The Fossil Fuel Renaissance
Monday, March 21st, 2022
Renewables aren’t the only energy source on the up in response to the Russian invasion of Ukraine, as countries are now looking to fossil fuels that many previously turned their backs on following the pandemic. As governments around the world look to rapidly diversify their energy mix to enhance their energy security, many may come to rely on fossil fuels, such as coal, once again.
In recent weeks, coal prices have soared alongside oil and gas prices for fear of potential shortages. And the crisis in Ukraine could mean that coal prices remain high despite falling import levels in the first quarter of 2022. In Asia, sea imports of coal decreased from 61.92 million tonnes in January to 59.27 million last month. This marks the lowest level since January 2015. Currently, China is the biggest importer of coal, followed by India, Japan, and South Korea.
Coal prices rose from $186 per metric tonne on 23rd February to $462 on 10th March, based on the Rotterdam benchmark. While this would typically drive buyers away from coal or send the prices down, Asian governments are rapidly looking elsewhere to guarantee their supplies. However, Vice president for coal at Rystad Energy, Steve Hulton, explains “There is simply an almost complete absence of surplus thermal coal available globally.”
While coal use continues to be high across Asia, Europe has been largely moving away from the energy source – deemed the dirtiest fossil fuel. But with gas prices rising substantially over the last half a year, even Europe is turning back to coal. European countries have looked to South Africa, the U.S., Australia, and Indonesia to source their coal. While others are considering the feasibility of decommissioning coal projects at the previously targeted rate, in light of the new global situation.
China is expected to turn to Indonesia to fill the gap in its coal imports should Russian coal exports be further disrupted. Shares from coal mining companies have already begun to rise in Indonesia. Indonesia is currently the largest thermal coal exporter in the world. But miners worry about potential new government curbs on exports, imposed to ensure sufficient supply in local power plants. Around 20 plants worried they would have to shut down in January due to low coal stocks, leading the government to pause exports. This led to an increase in coal prices before exports were resumed in February.
The decision by many state powers to turn to coal is no surprise to some world leaders. In Australia, Prime Minister Scott Morrison continues to back coal, allowing power stations to “run as long as they possibly can.” Morrison supports this stance by saying it is necessary to maintain this energy source for “when the wind doesn’t blow and the sun doesn’t shine.”
Meanwhile, coal stocks that were previously dying out are now increasing. Coal India Ltd, for example, gained over 16 percent since the beginning of February. As state powers face the “first major energy crisis of the clean-power era”, according to Live Mint, will they ultimately turn back to fossil fuels to ensure their energy supply? The Russian invasion of Ukraine could show whether state powers are serious about sticking to their net-zero carbon emission plans or whether they will falter at the first hurdle.
During the COP26 climate summit last November, several countries pledged to turn their backs on coal as they welcomed the new era of the energy transition. These promises were made despite coal production levels reaching a record high in 2021, sending CO2 emissions soaring. The world’s largest coal producer mined 384.67 million tonnes in December, an increase from its previous record of 370.84 million tonnes in November.
Looking at other fossil fuels, governments and energy firms have already begun to discuss the potential of ramping up oil production in certain areas of the world, such as North America, to fill the gap in crude supply. Following a year of curbs on exploration and production activities by President Biden, many are now putting pressure on him to increase production in the U.S. A similar situation is being seen in Canada, which has the potential to increase its oil output substantially.
The recent geopolitical situation has encouraged many state powers to look to develop their renewable energy sectors more rapidly. Attention has been drawn to largely overlooked areas such as tidal power and geothermal energy, as well as to the expansion of solar and wind power projects. But it seems this is not enough, with many of these projects taking decades to develop, it appears likely that several governments may fall back on old, reliable fossil fuels as their source of energy security.