- Despite South Africa’s abundant endowment of coal, the industry is faced with supply, environmental and infrastructural challenges.
According to Mining Review Africa article published on February 20, 2023, while the country moves towards diversifying its energy mix, VUSLAT BAYOGLU, MD of Menar and director of the World Coal Association, explains why coal will maintain its longstanding relevance towards and beyond 2030. HLENGIWE MOTAUNG writes.
While the end is inevitable for all existing matter, the use of coal has always appeared infinite. Since the middle of the 19th century, the commodity has been at the forefront of the steel and energy industries. South Africa has the sixth largest coal resource in the world, and over 80% of the country’s energy is produced from coal-fired power stations.
According to logistics and insurance company Banchero Costa, “South Africa is the world’s fifth largest seaborne exporter of coal, after Indonesia, Australia, Russia, and the USA. It accounted for 5.4% of global coal exports in the January to September 2022 period.”
Crunching the numbers
On a mission to do away with activities that cause C02 emissions, the Conference of Parties (COP) to the United Nations Framework Convention on Climate Change has taken a stern direction toward renewable solutions.
While some environmental activists shun coal and some peg away to keep investors uninterested, Bayoglu remains firm on his coal forecast. “Energy demand has continued to increase exponentially year on year with analysts forecasting global energy demand to reach 830 quadrillion British thermal units (BTU) by 2050 and coal expected to account for as much as 193 quadrillion BTU,” he states.
Even before the start of the Russian invasion of Ukraine, there were predictions that the global demand for coal would hit an all-time high in 2022. “The International Energy Agency (IEA) has stated that coal power is on track to hit a new global record in 2023, owing to a global economic rebound that would drive worldwide coal demand to an all-time high in 2022. According to the IEA’s report, the amount of electricity generated from coal power plants had increased by 9% in 2021 after a surge in coal demand to fuel the recovery from Covid lockdowns,” states Bayoglu.
“The buoyant demand for coal is also underpinned by robust appetite from China and India and is forecast to continue being strong in the foreseeable future. Moreover, there are close to a thousand coal plants currently being planned or under construction worldwide. Additionally, there are over 6 500 operational coal plants worldwide that are dependent on coal.
“Coal demand even in places like Europe, where coal use has reduced in recent decades, is seeing a marked resurgence considering energy uncertainty in Eastern Europe owing to Russia’s actions in Ukraine.
We believe the war has heightened countries’ awareness of the importance of diversifying the sources of supply to mitigate risks of shortages and having the security of energy supply. Therefore, we are positive about the foreseeable long-term prospects for the coal sector,” continues Bayoglu.
Production forecast
South Africa’s coal production was reported at 234 495 t in December 2021 compared to 245 818 t in 2020, marking an 11 323 t decline, mainly due to COVID-19 restrictions. During a webinar, African Source Markets CEO Bevan Jones noted that shareholder activists continue to drive large producers to exit coal investments. He continued to say that climate activism will further meddle with production. “While the rise of renewables destroys demand, the future of the South African domestic coal pricing would be negatively impacted by demand destruction and production shutdowns,” he said.
While this may be on the cards, Bayoglu begs to differ. “It is important to note that despite growing negative sentiment towards coal in Europe, they have had to change their tune drastically considering the Russia-Ukraine war and the impact it has had on the European energy market.
Even before the conflict started, 900 new coal-fired power stations were in the pipeline to be built, which would expand the world’s coal power capacity significantly. There’s a massive demand for coal, and you just can’t ignore this. The reality is that countries are using coal to power their economies and it’s not going to change anytime soon. Therefore, we believe it is still too early to talk about the decline of the South African coal sector. Coal will remain part of the energy mix for a very long time.
Decarbonisation initiatives around the world will require a lot of battery minerals. The jury is still out on whether the world would have enough of the minerals if, theoretically, all countries instantly switched to battery storage. In addition to the resource constraint, there is also the problem of baseload which renewable sources of power are unable to provide currently. This means that the outcome of the just transition must necessarily include coal.
South Africa has no alternative baseload power at this stage. You take coal out of the equation; you instantly kill the South African economy. We will quite literally be plunged into our own Dark Age. Like all commodities, coal will have its ups and downs, but it won’t be possible to write it off completely,” adds Bayoglu.
A just transition
While phasing out coal is in the spotlight, it is worth considering that metallurgical or coking coal is a key ingredient in steelmaking, and steel is an essential material in modern life. The National Empowerment Fund (NEF) says that there is a potential market for metallurgical coke in South Africa to supply the estimated 500 000 tpa of coke currently being imported to fill a gap in the 1.1 Mt domestic ferroalloy coke demand.
The coal industry’s value chain is widely segmented. The value chain includes resources and reserves, exploration, mining, coal preparation, transportation, coal exports, electricity, industrial and residential use. South Africa’s mining industry employed over 458 000 people in 2021, with slightly over 100 000 in the coal sector. The country has agreed to a US$8.5 billion funding package to accelerate the country’s transition from coal to clean energy.
President Cyril Ramaphosa said that he and his cabinet will ensure the government would only accept a deal that offered good terms, based on grants and concessional funding that aligns with national development goals, including debt reduction and job creation. The decommissioning of coal-fired power stations and increasing productivity through autonomous mining could have severe impacts on employment in the coal-mining sector. While workers and unions have expressed concern, Bayoglu remains optimistic.
“We will have to see how government proceeds with this, and we should not prejudge the outcome. However, we believe that government will not jeopardise the country’s energy stability and the important economic contribution the coal sector makes to upstream and downstream industries,” concludes Bayoglu.
