As this edition of Coal Age was going to press, motorists in the U.K. were queuing at petrol stations (lining up for gas), natural gas prices had reached a seven-year high, and coal prices were following suit. If society is about to kick its carbon habit and transition to green power, why is this happening?
In early September, Argus reported met coal prices surging to $600 per metric ton (mt) FAS to China. (See World News, p. 8.) Yes, we thought that sounded ridiculous too, but then Platts reported that its benchmark for premium low-vol for hard coking coal hit a 10-year high of $379/mt FOB Australia (September 16). Prices have remained elevated, closing at $402/mt (September 24). Delivered prices to China remain near $600/mt.
The trade dust-up between China and Australia disrupted coal markets. Politicians in Australia spoke out about China and the coronavirus. China retaliated through trade, refusing to buy some Australian exports, including coal. The Australians found other customers for their met coal, but China has not been able to secure a dependable supply. It was relying on a single source and now sees the importance of a diversified portfolio.
The world is about to learn the same thing when it comes to natural gas. In the U.S., natural gas futures have reached a seven-year high, according to Reuters. Gas futures for October delivery rose to $5.841 per million Btus (mmBtu), the highest close since February 2014. Utilities can generate power from coal for about $2/mmBtu. Natural gas prices in Europe and Asia are trading at a level four times higher than the U.S.
Natural gas has often been referred to as the “bridge fuel” to wean society from coal. Petroleum companies cleverly convinced people that natural gas was the “clean burning fuel” and many utilities opted for gas-fired units instead of coal-fired units to comply with emission mandates. While the U.S. has vast reserves of natural gas, Europe and Asia do not. They are reliant on a few sources: rigs operating in the North Sea, and imports from the U.S. and Russia.
If these prices continue for a prolonged period of time, European utilities will be forced to pass these costs on to ratepayers. Countries such as Spain, Germany, Poland, the Czech Republic and Ukraine that closed coal-fired power plants and coal operations for the sake of the environment may regret those decisions. If electricity bills triple or quadruple, Europe could experience widespread civil unrest during the winter heating season. That could make discussions interesting at the 26th U.N. Climate Change Conference in November in Glasgow, Scotland.
