Showing posts with label coal. Show all posts
Showing posts with label coal. Show all posts

Wednesday, 26 June 2024

Russia sends coal to India via Iran

Russia has for the first time sent two trains laden with coal to India via the International North-South Transport Corridor (INSTC), which connects Russia to India via Iran, according to a statement by Russia’s national railway company.

According to RT, a multimodal route that includes a railway, roadway network and seaports, the INSTC spans 7,200 km (4,500 miles) from St. Petersburg to the port of Mumbai in India.

The corridor is part of Russia’s push to find new transport routes in light of Western sanctions, which have forced it to shift trade flows from Europe to Asia and the Middle East.

Construction of the INSTC started in the early 2000s, but developing it further has taken on a new impetus in light of the restrictions facing Moscow.

New Delhi has also touted the route as an alternative to China’s Belt and Road Initiative.

“For the first time, two trains with Kuzbass coal headed to India along the International North-South Transport Corridor. The trains set off from the Kemerovo region. They followed along the eastern branch of the INSTC through Kazakhstan and Turkmenistan to the Iranian port of Bandar Abbas,” Russian Railways said.

The coal will be shipped by sea along the final part of the route from Iran’s port of Bandar Abbas to the Indian port of Mumbai.

 

Sunday, 3 September 2023

India steps up coal use to stop outages

According to a Reuters report, India has stepped up the use of coal to generate electricity in a bid to stop outages caused by lower hydroelectricity output, and as an increase in renewables is struggling to keep pace with record power demand.

It is unusual for India's electricity use to spike in August, when temperatures are lower due to the annual monsoon that runs between June and September. Demand typically peaks in May, when Indians crank up air-conditioners to beat the heat, and industries operate without rain-related disruptions.

However, the driest August in more than a century has resulted in power generation surging to a record 162.7 billion kilowatt hours (units), a Reuters analysis of data from the federal grid operator Grid India showed.

Coal's share in power output rose to 66.7% in August - the highest for the month in six years, according to a Reuters analysis of government data. Lower rainfall lead to the share of hydro power in overall output plunging to 14.8%, compared with 18.1% in the same period last year.

The government has repeatedly defended the use of coal citing lower per capita emissions compared with richer nations, and rising renewable energy output.

Despite higher demand for coal, power plants have slashed imports by 24% to 17.85 million metric tons during the first four months of the fiscal year ending in March 2024, government data showed, due to a 10.7% increase in production by state-run Coal India.

Lower imports by the world's second largest importer of the polluting fuel behind China have kept global thermal coal prices depressed in recent months.

Analysts and industry officials attribute the higher power use to farmers using more electricity to irrigate fields due to insufficient rain, intermittency of renewables, and increased cooling demand with warmer-than-usual temperatures.

"Given the already stressed supply situation, as poor monsoon in August resulted in high agricultural demand, the sudden fall of wind generation ... has further aggravated the situation," power analytics firm EMA Solutions said in a LinkedIn post on Thursday.

India's peak demand - the maximum capacity required during any time of the day - rose to a record 243.9 gigawatts (GW) on August 31, the Grid India data showed, exceeding available capacity by 7.3 GW.

Electricity supply fell short of demand by 780 million units in August, the data showed, marking the highest shortage since April 2022, when India faced its worst power cuts in six and a half years.

Weather officials expect country-wide rainfall in September to be in line with the long-term average, possibly providing some respite to utility operators.

Coal's share in output rose to 74.2% in the eight months that ended in August, the Grid India data showed, compared with 72.9% in the same period last year and on track for a third consecutive annual increase. The share of hydro fell from 10.9% to 9.2%.

Overall power generation has risen by more than 108 billion units this year, dwarfing an increase of about 16 billion units in renewable generation.

India failed to achieve a target to install 175 GW in renewable energy by 2022, and has since stated that it would try to boost non-fossil capacity - solar and wind energy, nuclear and hydro power, and bio-power - to 500 GW by 2030.

Achieving that target would require over 43 GW more of non-fossil capacity every year, nearly three-times the average non-fossil capacity addition over the last two years to July.

 

Friday, 10 February 2023

United States: Gas prices plunge to the lowest levels in 30 years

Gas prices in the United States plunged to the lowest levels in 30 years signaling to dial back new well drilling and maximize combustion by power producers.

Front-month futures closed at US$2.45 per million British thermal units on February 09, 2023 in only the second percentile for all months since 1990, after allowing for the increase in core consumer prices.

Working inventories in underground storage were 17 billion cubic feet, above the prior ten-year average on February 03.

But that was a massive turnaround from a deficit of 427 billion cubic feet recorded as recently as September 09, 2022.

Mild weather has played a relatively small role in erasing the earlier deficit and transforming it into a large incipient surplus.

The number of heating degree days across the Lower 48 states so far this winter has been only 5% below the long-term average.

More important has been loss of exports following the explosion at Freeport LNG’s terminal and reduced consumption stemming from high prices through much of 2022.

Freeport’s eventual reopening should provide an outlet for some excess inventory, but with stocks in Europe also very full, exporters will have to compete for price-sensitive customers in Asia.

Slumping futures prices will discourage drilling and incentivize electricity generators to run their gas-fired units for more hours at the expense of coal.

The number of rigs drilling for gas has been essentially unchanged since the start of September - after increasing by more than 50% in the first eight months of 2022.

Discounted futures prices will also boost combustion from the power sector, helping limit the accumulation of inventories this summer.

The summer-winter calendar spread between July 2023 and January 2024 has slumped into a contango of more than US$1.10 per million British thermal units from a backwardation of more than 50 cents in August 2022.

Gas prices are now trading below the cost of coal, once the superior efficiency of gas-fired units is taken into account, which will encourage maximum gas burn this summer.

 

Friday, 13 January 2023

Peeping into the commodities market

After starting the year on weakness, crude oil prices have rebounded, driven by fears regarding China’s subdued demand easing off.

Brent futures rebounded by 7% on China announcing enhanced import quotas for 2023. This signaled that the country would continue to ramp up its demand, whether for inventory replenishment or heightened demand for petroleum products.

The second round of quotas enhancing allowed imports to 108.78 million tons of crude oil for 2023, corresponding to 60.6% of the ceiling, as compared to the earlier quota of 58.4%.

The developments out of China were enough to overshadow the inventory data from the US, where crude oil stocks in the country increased by a mammoth 19 million barrels during the week ended January 06, 2023.

Additionally, the latest CPI reading from the US led to expectations of the pace of rate hikes in the US to slow down. As a knee-jerk reaction, the US$ showed weakness, with the US Dollar Spot Index dropping by 0.9% on Thursday, making the dollar-denominated crude oil futures more attractive for investors trading in other currencies.

Moreover, a slowdown in the rate hike has led to expectations of demand not dropping by as much as earlier anticipated.

Global refining margins have continued to tick upwards amidst drop in refinery utilization due to snow storms in Texas, offsetting demand lows from holiday season resulting in larger than anticipated fuel inventory declines. Overall, snow storm in Texas has halted nearly 2.4 million bpd of refining capacity.

On the European front, shortage of natural gas exacerbated by the conflict in Ukraine, and western sanctions on Russian fuel supplies has resulted in overall power/heating demand turning towards diesel/fuel oil, exacerbating heating oil prices further. On the flipside, stronger-than expected economic data from China may result in refined-product exports from the Asian powerhouse to begin rolling out soon, weighing on margins/cracking spreads in the near term.

Overall, EIA’s January outlook expects combined gasoline, diesel and jet inventories to rise 9% in 2023, led by a 2.8% jump in refining throughput, with weaker economic activity pressuring diesel and gasoline consumption going forward. To note, gasoline/gasoil spreads currently stand at US$12.4/30.5 per barrel.

Richard’s Bay coal prices have continued to decline, currently hovering at US$167/ton compared to December 022/2QFY23 average of US$231/239/ton.

 Lower than anticipated heating demand due to milder winters in Europe and buildup of coal stockpiles in anticipation of winters has resulted in laggard demand for coal, leading to a decline in prices, particularly since mid-December 2022.

Coal prices had risen significantly during the past year amidst the global commodity super-cycle, peaking at US$460/ton in March 2022. Going forward, analysts expect coal prices to trend downwards to hover around US$160/ton in the near term. In the long run, coal prices are expected to settle around US$120/ton, although still higher as compared to pre-COVID averages of US$80/ton.

This may be attributed to delays in green energy conversion plans by developed countries, with several EU countries extending the life of coal plants which previously were scheduled for closure and reopening previously shut plants last year to address the shortage of Russian gas.

 

Even with the winter season beginning to settle (seasonal construction slowdown), scrap has rallied 22% from lows of US$340/ton in November 2022, to currently hovering around US$418/ton as compared to FYTD/ CYTD average of US$377- US$402/ton.

The said rise is majorly attributable to Chinese lockdown pullbacks, evident by 4.3% increase in purchase managers index (PMI) in December 2022 as compared to November 2022 (although still in a contractionary phase below 50).

The decision to move away from restrictions include a reduction in the overall mandatory quarantine period, which has been causing a myriad of problems for the world’s second largest economy. The said rally was not only driven by easing of restrictions but also by the abandoning of zero-COVID policy entirely, as protests against lockdowns have been running rampant in the country’s capital.

Although, the said bull-run may be short lived as routine virus controls, the ongoing property crisis, and the winter pollution curbs are expected to keep the construction/ engineering on the back foot in the near term. On the flipside, demand may pick up from a stimulus package (aimed at the housing sector) to be announced soon by the Chinese government targeting domestic industries and consumer spending.

Overall, Asian scrap demand is unlikely to be on a firm footing in the near term, as rising energy costs and a depressed outlook in Asia/ Europe are expected to dictate the production and procurement decisions of steel companies going forward.

Thursday, 21 October 2021

Surging Energy Prices May Not Ease Until Next Year, says IMF

Soaring natural gas prices are rippling through global energy markets and other economic sectors from factories to utilities. 

According to a report by International Monetary Fund (IMF), an unprecedented combination of factors is roiling world energy markets, rekindling the memories of the 1970s energy crisis and complicating an already uncertain outlook for inflation and the global economy. Energy futures indicate that prices are likely to moderate in the coming months.

Spot prices for natural gas have more than quadrupled to record levels in Europe and Asia and the persistence and global dimension of these price spikes are unprecedented. Typically, such moves are seasonal and localized. Asian prices, for example, saw a similar jump last year but those didn’t spill over with an associated similar rise in Europe.

Analysts expect prices will revert back to normal levels early next year, when heating demand ebb and supplies adjust. However, if prices stay high as they have been, this could begin to be a drag on global growth.

Meanwhile, ripple effects are being felt in coal and oil markets. Brent crude oil prices, the global benchmark, recently reached a seven-year high above US$85 per barrel, as more buyers sought alternatives for heating and power generation amid already tight supplies. Coal, the nearest substitute, is in high demand as power plants turn to it more. This has pushed prices to the highest level since 2001, driving a rise in European carbon emission permit costs.

Bust, boom, and inadequate supply

Given this backdrop, it helps to look back to the start of the pandemic, when restrictions halted many activities across the global economy. This caused a collapse of energy consumption, leading energy companies to slash investment. However, consumption of natural gas rebounded fast—driven by industrial production, which accounts for about 20 percent of final natural gas consumption—boosting demand at a time when supplies were relatively low.

Energy supply, in fact, has reacted slowly to price signals due to labor shortages, maintenance backlogs, longer lead times for new projects, and lackluster interest from investors in fossil fuel energy companies. Natural gas production in the United States, for example, remains below pre-crisis levels. Production in the Netherlands and Norway is also down. And Europe’s biggest supplier, Russia, has recently slowed its shipments to the continent.

Weather has also exacerbated gas market imbalances. The Northern Hemisphere’s severe winter cold and summer heat boosted heating and cooling demand. Meanwhile, renewable power generation has been reduced in the United States and Brazil by droughts, which curbed hydropower output as reservoirs ran low, and in Northern Europe by below-average wind generation this summer and fall.

Coal supplies and inventories

While coal can help offset natural gas shortages, some of those supplies are also disrupted. Logistical and weather-related factors have crippled production from Australia to South Africa, while coal output in China, the world’s largest producer and consumer, has fallen amid emissions goals that dis-incentivize coal use and production in favor of renewables or gas.

In fact, Chinese coal stockpiles are at record lows, which increases the threat of winter fuel supply shortfalls for power plants. And in Europe, natural gas storage is below average ahead of winter, adding risk of more price increases as utilities compete for scarce resources before the arrival of cold weather.

Energy prices and inflation

Coal and natural gas prices tend to have less of an effect on consumer prices than oil because household electricity and natural gas bills are often regulated and prices are more rigid. Even so, in the industrial sector, higher natural gas prices are confronting producers that rely on the fuel to make chemicals or fertilizers. These dynamics are particularly concerning as they are affecting already uncertain inflation prospects amid supply chain disruptions, rising food prices, and firming demand.

Should energy prices remain at current levels, the value of global fossil fuel production as a share of gross domestic product this year would rise from 4.1 percent (estimated in our July projection to 4.7 percent. Next year, the share could be as high as 4.8 percent, up from a projected 3.75 percent in July. Assuming half of this increase in costs for oil, gas, and coal is due to reduced supply, this would represent a 0.3 percentage point reduction in global economic growth this year and about 0.5 percentage points next year.

Energy prices to normalize next year

While supply disruptions and price pressures pose unprecedented challenges for a world already grappling with an uneven pandemic recovery, the silver lining for policymakers is that the situation doesn’t compare to the early 1970s energy shock.

Back then, oil prices quadrupled, directly hitting household and business purchasing power and, eventually, causing a global recession. Nearly a half century later, given the less dominant role that coal and natural gas plays in the world’s economy, energy prices would need to rise much more significantly to cause such a dramatic shock.

Moreover, we expect natural gas prices to normalize by the second quarter as the end of winter in Europe and Asia eases seasonal pressures, as futures markets also indicate. Coal and crude oil prices are also likely to decline. However, uncertainty remains high and small demand shocks could trigger fresh price spikes.

Tough policy choices

That means central banks should look through price pressures from transitory energy supply shocks, but also be ready to act sooner—especially those with weaker monetary frameworks—if concrete risks of inflation expectations de-anchoring do materialize.

Governments should act to prevent power outages in the face of utilities curtailing generation if it becomes unprofitable. Blackouts, particularly in China, could dent chemical, steel, and manufacturing activity, adding to global supply-chain disruptions during a peak season for sales of consumer goods. Finally, as higher utility bills are regressive, support to low-income households can help mitigate the impact of the energy shock to the most vulnerable populations.