Coal Boom Fires Up ‘Green’ Europe

  • Date: 06/11/12
  • Sylvia Pfeiffer, Financial Times

Demand for coal from power generators has soared over the past two years as that for cleaner natural gas has shrunk, the reason being price. The resurgence of coal is a disaster for efforts by European governments to reduce carbon emissions and refocus their energy supplies on low-carbon forms of generation.

The old shipyards have long gone but the Port of Tyne in northeast England still evokes memories of the country’s industrial heritage. The port dominated the UK’s coal export trade for centuries until the mid-1800s.

Changes in the mining industry during the 1990s prompted the port to diversify into other cargoes, but the coal trade has been making a comeback. The difference today is that the flow of cargoes is reversed: Tyne has become an importer of coal, bringing in just over 2m tonnes last year.

The phenomenon is evidence of a wider turn­around for coal, not just in the UK but in the rest of Europe. Demand for coal from power generators has soared over the past two years as that for cleaner natural gas has shrunk, the reason being price.

In Europe, natural gas is generally sold on contracts linked to the oil price, which is still relatively strong. Meanwhile, coal usage has been encouraged by low prices for burning carbon under the EU’s carbon-trading scheme as the eurozone crisis has led to a fall in demand.

Ample supplies of coal on the back of exports from North America – where the shale gas boom has pushed natural gas prices to 10-year lows this year – have also lowered prices, making coal much more competitive.

Further, a drought in Spain hit the country’s hydropower generation, forcing utilities to import more coal. Spain and the UK have seen the most active fuel switching in Europe.

“We are seeing a bonanza this year, with coal burn in the UK up 36 per cent compared with 2011. Indigenous coal simply can’t respond to big changes in demand like this, so imports are making up the balance,” says Nigel Yaxley, managing director of CoalImp, the Association of UK Coal Importers.

The big winners have been US coal miners. US coal exports rose 24 per cent, hitting a record high of 66.2m short tons in the first half of this year, according to the US Energy Information Administration.

More than half of the US exports, which represented about 13 per cent of US production, went to Europe. Overseas sales have since slowed, but the US is still on course to exceed the previous annual export record of 112.5m tons in 1981.

UK imports of thermal coal from the US had already been rising sharply, nearly doubled from 2.54m tons in 2010 to 4.92m tons in 2011, according to UK government figures.

Overseas sales have been a boon for companies such as St Louis-based Arch Coal, which has a London sales team to help fulfil demand in Europe, its largest export market. Export shipments reached a record of 7m tons in the first half of 2012, it says

The resurgence of coal, the dirtiest fuel for making electricity, has raised concerns among environmental campaigners. The shift is also a disaster for efforts by European governments to reduce carbon emissions and refocus their energy supplies on low-carbon forms of generation.

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