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Speaker 1: This is Dana Perkins and you're listening to Switched on

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Speaker 1: the B and AF podcast. And today we talk about

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Speaker 1: the technology that started at all when it comes to

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Speaker 1: the Industrial Revolution, and that's coal. It remains persistent in

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Speaker 1: the energy system three centuries later, and globally it emits

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Speaker 1: more greenhouse gases than any other fossil fuel. Many of

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Speaker 1: the technologies designed to decarbonize the power sector and ultimately

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Speaker 1: replace coal, such as wind farms or solar power, have

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Speaker 1: also come to rely on coal to a certain extent

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Speaker 1: to manage seasonal intermittency in a way many of us

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Speaker 1: may more often associate with natural gas. So this begs

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Speaker 1: the question how often are we seeing fuel switching between

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Speaker 1: coal and gas? And in parts of the world rich

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Speaker 1: with domestic coal deposits where it can be cost competitive

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Speaker 1: to keep coal on the grid, do we still expect

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Speaker 1: to see coal fired power stations shuttered to meet climate targets.

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Speaker 1: On today's show, we also talk about the weather and

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Speaker 1: the big impact it has on coal demand as part

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Speaker 1: of the reason that coal retirements may be slowing. To

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Speaker 1: provide us with an update on coal, I am joined

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Speaker 1: by Fausia Marzuki, the global head of gas markets for

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Speaker 1: US at bn EF alongside you Me Kim, an associate

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Speaker 1: focused on power markets. They draw from research found in

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Speaker 1: a recent report titled Coal Outlook Hot and Cold to

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Speaker 1: twenty fifty. Bn EF subscribers can access this report at

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Speaker 1: BNF go on the Bloomberg terminal, or at BNF dot com.

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Speaker 1: Now let's get to talking about coal. Umi Fowls, thank

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Speaker 1: you very much for joining today to talk about coal.

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Speaker 2: Hey, Dana, thanks a lot for inviting us.

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Speaker 1: Thanks so much for having us, Dana, Coal is not

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Speaker 1: a topic that features a lot on this show. We

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Speaker 1: don't We actually don't talk about it a lot. When

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Speaker 1: we're actually talking about global emissions all of the time,

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Speaker 1: and we're talking about decarbonization all the time, and coal

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Speaker 1: really is where it all began. Why did we take

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Speaker 1: a closer look at this very important part of the

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Speaker 1: emissions pie when so much of our narrative is focused

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Speaker 1: on the transition and decarbonization opportunities, largely from a technology standpoint,

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Speaker 1: And we've done plenty of shows about CCS. This isn't

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Speaker 1: about CCS. This is about what's happening in coal right now.

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Speaker 1: Why now, Why have you taken a closer look at it.

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Speaker 3: Sure, Dana, we're talking about coal right now because it's

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Speaker 3: still a thing a lot of the industry, a lot

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Speaker 3: of the energy industry that the narrative was around, Okay,

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Speaker 3: we're going to have peak coal soon. We're stagnating, it's

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Speaker 3: coming down. It's finally coming down. We're phasing out, you know,

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Speaker 3: end of coal, end of its rain. It's not going

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Speaker 3: down without a fight. It's not abdicating just yet. Data.

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Speaker 3: So what we're actually seeing is that twenty twenty four,

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Speaker 3: there is actually that real chance that we will see

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Speaker 3: a growth in coal generation in the power sector, i e.

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Speaker 3: More emissions, you know, when we thought we were on

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Speaker 3: track to be going down with coal.

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Speaker 1: So there are definitely some details to pack here because

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Speaker 1: I think so many people who are working in renewables

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Speaker 1: or working even in gas are seeing all of these

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Speaker 1: other technologies entering and cramping out. They're moving out these

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Speaker 1: historical sources of baseload power. So we'll get to what

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Speaker 1: that is in a minute, but can you just give

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Speaker 1: me some definitions at the beginning. We've got thermal coal,

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Speaker 1: we've got metallurgical coal. What are the main terms that

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Speaker 1: we need to know as we head into this show?

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Speaker 3: Absolutely, So we're gonna use thermal coal and met coal

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Speaker 3: on this show. But thermal coal is basically the one

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Speaker 3: that you use to produce electricity, I either one in

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Speaker 3: the power sector. Now, in certain corners you will hear

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Speaker 3: this referred to as steam coal, and then you've got

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Speaker 3: metallurgical coal. You will also probably hear this as coking coal.

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Speaker 3: In some pots, this gets you coke, and coke is

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Speaker 3: basically what you put in the blast furnaces for steel making.

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Speaker 1: So renewable energy capacity is growing, and in developed economies,

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Speaker 1: coal based power generation has largely been on the decline.

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Speaker 1: So given this, what does coal demand look like in

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Speaker 1: twenty twenty four? Yeah?

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Speaker 2: Sure, So it's definitely true that coal generation has been

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Speaker 2: declining in developed countries like Europe and also in US,

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Speaker 2: and in fact, coal retirements have been accelerating since the

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Speaker 2: COVID years, and that's really powered by cheaper renewables, carbon

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Speaker 2: prices and phaseout policies in those economies. But that's only

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Speaker 2: a really small part of the bigger global picture. To

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Speaker 2: understand coal, we need to understand Asia, which takes more

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Speaker 2: than eighty percent of global coal generation. So if you

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Speaker 2: take a look at India, and Southeast Asia, for example,

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Speaker 2: power from coal is still on the rise from their

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Speaker 2: growing economies and warmer weather. But when it comes to China,

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Speaker 2: the biggest consumer of coal, their coal demand did actually

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Speaker 2: start to slow down this year, and that's mainly because

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Speaker 2: of the increasing solar and wind products and extreme rainfall

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Speaker 2: that filled up their hydro reservoirs. So this gives us

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Speaker 2: a hope that coal demand could finally stagnate this year

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Speaker 2: after years of growth. But ultimately I think coal script

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Speaker 2: on power is really difficult to shake off, and that's

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Speaker 2: because both power demand and hydrogeneration is becoming really volatile

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Speaker 2: from climate change. In fact, if you ask me this

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Speaker 2: question about coal demand picking this year about a months ago,

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Speaker 2: I would have said that core generation might marginally drop

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Speaker 2: this year if strong winfall in China continues. But actually,

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Speaker 2: as of today, I'm not really confident to say that

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Speaker 2: anymore because recently hydro output in China showed a sudden

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Speaker 2: drop and that means that cold plan needs to ramp

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Speaker 2: up and fill that gap. So this kind of outlook

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Speaker 2: for hydro output and also cooling them and is always

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Speaker 2: changing depending on the weather, and this is making it

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Speaker 2: really increasingly difficult to predict what will happen to coal demand,

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Speaker 2: and in this kind of uncertainty, coal is unfortunately sometimes

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Speaker 2: the only major source of secure power in emerging economies,

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Speaker 2: and that's why we're still seeing China stockpiling coal at

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Speaker 2: record high levels just so they can prepare for extreme

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Speaker 2: weather events like that. So although we're still seeing signs

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Speaker 2: of core demands deignating this year, we're also not expecting

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Speaker 2: it to rapidly drop bighter. That's particularly our learning to

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Speaker 2: me as the world is already breaching the one point

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Speaker 2: in five degree warming subviider or Paris agreement, and core

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Speaker 2: generation needs to come down fast to achieve net zero,

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Speaker 2: but it's just not happening yet.

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Speaker 1: I mean, that's a really interesting connection that you just drew,

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Speaker 1: because ultimately decarbonization leads to lower warming scenario, which then

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Speaker 1: leads to more predictable weather on a longer term basis

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Speaker 1: so climate. But if the weather is unpredictable, then things

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Speaker 1: like wind and hydropower and the disruption to the water

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Speaker 1: cycle become even more unpredictable than they weren't before, meaning

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Speaker 1: that coal has this void to fill. So you talk

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Speaker 1: about the fact that China has been stockpiling some of

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Speaker 1: this in order to be able to whether the storm

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Speaker 1: no pun intended.

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Speaker 3: What does that.

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Speaker 1: Really mean then, for on the supply side and for

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Speaker 1: pricing for those who are selling coal in China, is

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Speaker 1: that market remained reasonably buoyant because of the stockpiling or

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Speaker 1: is it fluctuating wildly?

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Speaker 3: Right?

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Speaker 2: So we're talking quite a lot about China here because

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Speaker 2: China's influence and coal trade is so really strong. It's

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Speaker 2: still the largest producer and import at the same time,

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Speaker 2: so it's influencing coal markets is still really strong. And

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Speaker 2: India comes next since its production and demand are growing

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Speaker 2: at a really fast pace. So both China and India

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Speaker 2: are prioritizing domestic production for energy security reasons. But this year,

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Speaker 2: international prices are becoming actually cheaper since the energy crisis era,

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Speaker 2: and we've seen China and India importing a lot to

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Speaker 2: take advantage of those cheaper prices, and hence that's why

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Speaker 2: we're seeing a lot of stock pilot efforts from these countries,

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Speaker 2: and that's a.

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Speaker 1: Great use for major exporters.

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Speaker 2: So Indonesia, Australia, South Africa, and the US all boosted

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Speaker 2: their overseas shipments as they see more demand coming from

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Speaker 2: China and India. But when it comes to prices, the

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Speaker 2: ripple effect on different indexes are very different. And that's

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Speaker 2: because different producers around the world have different quality in coal,

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Speaker 2: and we call that a colorific value in coal. So

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Speaker 2: it's quite different from the ellen g world, for example,

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Speaker 2: where the quality is more standardized. And that's why in

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Speaker 2: the coal market it's common to see regional indexes having.

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Speaker 1: Very different trends.

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Speaker 2: So for Indonesia, it's the main producer of lower quality

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Speaker 2: coal and they mainly export to China and India. And

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Speaker 2: because the Indonesian government has been constantly boosting the production

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Speaker 2: level in the past couple of years, pricing actually have

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Speaker 2: been dropping so far in twenty twenty four. And at

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Speaker 2: the same time, Indonaesans supply have to compete with local

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Speaker 2: production from China and India, so that causes some downward

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Speaker 2: pressure on their prices. The trend is quite different when

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Speaker 2: it comes to higher quality coals, so that's markets like

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Speaker 2: Australia and South Africa and also Colombia. So here the

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Speaker 2: major consumers are Japan, Korea and some parts of Europe.

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Speaker 2: China and India does import higher quality coal as well.

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Speaker 2: But it is those developed countries who are oftentimes willing

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Speaker 2: to pay higher prices, and therefore they set the market

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Speaker 2: price for higher quality coal. And in those developed markets,

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Speaker 2: fuel switching between cool and gas is one of the

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Speaker 2: main price drivers. And because gas prices have been rising

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Speaker 2: these days, coal prices for higher quality are also increasing.

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Speaker 1: So you had mentioned fuel switching, and I'd love to

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Speaker 1: get into that. Natural gas is often used for fuel

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Speaker 1: switching with a variety of different sources. What is the

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Speaker 1: role that coal plays and how does it interact with

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Speaker 1: gas or maybe compete with gas when it comes to

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Speaker 1: fuel switching.

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Speaker 2: That's a good question. So first of all, for coal

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Speaker 2: to gas fuel switching or gas to coal field switching

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Speaker 2: to take place, there's mainly two requirements, which is that

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Speaker 2: a country needs to have a significant gas and coal

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Speaker 2: fleet and at the same time, the gas prices need

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Speaker 2: to be competitive with the coal prices. So those two

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Speaker 2: requirements are more common in develop economies like Northwest Europe,

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Speaker 2: the US, and Japan and Korea in Asia. So if

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Speaker 2: gas prices drop relatively lower compared with coal prices, then

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Speaker 2: that makes gas plans more economical to run compared with

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Speaker 2: coal plants. Well, that's unfortunately not the case right now

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Speaker 2: because gas prices are rising from supply risk, so currently

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Speaker 2: there's less potential for gas generation to be cheaper than coal,

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Speaker 2: and these developed countries will need to continue to burn

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Speaker 2: coal instead of gas unless the gas prices decline further.

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Speaker 2: And when it comes to other emerging markets like China,

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Speaker 2: we don't talk about coal to gas switching here because

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Speaker 2: it doesn't meet the requirements that I mentioned earlier, So

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Speaker 2: they don't have significant gas fleet or competitive gas prices

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Speaker 2: compared with coal. They are definitely a growing market for gas,

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Speaker 2: but when we look at their entire power mix, it's

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Speaker 2: still very much dominated by coal, and because most of

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Speaker 2: their coal supply, again comes from their local production, that's

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Speaker 2: why coal generation continues to be the base load power

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Speaker 2: in China, India and Southeast Asia.

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Speaker 1: So FOOS is somebody who spent so much of your

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Speaker 1: career focused on the gas sector. Can you talk about

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Speaker 1: the interplay between coal and gas and essentially how closive

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Speaker 1: kin are they and should I really be thinking about

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Speaker 1: coal as something that's more competitive with gas than it

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Speaker 1: is actually with nuclear?

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Speaker 3: Great that you say sort of like kin, because I

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Speaker 3: think gas has been waiting in the wings for a

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Speaker 3: really long time to wait for its time to dislodge coal,

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Speaker 3: and when coals out of the system, gas is able

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Speaker 3: to rain. We're not sure that's exactly going to happen.

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Speaker 3: Coal still sticking around, you know. First thing that I'll

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Speaker 3: say is just that, yes, we think about it as

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Speaker 3: baseload a lot of time, but both of these technologies

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Speaker 3: geez are indeed flexible. So the gas industry always says,

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Speaker 3: you know, okay, you know, we're the good solution to

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Speaker 3: solve intermittency with renewables. That's why you should switch to gas. Sorry, folks,

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Speaker 3: Coal actually also helps intermittency. It is actually flexible in

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Speaker 3: that sense as well, so it can actually do the

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Speaker 3: same thing that gas does in a power sector. It's

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Speaker 3: just that for coal you can probably store it a

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Speaker 3: little longer than gas, depending on your infrastructure. So that's

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Speaker 3: actually why that we've seen and my colleague you Mei's

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Speaker 3: talked about this that coal was the one that was

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Speaker 3: switched on to be that flexible source of power when

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Speaker 3: it was needed to help meet that incremental demand, be

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Speaker 3: it for weather reasons or be it for whatever other reasons.

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Speaker 3: So what does this all mean for gas? What does

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Speaker 3: coal not peaking yet mean for gas. It means that

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Speaker 3: gas can't necessarily be that replacement baseload in all of

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Speaker 3: these different countries. So, for example, if you're talking about coal,

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Speaker 3: you got to always talk about China and it is

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Speaker 3: probably not worth gas is time to try to dislodge

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Speaker 3: coal baseload power generation in a place like China where

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Speaker 3: they've got abundant, cheap coal that they can just use.

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Speaker 3: So in terms of the interplay between the two, it's

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Speaker 3: everything from because the two have similar characteristics. It's just

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Speaker 3: that one has less emissions, and that's what the gas

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Speaker 3: industry tuts as why it should be the solution as

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Speaker 3: the bridging fuel for the energy transition, especially in the

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Speaker 3: power sector. You start thinking about how these two are

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Speaker 3: going to compete with each other. That also means that

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Speaker 3: pricing between these two are highly correlated to each other.

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Speaker 3: It also means that where you have a lot of coal,

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Speaker 3: maybe there's not much room for gas. Where you have

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Speaker 3: a lot of gas, coal doesn't matter anymore. So how

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Speaker 3: coal pans out is going to almost decide or influence

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Speaker 3: what the role of gas is going to be in

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Speaker 3: the power sector.

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Speaker 1: And so by pricing you mean there you know, at

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Speaker 1: odds with one another. So when one is up, the

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Speaker 1: other is down. And so the market in this fuel

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Speaker 1: switching space is essentially trying to move itself to the

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Speaker 1: most beneficial or lowest price at the time.

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Speaker 3: Absolutely, so that's the whole fuel switching idea now for

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Speaker 3: so this is specifically for a thermal coal. Now, each

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Speaker 3: commodity will still have its own unique supply demand fundamentals

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Speaker 3: which will influence price, but because of the switching potential

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Speaker 3: between the two, because they are both equally flexible, because

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Speaker 3: they are both integrated into power systems in the same

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Speaker 3: manner for a lot of these major economies, that's why

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Speaker 3: their prices tend to be somewhat influence influential of each other.

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Speaker 3: Mostly spot traded coal can be influenced by gas par

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Speaker 3: and we saw a lot of that during the energy

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Speaker 3: crisis data when gas prices absolutely soared and gas was

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Speaker 3: no longer affordable, so the only alternative in the power

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Speaker 3: sector was call those coal prices equally shot up, even

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Speaker 3: though there wasn't as big of a disruption to coal

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Speaker 3: trade flows. Now, yes, Russian coal was sanctioned too, but

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Speaker 3: Russian gas was a bigger thing.

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Speaker 1: Can you talk a little bit more about the volatility

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Speaker 1: of the price of coal, and is that something that

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Speaker 1: is moving wildly like gases. I mean, you just said

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Speaker 1: that it also went way up during what we were

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Speaker 1: referring to many people in the world are saying was

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Speaker 1: a energy crisis, and over the winter of twenty twenty

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Speaker 1: two was call more volatile than gas or about the same.

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Speaker 3: Gas with far more volatile for a number of reasons.

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Speaker 3: We'll get into a little bit more financial markets, liquidity stuff.

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Speaker 3: There's a lot more people trading gas financial contracts out there,

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Speaker 3: which actually starts influencing prices a lot more does have,

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Speaker 3: you know, so sort of the less players playing in

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Speaker 3: the financial space for call, and it's a lot more

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Speaker 3: you know, it's a lot more dictated by the physical

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Speaker 3: market with a lot less speculation. So yes, less volatile.

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Speaker 3: Both of these benchmarks, both of these global matchboks have

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Speaker 3: somewhat stabilized, but they flattened out a little bit. They

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Speaker 3: have come down now the usual volatility with seasons and

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Speaker 3: some demand changes, sure that still happens, but both of

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Speaker 3: them have largely stabilized aside from your usual variations. But

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Speaker 3: in terms of call prices, fluctuating, very dependent on quite frankly,

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Speaker 3: we'll say again China and a little bit of weather too.

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Speaker 2: Actually, if I can add on to what Foules just said,

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Speaker 2: so big consumers like China and India, they source quite

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Speaker 2: a lot from their domestic production and at the same

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Speaker 2: time those countries enter long term contracts with the peaks

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Speaker 2: of like Indonesia and also Australia. So that's why the

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Speaker 2: overall international prices are relatively less full at all in

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Speaker 2: coal markets compared with gas.

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Speaker 1: So then actually, before we go to weather, let's go

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Speaker 1: to trade, and let's talk about this very much as

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Speaker 1: an actively traded commodity. Has that trade really changed because

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Speaker 1: we've certainly seen that with gas, We've seen the advent

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Speaker 1: of gas pipelines becoming liquefied natural gas in how ships

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Speaker 1: are actually running that industry because of all of diversity

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Speaker 1: and energy sources that are actually now in the power sector.

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Speaker 1: Are we seeing a change to the flows into the

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Speaker 1: trades or even for policy reasons, and you'd already mentioned sanctions,

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Speaker 1: what's happening with coal trade and how has the world

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Speaker 1: changed kind where is it now? For everybody who's not

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Speaker 1: familiar with coal, give us an idea where it's coming from,

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Speaker 1: where it's going.

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Speaker 3: Sure thing.

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Speaker 1: Okay.

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Speaker 3: So the interesting one to note that's actually kind of

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Speaker 3: happened in the last year plus or so is that

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Speaker 3: China actually banned Australian call for a little bit of time.

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Speaker 3: That's actually now with diplomatic relationships easing, that trade flow

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Speaker 3: has actually resumed. Now when Australian call wasn't going to

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Speaker 3: China anymore, that Australian coal needed to go other places

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Speaker 3: and China needed to find replacement call. So Australian calls

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Speaker 3: started going to other North Asian markets, so it went

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Speaker 3: more of it went to Japan, and then China started

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Speaker 3: taking a whole bunch more Indonesian call and neighboring ones

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Speaker 3: and even to such an extent some of the South

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Speaker 3: African call. So now when this happens and then you

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Speaker 3: actually put later, you've got Russian coal trade flows being impacted,

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Speaker 3: you've got South African call and US call actually now

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Speaker 3: having to also recalibrate and kind of cover a little bit.

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Speaker 3: So when Australia couldn't send to China, it was taking

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Speaker 3: a little bit more coal that was coming from South

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Speaker 3: Africa and Indonesia. That couldn't go to India anymore. So

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Speaker 3: now India suddenly taking coal a little bit more coal

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Speaker 3: from Baltimore, so it's going it can go that far.

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Speaker 3: I mean, Colombian coal can actually come out to Asia

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Speaker 3: now or at least that it was coming out to

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Speaker 3: Asia in certain ways. So it's really interesting to see

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Speaker 3: how these can change. And this dramatically impacts price. When

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Speaker 3: you try to send Colombian coal all the way to Asia,

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Speaker 3: that suddenly gets a lot more expensive when you start

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Speaker 3: adding your shipping. And now, especially also with Europe on

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Speaker 3: a general downward trajectory for coal consumption, all the coal

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Speaker 3: that used to go to Europe needs to go somewhere

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Speaker 3: else because they haven't necessarily brought down production yet of

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Speaker 3: a supply of coal is not necessarily down either, so

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Speaker 3: it's going somewhere.

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Speaker 1: So it's just redistributing to other parts of the world.

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Speaker 1: So one of the things that you me referenced was

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Speaker 1: how China is this big consumer of coal and they

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Speaker 1: do stockpilt by more than they need on an annual basis.

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Speaker 1: Is that something that other parts of the world actually

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Speaker 1: do And is this practice of actually stockpiling what drives

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Speaker 1: is it in order to take advantage of what is

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Speaker 1: perceived to be lower prices. Is it for energy security?

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Speaker 1: Where does stockpiling come in the coal space?

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Speaker 3: All of the above data, So China, it went through

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Speaker 3: a rough period where it had a lot of blackouts

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Speaker 3: and then there was a lot of pressure on the

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Speaker 3: government to ensure there was good supply of coal or

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Speaker 3: energy in that sense. So they stockpiled a whole bunch,

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Speaker 3: got a lot of intonation coal. They made nice for

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Speaker 3: the Australians. Again, they're taking their coal and they're also

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Speaker 3: producing a whole lot more coal, right, so they're increasing

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Speaker 3: production in the Shanxi province that's actually been up. But

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Speaker 3: we'll come back to weather. But because there were some

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Speaker 3: floods there, they had to reduce some of the production.

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Speaker 3: But so all of the levers were being pulled. And

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Speaker 3: what made it even more perfect for them was that

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Speaker 3: coal prices were coming down. So they were absolutely probably

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Speaker 3: taking advantage of the situation that coal prices were on

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Speaker 3: a declining trend. Another thing, so so far this whole time,

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Speaker 3: we've been talking about the seaborne trade of coal as well,

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Speaker 3: and that thermal coal more specifically, but in general, coal

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Speaker 3: stockpiles for China. What was one thing that really was

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Speaker 3: interesting is that last year there was a huge increase

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Speaker 3: in Mongolian coal production. Mongolia kind of doesn't have anywhere

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Speaker 3: else to send that coal to other than China through rail,

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Speaker 3: so China also had this huge receipt of Mongolian coal

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Speaker 3: production that also helped it have all these stockpiles, and

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Speaker 3: the you know, the big other thing to think about

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Speaker 3: is that China's economy, if it doesn't actually recover to

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Speaker 3: that same extent.

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Speaker 2: Is it going to use all this coal?

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Speaker 3: Is another thing. So stockpiles have absolutely been higher than

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Speaker 3: we've seen in the last couple of years, and it's

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Speaker 3: probably not going to go down that much because the

390
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Speaker 3: incremental increase in coal generation is still not going to

391
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Speaker 3: be so much so because as Yumias mentioned, we're seeing

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Speaker 3: that boom in renewable energy generation. So a lot of

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Speaker 3: that additional demand can be met by renewables, it's just

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Speaker 3: lots of that base generation that is needed.

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Speaker 1: So we had already discussed how important coal can be

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Speaker 1: as a form of baseload power, and when we think

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Speaker 1: about seasonal intermittency, which is something that is certainly accompanying

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Speaker 1: renewable energy, coal can fill that place, and that is

399
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Speaker 1: one of the areas where stockpiling comes in. Now, I

400
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Speaker 1: want to know when it comes to other extreme events,

401
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Speaker 1: in addition to whether it's winter or whether it's summer,

402
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Speaker 1: what does the role coal play and our countries seeing

403
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Speaker 1: that as a form of flexibility, maybe not on an

404
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Speaker 1: hourly basis, but on a daily basis when you have

405
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Speaker 1: things like you know you see hurricanes and typhoons and

406
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Speaker 1: various extreme weather events.

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Speaker 3: Great question, Dana, thank you. Yes, as somebody from the

408
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Speaker 3: gas industry, usually when you talk to me about weather,

409
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Speaker 3: I'm like, is it going to be cold this winter?

410
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Speaker 3: Right now, increasingly the gas industry needs to worry about

411
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Speaker 3: is it going to be hot this summer? Because that's

412
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Speaker 3: when I need more gas or at least more power

413
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Speaker 3: for air conditioning. It was a huge thing in Southeast

414
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Speaker 3: Asia this year. During the summer it got particularly hot.

415
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Speaker 3: We saw a lot more LNG being needed in places

416
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Speaker 3: like Thailand. Most specifically, the biggest extreme that we saw

417
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Speaker 3: was actually in India where we saw record high temperatures.

418
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Speaker 3: So they needed a whole lot more conditioning and a

419
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Speaker 3: whole lot more power. They had to turn to coal.

420
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Speaker 3: Now similarly, they increased production, they imported more lots of

421
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Speaker 3: mandates came out to help stimulate this and make sure

422
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Speaker 3: there was enough coal supply. One of the reasons why

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Speaker 3: we also saw Chinese coal generation increase the way it

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Speaker 3: did was actually due to droughts. To ass as an extent, now,

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Speaker 3: for economies that particularly have a lot of hydro generation,

426
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Speaker 3: when you have a drought and you mentioned hydro earlier

427
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Speaker 3: as one of your main baseload ones, when you don't

428
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Speaker 3: have you don't have hydro, you need to replace that

429
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Speaker 3: with something, and a lot of times you do turn

430
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Speaker 3: to coal, at least in China, you do now places

431
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Speaker 3: like Spain where they had where you know, when they

432
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Speaker 3: saw periods of low hydro, they had to turn to gas.

433
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Speaker 3: So rain in that sense, you know, can have that

434
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Speaker 3: impact as it impacts hydrogeneration and hence the other alternative

435
00:24:21,920 --> 00:24:26,800
Speaker 3: base low generation. Rain's also not good for open coal

436
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Speaker 3: pit mines. When it rains, it floods and you can't

437
00:24:29,760 --> 00:24:31,919
Speaker 3: get that coal out, or your coal's wet and you

438
00:24:31,920 --> 00:24:35,359
Speaker 3: can't burn it. What we're also looking at is just

439
00:24:35,560 --> 00:24:38,639
Speaker 3: the impact of lanina and whether you're going to see

440
00:24:38,680 --> 00:24:42,080
Speaker 3: a lot more rain this time around or at least

441
00:24:42,080 --> 00:24:46,159
Speaker 3: coming soon, and that might actually impact coal production in

442
00:24:46,200 --> 00:24:49,040
Speaker 3: some parts of the world, in Australia, Indonesia to a

443
00:24:49,080 --> 00:24:51,680
Speaker 3: cutain extent. I mean we're even talking it might impact

444
00:24:51,880 --> 00:24:54,800
Speaker 3: river levels, so on coal that you put on barges

445
00:24:54,840 --> 00:24:56,720
Speaker 3: in all of these inland rivers. You know, these are

446
00:24:56,760 --> 00:25:01,520
Speaker 3: things that can actually impact coal. These are also weather

447
00:25:01,640 --> 00:25:05,920
Speaker 3: implications that go further than the usual fundamentals that we

448
00:25:05,960 --> 00:25:09,679
Speaker 3: think about coal. We never really used to think about

449
00:25:10,000 --> 00:25:15,040
Speaker 3: rain being a consideration for coal dynamics, but it absolutely

450
00:25:15,240 --> 00:25:17,480
Speaker 3: is because it's a thing for China, and because China

451
00:25:17,560 --> 00:25:19,560
Speaker 3: is the biggest driver of the coal market. It's a

452
00:25:19,560 --> 00:25:20,480
Speaker 3: thing for coal.

453
00:25:20,720 --> 00:25:24,199
Speaker 1: So very connected to the natural world. These market dynamics,

454
00:25:24,240 --> 00:25:27,199
Speaker 1: as many physical commodities are. Now let's make a pivot

455
00:25:27,240 --> 00:25:32,480
Speaker 1: though to finance and some of the drivers for coal retirements.

456
00:25:32,760 --> 00:25:37,960
Speaker 1: Have we seen a trend around divestment and around actively

457
00:25:38,000 --> 00:25:41,920
Speaker 1: managing investment portfolios to actually see less coal in them

458
00:25:42,160 --> 00:25:45,560
Speaker 1: because it is a big source of emissions globally, and

459
00:25:45,600 --> 00:25:47,960
Speaker 1: we've seen in certain parts of the world. So you're

460
00:25:48,000 --> 00:25:50,800
Speaker 1: in the UK, earlier this year we saw the last

461
00:25:50,960 --> 00:25:54,120
Speaker 1: coal fired power station shut down in the country. Over

462
00:25:54,119 --> 00:25:56,240
Speaker 1: half of the coal infrastructure in the US has actually

463
00:25:56,320 --> 00:25:58,680
Speaker 1: been retired. Are we seeing this in other parts of

464
00:25:58,720 --> 00:26:02,000
Speaker 1: the world as well? And is it burred on by finance?

465
00:26:02,720 --> 00:26:06,119
Speaker 3: So there are a couple things here. There's divestments and

466
00:26:06,160 --> 00:26:08,919
Speaker 3: then there's phase outs. We're gonna talk about phase outs first.

467
00:26:09,200 --> 00:26:14,840
Speaker 3: So yay for the US. They are actually retiring faster

468
00:26:15,280 --> 00:26:18,320
Speaker 3: than the expectations. So when you look at the EIA's

469
00:26:18,560 --> 00:26:22,639
Speaker 3: projections for coal retirements, B and EF analysis has actually

470
00:26:22,680 --> 00:26:26,560
Speaker 3: shown that on average, we are retiring the US fleet

471
00:26:26,680 --> 00:26:30,200
Speaker 3: earlier than expected. In places like Germany, for example, which

472
00:26:30,240 --> 00:26:34,320
Speaker 3: had very clear phase out policies, that was kind of

473
00:26:34,520 --> 00:26:37,040
Speaker 3: put on holds for a little bit when the energy

474
00:26:37,080 --> 00:26:39,639
Speaker 3: crisis starts. It it's not back on track and they

475
00:26:39,680 --> 00:26:41,880
Speaker 3: should be, you know, and then they should be meeting

476
00:26:41,920 --> 00:26:44,680
Speaker 3: their targets to phase out there coal by twenty thirty eight.

477
00:26:44,880 --> 00:26:48,200
Speaker 3: In other places, though, we'll take South Africa as an example,

478
00:26:48,240 --> 00:26:53,800
Speaker 3: a very heavy coal based power system again from domestic resources.

479
00:26:53,840 --> 00:26:57,560
Speaker 3: You got a lot of blackouts in South Africa happening, right.

480
00:26:57,720 --> 00:27:03,160
Speaker 3: So when it came to having promised to phase out

481
00:27:03,200 --> 00:27:06,560
Speaker 3: some particular coal plants, which actually was conditional on a

482
00:27:06,720 --> 00:27:09,880
Speaker 3: climate financing pack, that South Africa had this was the JETPE,

483
00:27:09,920 --> 00:27:12,719
Speaker 3: the Just Energy Transition Partnership, So when it came to

484
00:27:12,760 --> 00:27:16,600
Speaker 3: that they've actually had they're trying to negotiate delaying some

485
00:27:16,680 --> 00:27:19,520
Speaker 3: of those phase outs in order to ensure that there

486
00:27:19,560 --> 00:27:23,440
Speaker 3: will be enough power to actually power homes because be

487
00:27:23,560 --> 00:27:26,200
Speaker 3: it renewables are not growing fast enough, or because there

488
00:27:26,280 --> 00:27:31,840
Speaker 3: just isn't enough replacement capacity to ensure that stability in power.

489
00:27:32,240 --> 00:27:35,000
Speaker 3: Some of these things are getting delayed now. It's also

490
00:27:35,119 --> 00:27:37,800
Speaker 3: something that we do need to watch out for now.

491
00:27:37,800 --> 00:27:40,280
Speaker 3: As much as that our plans to phase out by

492
00:27:40,520 --> 00:27:43,040
Speaker 3: X year for a lot of coal plants, there are

493
00:27:43,240 --> 00:27:47,440
Speaker 3: drivers that may actually see the extension of coal plants.

494
00:27:47,520 --> 00:27:50,480
Speaker 3: It's not necessarily long term. They may be a sort

495
00:27:50,480 --> 00:27:53,080
Speaker 3: of like a very near term, short term fix. But

496
00:27:53,119 --> 00:27:56,480
Speaker 3: we're even seeing that in places like Australia. So Australia

497
00:27:56,600 --> 00:28:00,720
Speaker 3: actually delayed the closure of one of its largest coal plants,

498
00:28:00,800 --> 00:28:04,080
Speaker 3: and that was really the government coming in and giving

499
00:28:04,200 --> 00:28:08,440
Speaker 3: financial support to keep that plant open again, a bit

500
00:28:08,440 --> 00:28:11,520
Speaker 3: of a just an insurance policy really to make sure

501
00:28:11,640 --> 00:28:16,280
Speaker 3: that there would be enough power capacity if they ever

502
00:28:16,440 --> 00:28:18,919
Speaker 3: needed it. It didn't necessarily mean it was going to run.

503
00:28:19,119 --> 00:28:22,080
Speaker 3: They just said they won't turn it off just yet.

504
00:28:22,480 --> 00:28:25,080
Speaker 1: So in the circumstance of Australia and in South Africa,

505
00:28:25,240 --> 00:28:28,040
Speaker 1: this is a policy decision in order to increase security

506
00:28:28,080 --> 00:28:32,120
Speaker 1: of supply. How has the financial services industry responded to it, though,

507
00:28:32,160 --> 00:28:34,680
Speaker 1: and how have investors responded to it. Has it been

508
00:28:34,920 --> 00:28:38,000
Speaker 1: essentially relegated to a policy decision or has it been

509
00:28:38,240 --> 00:28:43,040
Speaker 1: even in transition focused investors, have they embraced this kind

510
00:28:43,040 --> 00:28:46,320
Speaker 1: of way of looking at coal phase down rather than

511
00:28:46,400 --> 00:28:48,160
Speaker 1: immediate phase out. Absolutely?

512
00:28:48,200 --> 00:28:50,400
Speaker 3: Yeh. So we're seeing a lot of novel ways to

513
00:28:50,520 --> 00:28:53,440
Speaker 3: incentivize CaAl phase out. The one thing I want to

514
00:28:53,440 --> 00:28:56,800
Speaker 3: actually bring up, and it's probably less known to people

515
00:28:56,880 --> 00:28:59,760
Speaker 3: outside of the region, but that a new and new

516
00:28:59,760 --> 00:29:02,440
Speaker 3: and incentive started in Singapore that had to do with

517
00:29:02,440 --> 00:29:05,440
Speaker 3: transition credits. And I think this one's really interesting. Like

518
00:29:05,640 --> 00:29:11,680
Speaker 3: carbon offsets, it's a mechanism for you to compensate these

519
00:29:11,920 --> 00:29:16,560
Speaker 3: power plants for the potential loss revenue for them closing early.

520
00:29:16,800 --> 00:29:22,040
Speaker 3: Now it's gotten a lot of interest how it will

521
00:29:22,040 --> 00:29:24,760
Speaker 3: work in practice, whether we're going to you know, whether

522
00:29:24,800 --> 00:29:27,320
Speaker 3: it's really going to take off. So they've identified some

523
00:29:27,440 --> 00:29:29,320
Speaker 3: call facilities, but we're not going to see that you know,

524
00:29:29,360 --> 00:29:30,640
Speaker 3: we're not going to see the results of that for

525
00:29:30,680 --> 00:29:34,959
Speaker 3: a while, but they're thinking about interesting ways to incentivize

526
00:29:35,320 --> 00:29:39,520
Speaker 3: call phase out or call closures, because let's face it,

527
00:29:39,640 --> 00:29:43,320
Speaker 3: you need to compensate people or you need to actually

528
00:29:43,360 --> 00:29:46,600
Speaker 3: you know, it's all about making money to a set

529
00:29:46,640 --> 00:29:49,040
Speaker 3: and excess, so you need to other compensate people for

530
00:29:49,120 --> 00:29:51,680
Speaker 3: such early closures. And also when we look at it

531
00:29:51,720 --> 00:29:54,160
Speaker 3: from an investor's point of view, let's look at it.

532
00:29:54,200 --> 00:29:56,720
Speaker 3: So now now let's turn to divestments, Stina, when we

533
00:29:56,760 --> 00:29:59,680
Speaker 3: look at a company, a diversified mining company that has

534
00:29:59,720 --> 00:30:02,320
Speaker 3: shared older pressure to say, I don't like your coal assets,

535
00:30:02,600 --> 00:30:04,800
Speaker 3: get rid of them. Do you really want to get

536
00:30:04,880 --> 00:30:07,600
Speaker 3: rid of your cash cows? So this is actually what's

537
00:30:07,640 --> 00:30:12,840
Speaker 3: happened in a number of metals companies earlier twenty eighteen nineteen.

538
00:30:12,960 --> 00:30:15,240
Speaker 3: We're seeing a lot, you know, we're actually seeing companies

539
00:30:15,480 --> 00:30:19,560
Speaker 3: divest their coal portfolios. First one to go is usually

540
00:30:19,600 --> 00:30:23,280
Speaker 3: the thermal coal assets, now thermical assets, because there are

541
00:30:23,320 --> 00:30:25,440
Speaker 3: a lot of alternatives in the power system that don't

542
00:30:25,480 --> 00:30:27,680
Speaker 3: need to use coal for power. First one to go,

543
00:30:28,080 --> 00:30:32,040
Speaker 3: less companies are perhaps letting go of their met coal

544
00:30:32,160 --> 00:30:35,800
Speaker 3: assets because that still doesn't quite have an alternative, and

545
00:30:36,000 --> 00:30:38,120
Speaker 3: you know, there's still steel makers out there who need

546
00:30:38,160 --> 00:30:40,320
Speaker 3: a lot of coal, so it still can you know,

547
00:30:40,360 --> 00:30:43,760
Speaker 3: they still can do well. One interesting one that happened

548
00:30:43,920 --> 00:30:47,160
Speaker 3: was glen Core, glen Core saying that they would get

549
00:30:47,200 --> 00:30:49,640
Speaker 3: rid of their coal, they get rid of their coal business,

550
00:30:49,680 --> 00:30:53,800
Speaker 3: but then once again energy crisis, four hundred dollars per

551
00:30:53,840 --> 00:30:57,040
Speaker 3: ton coal prices that coals worth a lot of money.

552
00:30:57,080 --> 00:30:59,560
Speaker 3: It's making a lot of money, right, So we've actually

553
00:30:59,600 --> 00:31:04,120
Speaker 3: seen that there's been a little bit of a softening

554
00:31:04,160 --> 00:31:07,600
Speaker 3: of a position to completely get rid of coal assets,

555
00:31:07,600 --> 00:31:10,400
Speaker 3: particularly if they're making money. Another reason why there's a

556
00:31:10,760 --> 00:31:14,120
Speaker 3: softening of the position is it's something that we've seen

557
00:31:14,160 --> 00:31:17,040
Speaker 3: in the oil and gas sector as well. When a

558
00:31:17,240 --> 00:31:23,440
Speaker 3: more reputable, bigger, larger metals and mining company with good

559
00:31:23,480 --> 00:31:27,480
Speaker 3: shareholder oversized good governmance frameworks, when they're taking care of

560
00:31:27,520 --> 00:31:30,600
Speaker 3: a coal asset and they're making sure to report emissions,

561
00:31:30,600 --> 00:31:32,760
Speaker 3: they're making sure to do their best to kind of

562
00:31:32,880 --> 00:31:36,360
Speaker 3: limit the environmental impact of such operations, you make them

563
00:31:36,360 --> 00:31:40,920
Speaker 3: divest it, it might go to a producer that cares

564
00:31:41,080 --> 00:31:42,680
Speaker 3: a little less about that kind of stuff.

565
00:31:42,800 --> 00:31:45,560
Speaker 1: Yeah, this is the classic case for why not to

566
00:31:45,640 --> 00:31:48,240
Speaker 1: divest too quickly rather than wind down an asset because

567
00:31:48,240 --> 00:31:52,200
Speaker 1: it operates off of the visible eyes of financial services

568
00:31:52,200 --> 00:31:55,360
Speaker 1: and the necessary reporting that actually comes with having an

569
00:31:55,520 --> 00:32:00,520
Speaker 1: ESG report, So it changes the outlook. So essentially, I

570
00:32:00,600 --> 00:32:02,640
Speaker 1: mean the question at the end of it, with all

571
00:32:02,720 --> 00:32:05,880
Speaker 1: of these things going on, with supply flows around the

572
00:32:05,880 --> 00:32:09,800
Speaker 1: world changing, with demand more or less flatlining, with the

573
00:32:09,840 --> 00:32:14,840
Speaker 1: finance industry looking to see retirements more quickly, but it

574
00:32:15,000 --> 00:32:17,800
Speaker 1: not always actually working out the way very much focused

575
00:32:17,800 --> 00:32:21,120
Speaker 1: on this transition part away from coal as opposed to

576
00:32:21,280 --> 00:32:25,520
Speaker 1: immediate closures, some plants actually continuing on for longer than

577
00:32:25,760 --> 00:32:29,240
Speaker 1: their actual retirement dates. What do you see in the future?

578
00:32:29,360 --> 00:32:31,720
Speaker 1: Is this something when we look at our new energy

579
00:32:31,760 --> 00:32:34,200
Speaker 1: outlook and when we look into the future out to

580
00:32:34,280 --> 00:32:36,920
Speaker 1: twenty fifty and we think about the different scenarios that

581
00:32:37,240 --> 00:32:41,600
Speaker 1: could exist in a less carbon intensive world. Is coal

582
00:32:41,640 --> 00:32:46,680
Speaker 1: flat lined indefinitely or is it coming down? Just not

583
00:32:47,080 --> 00:32:47,920
Speaker 1: right this moment.

584
00:32:48,280 --> 00:32:52,560
Speaker 3: In a net zero world, coal will come down significantly.

585
00:32:53,240 --> 00:32:55,400
Speaker 3: It will not be out.

586
00:32:55,920 --> 00:32:58,640
Speaker 1: Most likely it still has a place.

587
00:32:59,040 --> 00:33:01,440
Speaker 3: It does, the energy a place. So let's break it

588
00:33:01,480 --> 00:33:03,960
Speaker 3: down into its two miss So let's break it down

589
00:33:04,000 --> 00:33:07,320
Speaker 3: to thermaline met basically, so for thermal coal, or at

590
00:33:07,400 --> 00:33:11,120
Speaker 3: least coal in the power sector, it can absolutely come

591
00:33:11,200 --> 00:33:15,080
Speaker 3: down in a net zero world in economies and in

592
00:33:15,120 --> 00:33:18,760
Speaker 3: countries where coal is just such a big part of

593
00:33:18,800 --> 00:33:22,160
Speaker 3: the energy system, sure you might not be able to

594
00:33:22,200 --> 00:33:24,560
Speaker 3: get rid of all of it. But that's when we

595
00:33:24,720 --> 00:33:26,120
Speaker 3: put on ccs, right.

596
00:33:26,000 --> 00:33:28,360
Speaker 1: So we got to do another show about carbon capture

597
00:33:28,400 --> 00:33:29,000
Speaker 1: and storage.

598
00:33:29,040 --> 00:33:31,400
Speaker 3: There you go, exactly, And so in terms of the

599
00:33:31,400 --> 00:33:37,440
Speaker 3: power sector, you absolutely have that downward trajectory. It's industry though,

600
00:33:37,640 --> 00:33:40,400
Speaker 3: industry's use of coal where it's a little harder to

601
00:33:40,480 --> 00:33:44,920
Speaker 3: kick the habit. So where you can electrify, great, you

602
00:33:44,960 --> 00:33:47,760
Speaker 3: can swap it out with clean power. Let's take you know,

603
00:33:48,200 --> 00:33:49,840
Speaker 3: if we kind of drill down to some of the

604
00:33:49,840 --> 00:33:55,320
Speaker 3: other ones, there isn't much replacement for cocing coal. So

605
00:33:55,440 --> 00:33:58,840
Speaker 3: the steel sector is going to find it difficult to

606
00:33:58,960 --> 00:34:03,360
Speaker 3: have net zero or zero emissions alternatives. You're going to

607
00:34:03,400 --> 00:34:06,960
Speaker 3: require an entire new hydrogen system.

608
00:34:06,360 --> 00:34:07,400
Speaker 1: To make that work.

609
00:34:07,680 --> 00:34:11,160
Speaker 3: So you're looking at the only way for this to happen. So, yes,

610
00:34:11,280 --> 00:34:13,960
Speaker 3: hydrogen might be a bit expensive. Slapping a whole bunch

611
00:34:13,960 --> 00:34:17,120
Speaker 3: of CCS on the existing coal facilities, you look at

612
00:34:17,200 --> 00:34:21,279
Speaker 3: sort of aluminium production can be highly electrified, but it

613
00:34:21,360 --> 00:34:24,320
Speaker 3: can't operate with intermittent power, which is why it's usually

614
00:34:24,400 --> 00:34:28,279
Speaker 3: placed next to a coal plant or hydropower or a

615
00:34:28,360 --> 00:34:31,000
Speaker 3: hydropower plant. If you can switch it out with another

616
00:34:31,080 --> 00:34:35,680
Speaker 3: fuel like a biomass or a clean molecule alternative, those

617
00:34:35,760 --> 00:34:38,600
Speaker 3: are easier or cement as well. We're seeing in our

618
00:34:38,640 --> 00:34:42,439
Speaker 3: net zero trajectories or o net zero scenarios that it's

619
00:34:42,520 --> 00:34:48,759
Speaker 3: just harder to find those alternatives for the industrial sector. Now,

620
00:34:48,800 --> 00:34:51,279
Speaker 3: this is where we really want to be looking for

621
00:34:51,360 --> 00:34:54,439
Speaker 3: those replacement molecules. So it comes back to this notion

622
00:34:54,480 --> 00:34:57,440
Speaker 3: where if you can electrify it, great, we have the solution,

623
00:34:57,680 --> 00:35:02,239
Speaker 3: and we have the cheap, free renewable solution. Where we

624
00:35:02,280 --> 00:35:06,040
Speaker 3: struggle is where it still needs that physical molecule. It

625
00:35:06,080 --> 00:35:09,240
Speaker 3: can't be electrified in the same way and it requires

626
00:35:09,239 --> 00:35:12,319
Speaker 3: a whole lot more infrastructure where it just in the

627
00:35:12,400 --> 00:35:15,719
Speaker 3: scenarios we see it's just used the same system put

628
00:35:15,760 --> 00:35:18,359
Speaker 3: CCS on it, and that's kind of the way. You know,

629
00:35:18,400 --> 00:35:20,640
Speaker 3: that's probably one of the very limited options that you're

630
00:35:20,680 --> 00:35:23,600
Speaker 3: able to deploy for these sectors. A thing to also note,

631
00:35:23,640 --> 00:35:26,719
Speaker 3: you know, these bloss finaces all this steel making. If

632
00:35:26,760 --> 00:35:30,279
Speaker 3: we look at our neo trajectories, the industry consumption of

633
00:35:30,360 --> 00:35:33,799
Speaker 3: coal is not that different than it was twenty years

634
00:35:33,840 --> 00:35:39,360
Speaker 3: ago or so. Also, these new industrial complexes, they're relatively new.

635
00:35:39,840 --> 00:35:42,440
Speaker 3: They still got some life to them. That coal's not

636
00:35:42,520 --> 00:35:44,319
Speaker 3: going where. I mean, they're still using their coal. They're

637
00:35:44,360 --> 00:35:48,640
Speaker 3: not building new ones just yet right especially out in Asia,

638
00:35:48,680 --> 00:35:51,000
Speaker 3: and Asia is where all the coal consumption is so

639
00:35:51,239 --> 00:35:52,600
Speaker 3: parder to kick the habit to.

640
00:35:52,760 --> 00:35:56,120
Speaker 1: Some legacy technology and legacy infrastructure that is right for

641
00:35:56,200 --> 00:35:59,800
Speaker 1: technological advancement. Well, Fouls, you mean, thank you for dispelling

642
00:36:00,000 --> 00:36:02,600
Speaker 1: the myths and getting me up to speed on exactly

643
00:36:02,600 --> 00:36:06,440
Speaker 1: what's happening in coal right now. I appreciate coming on

644
00:36:06,440 --> 00:36:06,759
Speaker 1: the show.

645
00:36:06,920 --> 00:36:07,759
Speaker 3: Thanks a lot, Dana.

646
00:36:07,760 --> 00:36:08,840
Speaker 2: I was a lot of fun.

647
00:36:08,960 --> 00:36:18,600
Speaker 3: Thanks so much for having us, Dana.

648
00:36:19,320 --> 00:36:22,439
Speaker 1: Today's episode of Switched On was produced by Cam Gray

649
00:36:22,640 --> 00:36:26,319
Speaker 1: with production assistance from Kamala Shelling. Bloomberg NIF is a

650
00:36:26,360 --> 00:36:29,480
Speaker 1: service provided by Bloomberg Finance LP and its affiliates. This

651
00:36:29,600 --> 00:36:32,279
Speaker 1: recording does not constitute, nor should it be construed, as

652
00:36:32,320 --> 00:36:36,200
Speaker 1: investment advice, investment recommendations, or a recommendation as to an

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00:36:36,239 --> 00:36:39,440
Speaker 1: investment or other strategy. Bloomberg ANIF should not be considered

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Speaker 1: as information sufficient upon which to base an investment decision.

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Speaker 1: Neither Bloomberg Finance LP nor any of its affiliates makes

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Speaker 1: any representation or warranty as to the accuracy or completeness

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Speaker 1: of the information contained in this recording, and any liability

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Speaker 1: as a result of this recording is expressly disclaimed