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World coal consumption is at a record high, but more than half of Russia's coal companies are unprofitable due to sanctions and export issues. Global coal consumption is expected to decline, and the Russian coal industry is unprepared for this development. As exports and prices fall, losses will increase. In order to support its coal companies, Russian authorities look set to stimulate domestic coal consumption by going against the global trend of moving away from fossil fuels.

Content
  • Burn like there's no tomorrow

  • The G7 goes into denial

  • What is to be done with Russian coal

RU

The Russian coal industry is facing tough times: 52.4% of companies were unprofitable in the first quarter of 2024, a situation reminiscent of the collapse in demand that accompanied the peak of the COVID-19 pandemic. Things could get worse, as the government has approved an additional tax on coal miners during high-price periods, and coal terminal operators in seaports have begun raising tariffs. Export logistics are becoming more complicated and expensive, and international payment issues are growing. Asian buyers, fearing secondary sanctions, are seeking alternatives to Russian coal. The Ministry of Energy warned back in April of a severe crisis in the coal industry. The new minister, Sergey Tsivilev, formerly the governor of the Kemerovo region and a key owner of the coal company “Kolmar,” will need to address this crisis. Reviving the industry amid the EU embargo and the global green transition will require billions of rubles.

Burn like there's no tomorrow

The world is now consuming a record amount of coal, but the peak has not yet been reached. The International Energy Agency (IEA) initially expected that the global demand peak would be reached in 2023, followed by a gradual decline. But now the peak is forecast for 2025.

There will be a 10% surcharge added to the Mineral Extraction Tax (MET) on coal if its price when delivered to Russian seaports in the Far East exceeds $167 per 1 ton of coking coal or $120 per ton of thermal coal.

The green transition in energy is a gradual shift away from fossil fuel-based generation towards renewable energy sources.

How much? 8.8 billion tons in 2023, according to Enerdata estimates. Russia produced 438.7 million tons.

The Association of Southeast Asian Nations (ASEAN) was formed in 1967. ASEAN includes Indonesia, Malaysia, Singapore, Thailand, the Philippines, Brunei Darussalam, Vietnam, Laos, Myanmar, and Cambodia. Papua New Guinea and East Timor have observer status.

Before the war, nearly a quarter of all exports from Russia went to the EU — 22.6%, or 48.75 million tons, worth approximately 4 billion euros.

The peak of world coal consumption will occur in 2025, followed by a decline

Demand for coal is primarily driven by China and India, the largest consumers of this fossil fuel. China currently mines and consumes over half of the world's coal. However, according to the IEA, coal consumption in China is expected to decrease in 2024 and remain stable through 2025 and 2026. Chinese President Xi Jinping has pledged to reduce coal use starting in 2026. For a while, global demand will be maintained by India and other Asian countries. Over the past two decades, coal demand has shifted from the West to the East. Today, China, India, and the ASEAN group of countries account for three-quarters of global coal consumption, compared to 35% at the start of the century, when the United States and European Union consumed a much larger share.

Asian countries are now the largest buyers of Russian coal. After the U.S., Australia, the UK, and, in particular, the EU imposed an embargo on Russian coal in 2022, Russian companies redirected their exports to China and India. Both India and China have set ambitious carbon neutrality goals: China aims to achieve carbon neutrality by 2060, and India by 2070. Alongside coal, renewable energy generation is rapidly developing in both countries.

Moreover, Xi Jinping promised back in 2021 that China would no longer build coal-fired power plants in other countries. This aim has not yet been fully realized, but many Chinese projects abroad have indeed been stopped. Thus, from September 2022 to July 2023, projects totaling 17.65 GW were canceled.

Two-thirds of the coal consumed globally is used for electricity production, while the remaining third is split between heating and non-energy needs such as steel and cement production. The metallurgical industry accounts for 13% of total coal consumption. According to IEA forecasts, coal consumption in the power industry will decline, whereas consumption in other sectors will continue to grow slightly, with metallurgical coal consumption expected to remain steady.

In the meantime, China is substituting expensive oil and gas with its own inexpensive coal by developing coal chemistry. Demand for coal from nickel producers in Indonesia is also growing significantly, as nickel is essential for manufacturing energy storage devices.

Global demand is keeping coal prices above pre-war levels, although prices dropped to $133 per ton in mid-July 2024 after reaching energy crisis peaks of $327-437 per ton in May-December 2022.

Yet the green transition is becoming increasingly evident. Many banks no longer finance the coal industry, while more are willing to support the phased abandonment of coal generation. Climate Investment Funds (CIF), through the Accelerating Coal Transition program, offer concessional financing and technical assistance in the Dominican Republic, India, Indonesia, North Macedonia, the Philippines, and South Africa. The Asian Development Bank is piloting an Energy Transition Mechanism that provides concessional financing for the early decommissioning or repurposing of coal-fired power plants. This mechanism is currently being tested in Indonesia, with plans to expand it to Vietnam, Pakistan, Kazakhstan, and the Philippines.

The G7 goes into denial

G7 countries have already decided to close all coal-fired power plants not equipped with Carbon Capture and Storage (CCS) or Carbon Capture and Utilization (CCU) systems by 2035. Although they no longer purchase coal directly from Russia, their plans to reduce CO2 emissions still impact global prices. Burning coal accounts for around 40% of global CO2 emissions from fossil fuels — more than any other fuel.

The G7 decision is a step towards fulfilling the global commitment to “move away from fossil fuels” made at the last UN climate negotiations in Dubai in December 2023 (the commitment was not accompanied by a specific timeline). Moreover, it sends a strong signal from the largest industrially developed countries to the rest of the world: the coal era is coming to an end.

United Kingdom

The UK has all but ceased using coal for electricity production — just a decade ago this fossil fuel provided 30-40% of all generation in the country. The last coal-fired power plant — Ratcliffe-on-Soar — will be closed at the end of September. A green hydrogen production facility is planned to be created in its place by the end of the decade. Some other coal-fired power plants (for example, Drax in North Yorkshire) have been converted to wood pellets, but most have been closed.

Germany

In spring 2024, Germany shut down 15 coal-fired power plant units with a combined capacity of 4.4 GW. Originally planned for 2022-2023, these closures were delayed due to the energy crisis triggered by Russia's full-scale invasion of Ukraine. German legislation sets 2038 as the latest date for phasing out coal-fired electricity, but the current coalition government aims to achieve this by 2030. German energy companies receive compensation for closing coal-fired power plants, and employees who lose their jobs due to these closures are also compensated.

Italy

In mainland Italy, the last coal-fired power plants will close by the end of 2025, with those in Sardinia having deadlines extending from 2026 to 2028. As in Germany, 2022 saw the share of coal power generation in Italy increase significantly due to the energy crisis. However, by 2023, coal generation levels had returned to those of 2021, indicating that no resurgence of coal generation is underway.

France

France is the G7 country least dependent on coal generation, relying primarily on nuclear energy. In 2023, coal accounted for less than 0.5% of France's total electricity generation. The country has only two remaining coal-fired power plants, which will cease burning coal by 2027 at the latest (originally planned for 2022). These plants may be converted to use wood pellets. Previously, another French coal-fired power plant was converted to biomass.

Japan

In recent years, Japan has been the most coal-dependent country in the G7. Since the Fukushima-1 nuclear power plant accident in 2011, coal has accounted for approximately one-third of Japan's electricity generation. Despite this, Japan is currently constructing two new coal-fired units. At the end of last year, Prime Minister Fumio Kishida pledged to halt the construction of new coal plants unless they are equipped with CO2 reduction technologies. Currently, Japan's coal generation capacity stands at 52 GW. Notably, Japan has not yet established an official deadline for phasing out coal-fired electricity production.

There will be a 10% surcharge added to the Mineral Extraction Tax (MET) on coal if its price when delivered to Russian seaports in the Far East exceeds $167 per 1 ton of coking coal or $120 per ton of thermal coal.

The green transition in energy is a gradual shift away from fossil fuel-based generation towards renewable energy sources.

How much? 8.8 billion tons in 2023, according to Enerdata estimates. Russia produced 438.7 million tons.

The Association of Southeast Asian Nations (ASEAN) was formed in 1967. ASEAN includes Indonesia, Malaysia, Singapore, Thailand, the Philippines, Brunei Darussalam, Vietnam, Laos, Myanmar, and Cambodia. Papua New Guinea and East Timor have observer status.

Before the war, nearly a quarter of all exports from Russia went to the EU — 22.6%, or 48.75 million tons, worth approximately 4 billion euros.

Japan is currently constructing two new coal-fired units

Canada

At the end of 2018, the Canadian government committed to phasing out coal-fired electricity by 2030. To support this transition, since 2019 funds have been allocated to the national budget for diversifying local economies and aiding coal industry workers who need to find new employment or leave the labor market. However, some older coal-fired power plants in Canada may be converted to run on gas or fuel oil, which can produce higher levels of harmful emissions and greenhouse gasses when compared to coal.

United States

Two decades ago, coal generation in the U.S. accounted for more than half of electricity production; today, it represents just over 15%. In April 2024, the U.S. set 2040 as its target year for completely phasing out coal generation. However, many coal-fired power plants will likely need to close by 2032. Power plants that wish to operate beyond 2039 must either reduce their emissions by 90% or capture at least 90% of them, targets that are widely considered unrealistic. Plants planning to shut down by 2039 must also gradually reduce their emissions, though to a lesser extent.

G7 countries are focusing less on metallurgical coal and other coal uses outside the power sector. Nonetheless, companies are developing strategies to electrify production or replace coal with more climate-friendly materials, such as green hydrogen. While not all industries can currently make this transition, it is considered a viable option for the future.

What is to be done with Russian coal

The industry is facing a severe crisis, with projected losses of 450 billion rubles ($5.22 billion) in 2024 — a figure comparable to its total earnings in 2020-2021, according to the State Council Commission on Energy. This crisis stems from declining global prices due to reduced demand, rising logistics costs, and increased loan servicing expenses.

There will be a 10% surcharge added to the Mineral Extraction Tax (MET) on coal if its price when delivered to Russian seaports in the Far East exceeds $167 per 1 ton of coking coal or $120 per ton of thermal coal.

The green transition in energy is a gradual shift away from fossil fuel-based generation towards renewable energy sources.

How much? 8.8 billion tons in 2023, according to Enerdata estimates. Russia produced 438.7 million tons.

The Association of Southeast Asian Nations (ASEAN) was formed in 1967. ASEAN includes Indonesia, Malaysia, Singapore, Thailand, the Philippines, Brunei Darussalam, Vietnam, Laos, Myanmar, and Cambodia. Papua New Guinea and East Timor have observer status.

Before the war, nearly a quarter of all exports from Russia went to the EU — 22.6%, or 48.75 million tons, worth approximately 4 billion euros.

Although coal plays a much smaller role in Russia's economy and budget compared to oil and gas — contributing around 1% to GDP versus 16.5% for the oil and gas sector — it employs 140,000 people and is crucial for the economic health of several regions. Major players in the market include SUEK, owned by Andrey Melnichenko; Kuzbassrazrezugol, previously owned by Iskander Makhmudov and Andrey Bokarev; and the ELSI group, led by Albert Avdolyan, which includes Elga Coal and Sibanthracite.

Year-on-year Russian coal exports via seaports fell by almost 20% in the first four months of 2024, according to Kpler.

India, China, and other customers of Russian coal also receive shipments at a large discount. Thus, in June 2024, in eastern ports, Russian thermal coal cost $90, but it cost $67 in northwestern ports and $75 in southern ones. Low export quotations will persist until 2026, analysts believe, although they are expected to rise slightly before the start of the heating season.

At such low prices, exporting through northwestern and southern ports is unprofitable. The only viable option for earning is through the Eastern corridor, but this route is congested with other goods whose flows have shifted from Europe to Asia. Although Russia has the capacity to export 360 million tons of coal per year, it currently exports just over 210 million tons, despite producing twice as much. Deputy Prime Minister Alexander Novak nevertheless anticipates that global demand will increase. This past January, he stated that, “In the coming years, coal exports will be maintained at around 220 million tons due to rising global demand for solid fuel.”

Russian companies are not shutting down their mines. In 2023, production fell by just 1.26%, even as coal production costs rose by 30% due to increased prices for imported equipment, higher rail transportation tariffs, increased costs for wagon rentals and port transshipment, and higher prices for freight and vessel insurance. Companies are also paying more for credit due to the Bank of Russia's key interest rate hike.

To bolster domestic demand, coal miners may advocate for an increase in coal-powered electricity generation within the country. The State Council Commission on Fuel and Energy has already considered a scenario in which the share of coal in the energy mix would rise from 13% to 15% by 2050, working directly against the stated goal of achieving carbon neutrality by 2060. In 2022, domestic coal consumption in Russia grew by 14.7%, and in 2023, it is estimated to have increased by another 4%. Domestic demand is driven in part by the war in Ukraine, as increased amounts of coking coal are required to fuel Russia’s expanding metallurgical industry.

To remain viable, the Russian coal industry requires investments of 1-1.2 trillion rubles ($11.6-13.9 billion) from 2023 to 2030, with around 200 billion rubles ($2.32 billion) expected to come from the federal budget, according to the Ministry of Energy. These funds would support efforts to redirect exports to Asia-Pacific countries by expanding railway capacity and by boosting domestic demand through investments in coal generation.

However, such measures do not address the core issue: the loss of sales markets due to future declines in coal consumption worldwide. As climate regulations become more stringent, consumers of goods with high carbon content will face increasing carbon fees as countries approach their carbon neutrality targets, warns the Bank of Russia. Its projections indicate that both coal prices and export volumes are likely to decrease as a result.

There will be a 10% surcharge added to the Mineral Extraction Tax (MET) on coal if its price when delivered to Russian seaports in the Far East exceeds $167 per 1 ton of coking coal or $120 per ton of thermal coal.

The green transition in energy is a gradual shift away from fossil fuel-based generation towards renewable energy sources.

How much? 8.8 billion tons in 2023, according to Enerdata estimates. Russia produced 438.7 million tons.

The Association of Southeast Asian Nations (ASEAN) was formed in 1967. ASEAN includes Indonesia, Malaysia, Singapore, Thailand, the Philippines, Brunei Darussalam, Vietnam, Laos, Myanmar, and Cambodia. Papua New Guinea and East Timor have observer status.

Before the war, nearly a quarter of all exports from Russia went to the EU — 22.6%, or 48.75 million tons, worth approximately 4 billion euros.

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