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Challenges abound for S.Africa's coal sector
Xavier Prevost
Posted: Mon, 31 Dec 2007
[miningmx.com] -- ACCORDING to the International Energy Agency (IEA), world energy demand will grow by two thirds over the next 30 years; a third of that growth will be in China and India.
Coal, the most abundant and affordable of all the fossil fuels, will be used to meet this demand. As the most important fuel for electricity generation, it will have a major and vital role to play, along with other fossil fuels.
The IEA states: “World reserves of coal are enormous and, compared with oil and natural gas, widely dispersed. The World’s proven reserve base represents about 200 years of production at current rates. Proven coal reserves have increased by over 50% in the past 22 years.”
Coal prices reached a record high of $77.87 in July 2004. The following three years, coal prices would see a steady decline until prices reached the same figure again in July 2007. From that
date, they continually improved until, in November 2007, reached an all-time-high of $128.40, an increase of 65% in only four months.
These incredible ARA (Antwerp-Rotterdam-Amsterdam) prices have been followed closely by the RBCT (Richards Bay Coal Terminal) FOB prices that during the week of 30 November 2007 were at $100.45, an increase of more that 50% in two months.
But how are these
excellent international coal prices impacting the local industry? Are South African coal mines, big and small, benefiting from them, and, if so, by how much?
The coal industry in South Africa seems, as usual, to be beating its own drum. While the world coal exporting countries are doing their best to produce and export as much as they possibly can, South Africa seems to be pausing and thinking before it acts.
With prices at the levels described above, we have achieved during 2007 some of the worst export figures ever. The record exports of 2005 of 71.4 million tonnes (Mt), decreased to 68.8 Mt last year and it seems it will decrease again to 67 Mt in 2007.
Many reasons for this poor performance have been suggested: Transnet Rail’s lack of performance; the rainy season; strikes and work stoppages. However, it is my opinion that the picture is bigger than this.
The efficiency and productivity of our collieries have been affected by years of
neglect and lack of growth. The “big” mining companies have been treading very cautiously because of the new mining Act and hardly any mines were opened to compensate for the older mines which are becoming depleted and yielding a reduced output.
The smaller mines have been affected by a lack of growth due to the scarcity of capital and coal reserves. Although economic empowerment has given rise to a number of new mines, most of the latest coal producers are very small and their impact in the industry is almost negligible.
The year 2020, often mentioned as the time when most of the large coal producing mines will cease or reduce production due to a reserve exhaustion, looms closer than ever. It is true that during the last few months a number of very sizable mine projects have been announced and more are on the way, but damage done by the lack of investment in the past will take many years to repair.
There are new big producers, such as Exxaro, which will
eventually “fill the gap”. However, until then, we will have to wait and hope that more small “juniors”, with less than a million tons per year production, will be able to implement their projects speedily and produce enough coal to make a noticeable difference in the country’s total output, especially now that reserves seem to be more readily available.
A number of questions arise from the aforementioned. Will we have enough coal of export grade to be able to use the new export capacity at the RBCT of 91 Mt by mid 2009? Will the mines producing export coal in the future also supply steam coal to the power generation industry?
Eskom has announced the need for another 50 to 70 Mt for generation. Some of this coal will be supplied from nearby mines opened for that specific goal, but the rest can only be supplied by small mines. Will Transnet Rail’s growth match that of the RBCT (and other coal terminals)?
The industry needs to readjust itself to the new
set of rules and regulations. It now also needs to take cognisance of the fact that environmental laws and regulations to control the level of the release of emissions will soon be announced. This fact will make coal mining and usage more expensive than ever before.
We are currently involved with a study on the future of the industry entitled, “Coal Roadmap”. The outcome of this study intends to illustrate to industry and government, how best to use our coal resources, while simultaneously, controlling increases in coal prices so as to ensure that the electricity generation industry remains, as before, the cheapest in the world.
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