African Coal Emerging as Important Source to Quench Europe’s Energy Thirst

African ports, which have until recently mainly dealt agricultural products, have become loaded with coal as Russia’s invasion of Ukraine has sent Europe into an unprecedented energy crisis and driven a worldwide race for the fossil fuel. Tanzania, which traditionally exports its thermal coal to neighboring countries, has become an important hub in the continent. The venture to send it overseas had been deemed unthinkable as it required trucking the material more than 600 km from mines in its southwest to Mtwara, the nearest Indian Ocean port.

However, Europe’s crippling energy crisis has changed all that.

Prices for thermal coal, used to generate electricity, have surged to record levels as a result of the war, which has led to many European countries losing access to vital supplies of natural gas and coal from their top provider Russia.

European buyers have started to look for alternative suppliers as a result, and their willingness to pay premium for coal has caused Africa emerging as a potential winner. Even remote mines in places such as Tanzania, Botswana and Madagascar are in demand. The resurgent coal demand, driven by governments trying to wean themselves off Russian energy while keeping a lid on power prices, clashes with climate plans to shift away from the most polluting fossil fuel.

Still, as Europe is competing with several other buyers and the alternative, gas, is more expensive, the popularity of coal is expected to keep increasing in the foreseeable future. The continent is expected to see very strong flows from Colombia, South Africa and even further away.

The window of opportunity could be short for exporting nations should the geopolitical winds shift, so some countries with coal resources see the margins to be gained as too good a chance to miss. Front-month physical thermal coal at Australia’s Newcastle port – a global benchmark – was trading at $429 a tonne on Sep. 16, just below an all-time high of $483.50 in March and up from around $176/tonne this time last year.

Since the end of June, 57 cargo orders – requests for available vessels – to ship Tanzanian coal have been seen on the spot freight market compared with just two in the same period last year.

Global seaborne thermal coal imports reached 97.8 million tonnes in July, the highest level on record and up more than 9% year-on-year. The volume dropped to 89 million tonnes in August, largely due to export disruptions from major producer Australia.

Tanzania is hopeful that coal exports this year will double to around 696,773 tonnes, while production is expected to increase by 50% to about 1,364,707 tonnes. As tax revenues expected to jump as a result of the boost in exports, the government is considering building a railway from coal-producing Ruvuma region to Mtwara.

Tanzania-based miner Ruvuma Coal has already exported at least 400,000 tonnes of coal via a trader to countries including the Netherlands, France and India since November.

Similar to Tanzania, Botswana considered it unthinkable to sell coal on the seaborne market. Traditionally, most Botswanan exports are sent to neighboring South Africa, Namibia and Zimbabwe. Botswana based miners think they can make seaborne exports work with current prices.

One of those Botswana based miners, Minergy, has exported two shipments of around 30,000 tonnes each from Namibia’s Walvis Bay port, and sent two trains of coal to be exported from Mozambique’s Maputo port.

The island nation of Madagascar could become another new player on the global coal scene. The current prices comfortably support a business case for coal miners in Madagascar to start exporting coal for the first time in the country’s history.

Thermal coal imports by the European Union from Australia, South Africa and Indonesia, which normally supply Asian markets, rose more than 11-fold in the four months after Russia invaded Ukraine.

The invasion has forced EU nations to move to cut reliance on gas from Russia, which has reduced its vast supplies to the region. The bloc’s ban on Russian coal imports has further increased pressure on electricity generators to find alternative sources of the fuel.

Russia usually provides about 70% of the EU’s thermal coal, and 40% of the bloc’s natural gas.

European countries have even temporarily set aside environmental goals as they seek to stockpile the fuel and reopen decommissioned coal plants to prepare for what could be a difficult winter.

The current ramp up in thermal coal combustion could put countries on a collision course with ambitious CO2 emissions reduction goals; in the EU, burning more coal will increase CO2 emissions by 1.3% a year if Russian gas supplies are completely halted.

Governments in Europe say this is a temporary change, although that could depend on how long the energy crisis drags on. Germany is delaying planned shutdowns of some coal plants in order to ensure security of power supply.

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