IEEFA report: Transition planning a must as South Africa’s export markets pivot away from thermal coal
16 September 2019 (IEEFA South Africa) ‒ South African coal exports are approaching long-term decline, finds a new report from the Institute for Energy Economics and Financial Analysis (IEEFA) out today.
Author of the report Simon Nicholas, energy finance analyst with IEEFA, says the sector needs to come to terms with the prospect of fading demand from its major export destinations.
“Policymakers in South Africa need to prepare for the ongoing technology-driven transition away from coal or face the inevitable social and economic consequences,” says Nicholas.
“It won’t happen overnight, but key trends in global markets show new energy technology is replacing coal-fired power faster than most predicted.”
THE REPORT SHOWS THAT BY 2030, NEW WIND AND SOLAR WILL BE CHEAPER than running existing coal- or gas-fired plants virtually everywhere in the world, which is already the case in India, South Africa’s major coal export destination.
In 2018, 48 percent of all South African exports out of Richards Bay Coal Terminal went to India, a nation with a clearly-stated policy of reducing reliance on coal imports. In the first half of 2019, those exports rose to 60 percent.
India plans to cut coal imports by one-third, or around 85 million tonnes, by 2024
The last fiscal year saw the expansion of thermal power capacity in India slow to the lowest level in a decade due to major renewable energy expansion. India’s coal ministry is now preparing a new plan to cut coal imports by one-third, or around 85 million tonnes, by 2024.
Other major export destinations for South African coal include Pakistan whose import growth will be limited by concerns over the economic impact of coal imports, and South Korea which is now considering the progressive retirement of up to 20 coal-fired power plants as it plans to rely on renewables and liquefied natural gas (LNG) in the long term.
“Major mining companies are starting to realise that the long-term outlook for thermal coal is bleak,” says co-author Tim Buckley, Director of Energy Finance Studies at IEEFA.
“Global mining giants such as Rio Tinto, South32, BHP and Anglo American have all either withdrawn from the seaborne thermal coal market already or are now considering it.”
And more than 100 significant global financial institutions, including South African banks, now have formal coal exclusion policies in place, a trend IEEFA continues to track.
“ACCESS TO COAL DEBT AND EQUITY FINANCING IS BECOMING INCREASINGLY PROBLEMATIC,” says Buckley.
South African coal exporters are likely to seek alternative markets going forward as opportunities for growth in renewable-driven destinations dry up. However, the long-term outlook for coal exports to other destinations is also likely to disappoint.
“The global seaborne coal trade is set to go into permanent decline,” says Nicholas.
South Africa will see increased competition from coal exporters such as Indonesia, Australia and Russia
“As a result, South Africa will see increased competition in markets around the world from other major thermal coal exporters such as Indonesia, Australia and Russia.”
Richards Bay Coal Terminal, already operating with almost 20 percent spare capacity, may have to get used to the idea that an increasing proportion of its annual capacity will become stranded, the report states.
“The limited growth potential for coal exports in the long-term will no doubt disappoint the industry, however, it’s a timely reminder that the world is transitioning away from coal and South Africa needs to keep up and turn its sights to renewable energies,” says Nicholas.
“It’s time to plan for an alternative future. That planning should have already begun.”
Read the report: South African Coal Exports Outlook: Approaching Long-Term Decline
Media Contact: Kate Finlayson ([email protected]) +61 418 254 237
Author Contact: Simon Nicholas ([email protected]) is an IEEFA Energy Finance Analyst
Tim Buckley ([email protected]) is IEEFA’s Director of Energy Finance Studies
About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) conducts research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. www.ieefa.org
