mines have scrambled to reverse the government-enforced cuts last year to take advantage of soaring prices. For the first four months of the year, coal production rose 2.5 percent to 1.11 BT data showed. China will suspend approvals for new coal-fired power plants in 29 provinces to reduce overcapacity in the sector. The NEA has put as many as 25 provinces on “red alert”, meaning that new projects would create severe overcapacity or environmental risks, while another four regions were put on “orange alert”. The NEA said that utilization rates at coal-fired power plants were falling as a result of slowing growth in power consumption, and it established the warning system to identify regions that need to curb overcapacity. The China Electricity Council said that utilization rates had dipped further in some regions in the first quarter of 2017, especially in the northeast and northwest, putting margins at power plants under further pressure. The NEA’s new warning system also takes into account the resources and pollution levels of each region, with some coal-dependent provinces facing extreme water shortages or pressure to control smog, including the capital Beijing and the surrounding province of Hebei. Of China’s 32 provinces and regions, only Tibet was not subject to a capacity warning while two were given “green” status. China’s total coal-fired power generation capacity was likely to reach 1,300 GW by the end of 2020, much higher than the 1,100 GW target in China’s 2016-2020 five-year plan. Total coal-fired capacity stood at 940 GW at the end of 2016. Chinese authorities met with the country’s leading power companies to discuss measures to curb low-quality coal imports and fight overcapacity in the world’s top coal consumer. Leading power firms including Huaneng Group and Datang Group were also invited to the meeting. The two companies mainly import Indonesia coal, considered low quality by the Chinese government because of its high sulphur and ash content and low heat value. Restrictions on low-grade coal imports could hit Chinese purchases of Indonesian coal. China’s coal imports in the first four months of the year jumped 33.2 percent to 89.49 MT, General Administration of Customs data showed as utilities and steel mills continued to buy cheaper foreign fuel as Beijing ramped up efforts to phase out overcapacity. The data did not include an April number, but it would equate to about 24.8 MT based on calculations. That would be up from 22.09 MT in March and 18.80 MT in April last year. China’s utilities are readying for a months-long buying spree to shore up thermal coal reserves ahead of the hotter summer months, in a strategy aimed at averting a supply crunch but which may drive prices higher. Top power generating companies will need to purchase more than 40 MT of thermal coal by the end of June to provide a cushion of supply during the third quarter, the second-highest demand period of the year after winter, according to internal government calculations. That is 14 percent of China’s quarterly output, or 15 days of use. The estimate is based on stocks of 90 MT at the nation’s thousands of utilities and a target to reach at least 130 MT by June. That target is equivalent to almost half of the utilities July to September consumption. The plan is to avoid a repeat of last winter’s chaos when government mining cuts tightened domestic supplies, triggering a rally in prices in the world’s top coal consumer and forcing Beijing to take emergency steps to boost supplies to avert an energy crisis.
Beijing will encourage coal companies to merge and restructure to increase efficiency in the industry and take measures to return thermal coal prices to a “reasonable” range, the NDRC said. The comment by the NDRC came after a meeting with coal mining firms as thermal coal prices continue to rally while utilities that consume the fuel lose money. The NDRC issued a similar release following a gathering with utilities. China is enforcing its policy against North Korean coal imports seriously, and there have been no violations, the foreign ministry said after a report that North Korean ships had entered a Chinese port where coal imports are offloaded. Following repeated North Korean missile tests that drew international criticism, China in February banned all imports of coal from its reclusive neighbour, cutting off its most important export product. Several North Korean cargo ships, most fully laden, were heading home after China’s customs department issued an official order, on April 7, telling trading companies to return their North Korean coal cargoes. The Su Pung, which also flies a North Korean flag, was shown to be at a berth at the port’s Jintang coal terminal, data showed. North Korea is a significant supplier of coal to China, especially of the type used for steel making, known as coking coal. In April last year China said it would ban North Korean coal imports in order to comply with sanctions imposed by the United Nations and aimed at starving the country of funds for its nuclear and ballistic missile programs. But it made exceptions for deliveries intended for “the people’s wellbeing” and not connected to the nuclear or missile programmes. March customs data this year showed that China did not import coal from North Korea.
Glencore and Japanese power utilities have settled annual thermal coal contract prices at $84.97/tonne, down from $94.75/tonne in October. Glencore reached the settlement with Japan’s Tohoku Electric after negotiations restarted when an initial round of talks failed to reach agreement. Australian Newcastle spot cargo prices last traded at $77.70/tonne. Glencore is the world’s biggest supplier of sea-traded thermal coal and usually sets pricing for the sector. Myanmar’s plans to grow the country’s desperately needed but polluting coal-fired power plants could kill more than a quarter of a million people in the coming decades, environmentalists said. The country’s air is among the dirtiest in the world and pollution is only expected to worsen as the economy opens up after decades of isolation under the former junta. A new study by Harvard University and Greenpeace warned that the government’s plans to expand its current network of two coal-fired plants to 10 could have a major human toll. Six of its cities already have higher counts of dangerous microscopic particles known as PM10 than China’s famously smog-filled capital Beijing, according to 2016 data from the World Health Organization. The extra pollution would likely cause more than 7,000 premature deaths a year, totalling 280,000 over the 40-year operating life of the eight new planned plants and the two operating ones, it predicted. Western concern that over premature death of people in developed countries supposedly on account of coal based pollution ignores death caused by other causes including abject poverty and the lack of basic amenities such as clean water and electricity. This may suggest that their real concern is coal burning and not the heath of people in developing countries. Myanmar has made coal-fired plants a cornerstone of a government plan to provide electricity to its entire population of more than 50 million people by 2030. Less than a third of people have regular access to electricity through the country’s dilapidated power grid, which frequently breaks down, and a lack of power is a major issue for attracting foreign investors.
FY: Financial Year, BT: Billion Tonnes, MT: Million Tonnes, UK: United Kingdom, CEA: Central Electricity Authority, PSUs: Public Sector Undertakings, CIL: Coal India Ltd, BIFPC: Bangladesh-India Friendship Power Company, JV: Joint Venture, BPDB: Bangladesh Power Development Board, BHEL: Bharat Heavy Electricals Ltd, MW: Megawatt, GW: Gigawatt, MMDC: Meghalaya Mineral Development Corp Ltd, LIC: Life Insurance Corp of India, FSAs: Fuel Supply Agreements, kWh: kilowatt hour, NEA: National Energy Administration, NDRC: National Development and Reform Commission