First, our hearts and prayers are with the people of Ukraine. As this edition of Coal Age was going to press, the Russian invasion of Ukraine was entering its second month. Millions of Ukrainians have fled the country with nothing more than what they could carry. The Ukrainian defense forces have proven to be a worthy adversary for an unprepared Russian army. Meanwhile, the threat of nuclear war prevents other nations from intervening militarily, but they have other tools at their disposal, like economic sanctions, and they are using them effectively.

A large portion of Russia’s economy is based on commodity exports: wheat, nickel, steel, coal, natural gas, etc. Preventing those commodities from entering the global market, if that’s even possible, would have a profound effect on prices and create greater inflationary pressure. The conflict has already highlighted Europe’s dependence on Russian natural gas (see Dateline Washington, p. 12). As people became more aware of its predominance as an energy exporter, they began to pressure governments and companies to stop consuming fossil fuels produced in Russia. For many regions, that’s easier said than done.

According to Wood MacKenzie, replacing Russian coal volumes would result in a price shock to global coal markets. Together, Europe, Japan and South Korea imported around 90 million metric tons (mt) of thermal coal and 25 million mt of met coal from Russia last year (see Leading Developments, p. 4). While thermal coals can be sourced from other regions, finding premium-quality metallurgical-grade coal will be difficult.

Coal-fired power currently accounts for only 14% of Europe’s generation mix, according to WoodMac. The impact on European power markets from a Russian coal shortage would not be as significant as gas. Crucially, though, WoodMac does not believe Europe will be able to depend on coal plants to make up for gas-fired generation losses. A transition away from Russian natural gas to another source, such as the U.S., will take years. It will require a significant infrastructure investment and further deplete natural gas from supplies constrained by regulatory overreach.

Ukraine and Russia were mining leaders. Foreign investment in the Russian mining sector will dry up. The sanctions will prevent Russian miners from purchasing equipment, replacement parts and technology. The mines will eventually fall into disrepair and coal operators in other countries will step forward to fill the supply gap.