Clean, green renewables are on the rise. Coal, the dirtiest fuel, is dying. Or so the energy transition line goes. The reality, according to the International Energy Agency (IEA), is that global coal production, consumption, and seaborne volumes are all at all-time highs in 2023.
Coal isn’t dying yet globally, just in the West. It’s still alive and kicking in Asia — and still growing globally as a result. That’s bad news for greenhouse gas emissions, but good news for owners of the dry bulk ships that transport coal, particularly as America exports more of its own mining output via long-haul voyages to Asia.
“Demand to ship coal has been a good support for the dry bulk market over the first half of the year,” said ship brokerage BRS on Thursday. “Despite coal demand in Europe and North America resuming its downward trend, Asia has provided an offset as demand continues to grow there.”
Seaborne coal volumes are predicted to reach 1,335,000 million metric tons this year, topping 2019’s record of 1,331,000 tons, the IEA said in its recently released midyear outlook.
BRS estimated that coal shipping demand measured in ton-miles (volume multiplied by distance) rose 9% in January-July versus the same period last year.
Record consumption and production
The IEA estimates that global coal demand will reach 8.39 million tons this year, up slightly from last year’s all-time high. Three out of every 4 tons of coal will be consumed in China, India, and Southeast Asia. China alone is expected to account for 56% of global consumption.
“As Europe cuts down on its coal-fired power generation to be in line with its green energy transition, China and India have continued to add further capacity at levels that far exceed the current pace of power plant retirements,” said ship brokerage SSY on Monday.
SSY noted that 86% of Chinese coal plants are less than 20 years old, and 52% are 10-20 years old. “Considering that the average lifetime of a coal power plant is 40 years, a full capacity phaseout like the one targeted by Europe is unlikely to be replicated,” said SSY.
On the supply front, the IEA expects global coal production to reach a new high this year, topping last year’s record of 8.63 million tons, with China, India and Indonesia accounting for over 70% of the total.
According to BRS, rising domestic production in India reduced that country’s coal imports by 7% year-on-year in January to July, to 134 million tons. BRS said the drop mostly affected demand for Indonesian coal aboard Capesize bulkers (vessels with capacity of around 180,000 deadweight tons or DWT).
In contrast, this year’s high Chinese domestic production is being complemented by higher imports, a plus for dry bulk shipping.
China imported 211.8 million tons of coal in the first seven months of 2023, a 77% surge from the same period last year, said BRS. Indonesia has been China’s biggest seaborne supplier, followed by Russia and Australia.
US exports higher share of production
The U.S. was once the world’s largest coal producer but has fallen down the ranks. Current production is less than half the 2008 peak. Even so, America’s exports are now on the rise. Weaker domestic demand (due to environmental regulations and cheap natural gas) leaves more production to sell overseas.
The U.S. Energy Information Administration (EIA) predicts that the U.S. will export 90 million tons of coal this year, up 16% versus 2022. Exports are projected to rise further, to 94 million tons, in 2024.
The EIA expects 22% of U.S. production to be exported next year. In 2008, when U.S. coal output peaked, only 7% of production was exported.
US coal CEOs focus on exports
International sales prospects were highlighted by executives of U.S.-listed coal producers on second-quarter conference calls during recent weeks.
Paul Lang, CEO of Arch Resources, said that around 20% of his company’s production is sold in North America, with 80% sold in the seaborne market — half to Asia, the rest to Europe and South America.
“What we’ve seen is an ongoing, significantly increased amount going to Asia,” said Lang. “It wasn’t all that long ago that we had minimal volumes going into the Asian market.”
According to Deck Slone, Arch Resources’ senior vice president of strategy, “We focus a huge amount of attention on building out that Asian presence. That’s where the growth is going to be.”
Lang added: “If we ultimately have to, we’re ready to go 100% exports.”
Mitesh Thakkar, CEO of Consol Energy, said exports accounted for 78% of Consol’s second-quarter recurring revenue. Consol is pursuing “a strategic shift toward export demand growth,” he said.
Bob Brathwaite, Consol’s senior vice president of marketing, said, “We’ve shipped cargoes to new end users into India, into China and also into Indonesia.”
Joseph Craft, CEO of Alliance Resource Partners, said, “We’re totally focused on the international markets.”
According to Jim Grench, CEO of Peabody Energy, “We see the seaborne markets as the growth markets in demand, for both metallurgical and thermal coal. As we’ve stated many times — and it hasn’t changed — our focus is on the seaborne markets.”
ADVERTISEMENT
Canal delays positive for shipping rates
Most U.S. coal exports headed to Asia are loaded aboard Panamaxes (bulkers with capacity of 60,000-99,000 DWT) and routed through the Panama Canal.
This year, drought conditions in Panama are causing extensive delays and reroutings. These inefficiencies render the U.S. export trend even more positive to Panamax freight rates, because delays and rerouting tie up more vessel capacity.
Ship brokerage Braemar reported Tuesday that 80 bulk carriers were waiting to transit the canal, up from 59 at the end of July.
Braemar expects bulkers returning from Asia to avoid the Panama Canal and instead go via the Suez Canal or Cape of Good Hope on their ballast (empty) legs. “These longer ballasts should tighten the supply of tonnage in the Atlantic and provide support [to rates] in the coming months, particularly as grain enquiries in the U.S. Gulf pick up going into September.”
Canal-related diversions should also extend Panamax bulkers’ laden (full) legs.
BRS reported earlier this month that “coal-laden ships out of the Atlantic are deviating from their preferred Panama Canal route due to increasing transit times. Any changes to the fronthaul trade routes will increase voyage days from about 35 days via the Panama Canal to 50 days via the Suez Canal for coal loaded at the U.S. port of Burnside [Louisiana] to discharge in Rizhao, China.”
By Greg Miller of FreightWaves via Zerohedge.com
More Top Reads From Oilprice.com:
- U.S. Charges Former Vitol Oil Trader In International Bribery Scheme
- Tanker Suspected Of Carrying Iranian Oil Offloads Near Texas
- U.S. Oil And Gas Firms Spend More On Shares Than Exploration And Development
