Energy crisis: a coal crunch is going to be the latest blow


Coal consumption across the world

The European energy crisis that shows no sign of easing at present,  now faces yet another challenge due to the shortages of a fossil fuels, usually dubbed as the dirtiest of all - coal.

Analysts are already warning over what they call, a coal crunch.

The EU has already been scrambling to meet the 80% of target set by the block on the natural gas reserves for the member nations for the upcoming winter; since the power companies know that even if they reach the full capacity of gas, it may not be enough to go through the unpredictable winter, they have turned to restarting generators powered by coal, despite the vehement disapproval by a plethora of climate lobbies across the continent.  

Since the members of the EU are not the only countries that want to stockpile coal, the price of the commodity, understandably, is on the rise; India and China are planning to import great amounts of coal in the coming months that may result in a steep hike in price of coal.

Analysts are particularly keen on the moves by China: last year, the lack of availability of coal in the open markets caused a severe power crisis in China that ultimately led to direct state intervention while setting a price cap for thermal coal; the price crashed by 50% overnight after the move in October, 2021.

In order to avoids a repeat, not only is China buying coal in great quantities, but also increasing its own production to record levels despite the moves being in direct contravention to its own climate goals.

As far is the EU is concerned, it is now in a predicament something that the block did not experience last year - tit-for-tat trade wars with Russia. With that the EU members turning their back on Russian coal, which is relatively cheap to import due to obvious reasons, they have to lean on imports from places as far away as Indonesia, South Africa and Colombia in order to replenish supplies.

In some countries in the EU, a significant number of households still use coal for heating their homes. Poland is a case in point. 

That means the coal crunch is going to add yet another fissure across the EU unity, in addition to the serious disagreements among the members over the energy policies involving Russia.

In short, it is a costly endeavour at a challenging time. Since South Korea and India have also existing agreements with the suppliers, the competition is going to be very stiff; the price of thermal coal has already quadrupled from what it was last year. 

In this context, it is very difficult to see the 'coal-age' coming to a swift end; on the contrary, many countries are being forced to give them a renewed lifeline. 

The Central Electricity Authority in India, for instance, announced last week that the country needed up to 25 GW coal-fired power plants - in addition to 25 GW coal-fired power plants that are already under construction! It's a serious blow to Indian's own 'green' commitments. 

Even in the US, the retirement of some coal-fired power plants has been postponed as the power companies struggle to meet the rising demand while keeping the cost low; eight coal-fired power plants have already been activated this year according to the media.

Revival of Coal-fired Power Plants

The fact that the countries are turning back to coal-fired power stations in droves simply highlights the disastrous impact on the power generation across the world due to rising fuel costs. 

In this context, the price of oil is going to remain high in the foreseeable future, unless the price of LNG, liquified natural gas, falls substantially; it is highly unlikely when the winter sets in the northern hemisphere. 

The high energy costs are bringing the global economy down and it may, in the end, affect the demand of crude oil as an inevitable consequence. 

Since there is no sign of an irreversible change in the status-quo in the geopolitics, a lasting solution to the energy crisis is as distant as ever.

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