CAPE TOWN – South African coal exports are approaching long-term decline, according to an Institute for Energy Economics and Financial Analysis (IEEFA) report released on Monday.
IEEFA energy finance analyst Simon Nicholas said the sector needed to come to terms with the prospect of fading demand from its major export destinations.
“Policy makers in South Africa need to prepare for the ongoing technology driven transition away from coal or face the inevitable social and economic consequences,” said 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.
“By 2030, new wind and solar will be cheaper than running existing coal- or gas-fired plants virtually everywhere in the world. This is already the case in India, South Africa’s major coal export destination,” said Nicholas.
“At its heart this is a technology transition, and it is, hence, unavoidable – it will happen whether policy makers want it or not. A lack of planning will result in chaotic transition with negative social and economic impacts of the type South Africa can ill afford,” the report noted.
In 2018, 48 percent of all 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, that rose to 60 percent.
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 preparing to cut coal imports by a third, or around 85 million tons 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 LNG in the long term.
“Major mining companies are starting to realise that the long-term outlook for thermal coal is bleak,” said IEEFA director of energy finance studies Tim Buckley, who co-authored the report.
Global mining giants such as Rio Tinto, South32, BHP Billiton and Anglo American had all either withdrawn from the seaborne thermal coal market already or were now considering it, he said. And more than 100 significant global financial institutions, including South African banks, now had formal coal exclusion policies in place, he added.
“Access to coal debt and equity financing is becoming increasingly problematic.”
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 was also likely to disappoint.
“The global seaborne coal trade is set to go into permanent decline,” said Nicholas.
“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 would become stranded.
“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."