EMBATTLED Eskom will continue to rely on low grade coal as higher quality coal is shipped off to Europe as demand surged by 720% due to the Ukraine and Russia war.
Analysts have raised concern over the impact of South Africa’s growing supply of coal to the Euro zone and its impact on other coal-dependent industry in the country.
South Africa's coal sales to Europe rose eight-fold during the first half of the year compared with the previous year as a result of a ban on Russian coal, Minerals and Energy Minister Gwede Mantashe told a gathering of oil and gas producers at the African Energy Week conference this week.
European countries, mainly Germany, the Netherlands, Ukraine, Italy, Poland, Denmark and France were now the major markets for South African coal.
He said sales to Europe would have done even better if the rail system was more efficient.
CEO of energy and commodity markets company, African Source Markets, Bevan Young, predicted that the trend of high coal exports will continue until such time that the power grid of European buyers became well supplied and stable.
He said even though Eskom burned a much lower quality of coal versus the export coal specs, with most miners chasing the export market.
"We are also seeing lower-grade coals heading out the door. This has an impact on locally available supplies, since even the lower-grade discounted coal price is higher than what Eskom pays.
"The huge concern though is for industrial consumers such as the food producers, and sugar, paper, and cement mills. They buy higher-grade sized coal and simply cannot afford to pay export related prices.
“Unless something is done to reserve supplies for them at more reasonable prices, then we could be facing significant food shortages in the country if these factories need to close."
Young said South African exported coal was generally of high quality and favourable compared to Russian, Colombian, US, and Australian coal.
"SA coal also enjoys a freight advantage over most of the others. Make no mistake though, Europe is buying coal from wherever it can get it.“
Energy expert Chris Yelland also predicted the "windfall profits" would continue for as long as the Ukraine-Russia conflict lasted but described the surge as a "short-term" benefit.
He added that the high price of coal seemed to be diverting coal away from local markets towards the export market "for the time being" with negative effects on Eskom.
"South Africa will be left with the worst quality coal and the best quality coal that will fetch the highest price will be exported. But there are limits to what SA can export due to poor rail and ports infrastructure. South Africa is therefore not able to capitalise on these international high prices fully. The poor infrastructure is holding the mining and coal industries back,“ said Yelland.
Europe’s high coal demand has shifted the conversation among African countries heading to the COP27 conference where they will adhere to calls for a shift from fossil fuels to renweables if it did not hamper economic growth.
The Department of Environmental Affairs and the Presidential Climate Commission will host a joint national stakeholder consultation tomorrow to consolidate South Africa’s position for the COP27 conference taking place in Egypt next month.
South Africa, counted among of the world’s biggest greenhouse gas emitters, is expected to unveil its Just Energy Transition Partnership Investment (JET) plan on reducing emissions at at the conference.
Mantashe said while these commitments were made the country also had an obligation to ensure access for millions of people to electricity and clean cooking technologies.
"Developed countries want to use our countries as guinea-pigs for experiments. As a smaller economy you then are forced to take the ideas of others. For example, South Africa has a partnership with the US, the EU of about $8.5 billion. It's not a gift but a loan. Part of it is a concessional loan and a little portion is a grant."
The funding is to help South Africa transition from fossil fuels to green energy and the first tranche of R131billion had been received, said Mantashe.
"But when we looked at the turn-over of the coal industry in 2021, it was R130 billion. We are actually told to leave coal for the R1 billion difference. We support funding but it must be aligned to our programme."
Political analyst Ronald Renwood said the increase in exports was good for the industry but did not necessitate an increase in the use of coal.
"We can have all the coal in the world but it's not worth anything to us. Eskom is a mess, it can't burn it to generate electricity to meet our own needs," said Renwood.
Renwood said the country needed to take a position on whether we go for a green energy solution or get stuck in coal.
“We've seen contradicting messages on energy. We need a principled position and the different role players developing policies in response to that position,” he said.
The surge in the demand for coal is expected to strengthen Africa's call to continue to explore its natural resources to boost its socio-economic growth at the climate change conference.
African oil and gas producers at energy conference in Cape Town this week reaffirmed their commitment to ending energy poverty by 2030 and to transition from fossil fuels to clean energy but on their own terms.
“We cannot deny that oil and gas represent an essential resource globally and will remain part of the energy mix for the long term. Our goal is to provide these resources more responsibly,” said Egypt’s Minister of Mineral Resources and Petroleum, Tarek El-Molla.
The consensus among the African countries was summed up by the CEO of African Energy Chamber, NJ Ayuk, who said: “Drill baby drill, that should be Africa’s message to the world. Europe wants to call gas green - it has always been green. If it is green gas for Europe, why is it not green gas for Africa?".
Ayuk said African leaders attending COP27 should back up energy producers.
"We should not be apologising for our energy sector," he said.
Environmental Affairs Minister Barbara Creecy told a meeting in Johannesburg this week that companies in Italy and India that sourced forest fibres had asked South Africa to cut back by half its carbon footprint from those products by 2030 or lose access to their markets.
The plan will also focus on how the country will decommission 10 coal-fired power plants.