Speaker 1: This is Dana Perkins and you're listening to Switched on
Speaker 1: the B and AF podcast. And today we talk about
Speaker 1: the technology that started at all when it comes to
Speaker 1: the Industrial Revolution, and that's coal. It remains persistent in
Speaker 1: the energy system three centuries later, and globally it emits
Speaker 1: more greenhouse gases than any other fossil fuel. Many of
Speaker 1: the technologies designed to decarbonize the power sector and ultimately
Speaker 1: replace coal, such as wind farms or solar power, have
Speaker 1: also come to rely on coal to a certain extent
Speaker 1: to manage seasonal intermittency in a way many of us
Speaker 1: may more often associate with natural gas. So this begs
Speaker 1: the question how often are we seeing fuel switching between
Speaker 1: coal and gas? And in parts of the world rich
Speaker 1: with domestic coal deposits where it can be cost competitive
Speaker 1: to keep coal on the grid, do we still expect
Speaker 1: to see coal fired power stations shuttered to meet climate targets.
Speaker 1: On today's show, we also talk about the weather and
Speaker 1: the big impact it has on coal demand as part
Speaker 1: of the reason that coal retirements may be slowing. To
Speaker 1: provide us with an update on coal, I am joined
Speaker 1: by Fausia Marzuki, the global head of gas markets for
Speaker 1: US at bn EF alongside you Me Kim, an associate
Speaker 1: focused on power markets. They draw from research found in
Speaker 1: a recent report titled Coal Outlook Hot and Cold to
Speaker 1: twenty fifty. Bn EF subscribers can access this report at
Speaker 1: BNF go on the Bloomberg terminal, or at BNF dot com.
Speaker 1: Now let's get to talking about coal. Umi Fowls, thank
Speaker 1: you very much for joining today to talk about coal.
Speaker 2: Hey, Dana, thanks a lot for inviting us.
Speaker 1: Thanks so much for having us, Dana, Coal is not
Speaker 1: a topic that features a lot on this show. We
Speaker 1: don't We actually don't talk about it a lot. When
Speaker 1: we're actually talking about global emissions all of the time,
Speaker 1: and we're talking about decarbonization all the time, and coal
Speaker 1: really is where it all began. Why did we take
Speaker 1: a closer look at this very important part of the
Speaker 1: emissions pie when so much of our narrative is focused
Speaker 1: on the transition and decarbonization opportunities, largely from a technology standpoint,
Speaker 1: And we've done plenty of shows about CCS. This isn't
Speaker 1: about CCS. This is about what's happening in coal right now.
Speaker 1: Why now, Why have you taken a closer look at it.
Speaker 3: Sure, Dana, we're talking about coal right now because it's
Speaker 3: still a thing a lot of the industry, a lot
Speaker 3: of the energy industry that the narrative was around, Okay,
Speaker 3: we're going to have peak coal soon. We're stagnating, it's
Speaker 3: coming down. It's finally coming down. We're phasing out, you know,
Speaker 3: end of coal, end of its rain. It's not going
Speaker 3: down without a fight. It's not abdicating just yet. Data.
Speaker 3: So what we're actually seeing is that twenty twenty four,
Speaker 3: there is actually that real chance that we will see
Speaker 3: a growth in coal generation in the power sector, i e.
Speaker 3: More emissions, you know, when we thought we were on
Speaker 3: track to be going down with coal.
Speaker 1: So there are definitely some details to pack here because
Speaker 1: I think so many people who are working in renewables
Speaker 1: or working even in gas are seeing all of these
Speaker 1: other technologies entering and cramping out. They're moving out these
Speaker 1: historical sources of baseload power. So we'll get to what
Speaker 1: that is in a minute, but can you just give
Speaker 1: me some definitions at the beginning. We've got thermal coal,
Speaker 1: we've got metallurgical coal. What are the main terms that
Speaker 1: we need to know as we head into this show?
Speaker 3: Absolutely, So we're gonna use thermal coal and met coal
Speaker 3: on this show. But thermal coal is basically the one
Speaker 3: that you use to produce electricity, I either one in
Speaker 3: the power sector. Now, in certain corners you will hear
Speaker 3: this referred to as steam coal, and then you've got
Speaker 3: metallurgical coal. You will also probably hear this as coking coal.
Speaker 3: In some pots, this gets you coke, and coke is
Speaker 3: basically what you put in the blast furnaces for steel making.
Speaker 1: So renewable energy capacity is growing, and in developed economies,
Speaker 1: coal based power generation has largely been on the decline.
Speaker 1: So given this, what does coal demand look like in
Speaker 1: twenty twenty four? Yeah?
Speaker 2: Sure, So it's definitely true that coal generation has been
Speaker 2: declining in developed countries like Europe and also in US,
Speaker 2: and in fact, coal retirements have been accelerating since the
Speaker 2: COVID years, and that's really powered by cheaper renewables, carbon
Speaker 2: prices and phaseout policies in those economies. But that's only
Speaker 2: a really small part of the bigger global picture. To
Speaker 2: understand coal, we need to understand Asia, which takes more
Speaker 2: than eighty percent of global coal generation. So if you
Speaker 2: take a look at India, and Southeast Asia, for example,
Speaker 2: power from coal is still on the rise from their
Speaker 2: growing economies and warmer weather. But when it comes to China,
Speaker 2: the biggest consumer of coal, their coal demand did actually
Speaker 2: start to slow down this year, and that's mainly because
Speaker 2: of the increasing solar and wind products and extreme rainfall
Speaker 2: that filled up their hydro reservoirs. So this gives us
Speaker 2: a hope that coal demand could finally stagnate this year
Speaker 2: after years of growth. But ultimately I think coal script
Speaker 2: on power is really difficult to shake off, and that's
Speaker 2: because both power demand and hydrogeneration is becoming really volatile
Speaker 2: from climate change. In fact, if you ask me this
Speaker 2: question about coal demand picking this year about a months ago,
Speaker 2: I would have said that core generation might marginally drop
Speaker 2: this year if strong winfall in China continues. But actually,
Speaker 2: as of today, I'm not really confident to say that
Speaker 2: anymore because recently hydro output in China showed a sudden
Speaker 2: drop and that means that cold plan needs to ramp
Speaker 2: up and fill that gap. So this kind of outlook
Speaker 2: for hydro output and also cooling them and is always
Speaker 2: changing depending on the weather, and this is making it
Speaker 2: really increasingly difficult to predict what will happen to coal demand,
Speaker 2: and in this kind of uncertainty, coal is unfortunately sometimes
Speaker 2: the only major source of secure power in emerging economies,
Speaker 2: and that's why we're still seeing China stockpiling coal at
Speaker 2: record high levels just so they can prepare for extreme
Speaker 2: weather events like that. So although we're still seeing signs
Speaker 2: of core demands deignating this year, we're also not expecting
Speaker 2: it to rapidly drop bighter. That's particularly our learning to
Speaker 2: me as the world is already breaching the one point
Speaker 2: in five degree warming subviider or Paris agreement, and core
Speaker 2: generation needs to come down fast to achieve net zero,
Speaker 2: but it's just not happening yet.
Speaker 1: I mean, that's a really interesting connection that you just drew,
Speaker 1: because ultimately decarbonization leads to lower warming scenario, which then
Speaker 1: leads to more predictable weather on a longer term basis
Speaker 1: so climate. But if the weather is unpredictable, then things
Speaker 1: like wind and hydropower and the disruption to the water
Speaker 1: cycle become even more unpredictable than they weren't before, meaning
Speaker 1: that coal has this void to fill. So you talk
Speaker 1: about the fact that China has been stockpiling some of
Speaker 1: this in order to be able to whether the storm
Speaker 1: no pun intended.
Speaker 3: What does that.
Speaker 1: Really mean then, for on the supply side and for
Speaker 1: pricing for those who are selling coal in China, is
Speaker 1: that market remained reasonably buoyant because of the stockpiling or
Speaker 1: is it fluctuating wildly?
Speaker 3: Right?
Speaker 2: So we're talking quite a lot about China here because
Speaker 2: China's influence and coal trade is so really strong. It's
Speaker 2: still the largest producer and import at the same time,
Speaker 2: so it's influencing coal markets is still really strong. And
Speaker 2: India comes next since its production and demand are growing
Speaker 2: at a really fast pace. So both China and India
Speaker 2: are prioritizing domestic production for energy security reasons. But this year,
Speaker 2: international prices are becoming actually cheaper since the energy crisis era,
Speaker 2: and we've seen China and India importing a lot to
Speaker 2: take advantage of those cheaper prices, and hence that's why
Speaker 2: we're seeing a lot of stock pilot efforts from these countries,
Speaker 2: and that's a.
Speaker 1: Great use for major exporters.
Speaker 2: So Indonesia, Australia, South Africa, and the US all boosted
Speaker 2: their overseas shipments as they see more demand coming from
Speaker 2: China and India. But when it comes to prices, the
Speaker 2: ripple effect on different indexes are very different. And that's
Speaker 2: because different producers around the world have different quality in coal,
Speaker 2: and we call that a colorific value in coal. So
Speaker 2: it's quite different from the ellen g world, for example,
Speaker 2: where the quality is more standardized. And that's why in
Speaker 2: the coal market it's common to see regional indexes having.
Speaker 1: Very different trends.
Speaker 2: So for Indonesia, it's the main producer of lower quality
Speaker 2: coal and they mainly export to China and India. And
Speaker 2: because the Indonesian government has been constantly boosting the production
Speaker 2: level in the past couple of years, pricing actually have
Speaker 2: been dropping so far in twenty twenty four. And at
Speaker 2: the same time, Indonaesans supply have to compete with local
Speaker 2: production from China and India, so that causes some downward
Speaker 2: pressure on their prices. The trend is quite different when
Speaker 2: it comes to higher quality coals, so that's markets like
Speaker 2: Australia and South Africa and also Colombia. So here the
Speaker 2: major consumers are Japan, Korea and some parts of Europe.
Speaker 2: China and India does import higher quality coal as well.
Speaker 2: But it is those developed countries who are oftentimes willing
Speaker 2: to pay higher prices, and therefore they set the market
Speaker 2: price for higher quality coal. And in those developed markets,
Speaker 2: fuel switching between cool and gas is one of the
Speaker 2: main price drivers. And because gas prices have been rising
Speaker 2: these days, coal prices for higher quality are also increasing.
Speaker 1: So you had mentioned fuel switching, and I'd love to
Speaker 1: get into that. Natural gas is often used for fuel
Speaker 1: switching with a variety of different sources. What is the
Speaker 1: role that coal plays and how does it interact with
Speaker 1: gas or maybe compete with gas when it comes to
Speaker 1: fuel switching.
Speaker 2: That's a good question. So first of all, for coal
Speaker 2: to gas fuel switching or gas to coal field switching
Speaker 2: to take place, there's mainly two requirements, which is that
Speaker 2: a country needs to have a significant gas and coal
Speaker 2: fleet and at the same time, the gas prices need
Speaker 2: to be competitive with the coal prices. So those two
Speaker 2: requirements are more common in develop economies like Northwest Europe,
Speaker 2: the US, and Japan and Korea in Asia. So if
Speaker 2: gas prices drop relatively lower compared with coal prices, then
Speaker 2: that makes gas plans more economical to run compared with
Speaker 2: coal plants. Well, that's unfortunately not the case right now
Speaker 2: because gas prices are rising from supply risk, so currently
Speaker 2: there's less potential for gas generation to be cheaper than coal,
Speaker 2: and these developed countries will need to continue to burn
Speaker 2: coal instead of gas unless the gas prices decline further.
Speaker 2: And when it comes to other emerging markets like China,
Speaker 2: we don't talk about coal to gas switching here because
Speaker 2: it doesn't meet the requirements that I mentioned earlier, So
Speaker 2: they don't have significant gas fleet or competitive gas prices
Speaker 2: compared with coal. They are definitely a growing market for gas,
Speaker 2: but when we look at their entire power mix, it's
Speaker 2: still very much dominated by coal, and because most of
Speaker 2: their coal supply, again comes from their local production, that's
Speaker 2: why coal generation continues to be the base load power
Speaker 2: in China, India and Southeast Asia.
Speaker 1: So FOOS is somebody who spent so much of your
Speaker 1: career focused on the gas sector. Can you talk about
Speaker 1: the interplay between coal and gas and essentially how closive
Speaker 1: kin are they and should I really be thinking about
Speaker 1: coal as something that's more competitive with gas than it
Speaker 1: is actually with nuclear?
Speaker 3: Great that you say sort of like kin, because I
Speaker 3: think gas has been waiting in the wings for a
Speaker 3: really long time to wait for its time to dislodge coal,
Speaker 3: and when coals out of the system, gas is able
Speaker 3: to rain. We're not sure that's exactly going to happen.
Speaker 3: Coal still sticking around, you know. First thing that I'll
Speaker 3: say is just that, yes, we think about it as
Speaker 3: baseload a lot of time, but both of these technologies
Speaker 3: geez are indeed flexible. So the gas industry always says,
Speaker 3: you know, okay, you know, we're the good solution to
Speaker 3: solve intermittency with renewables. That's why you should switch to gas. Sorry, folks,
Speaker 3: Coal actually also helps intermittency. It is actually flexible in
Speaker 3: that sense as well, so it can actually do the
Speaker 3: same thing that gas does in a power sector. It's
Speaker 3: just that for coal you can probably store it a
Speaker 3: little longer than gas, depending on your infrastructure. So that's
Speaker 3: actually why that we've seen and my colleague you Mei's
Speaker 3: talked about this that coal was the one that was
Speaker 3: switched on to be that flexible source of power when
Speaker 3: it was needed to help meet that incremental demand, be
Speaker 3: it for weather reasons or be it for whatever other reasons.
Speaker 3: So what does this all mean for gas? What does
Speaker 3: coal not peaking yet mean for gas. It means that
Speaker 3: gas can't necessarily be that replacement baseload in all of
Speaker 3: these different countries. So, for example, if you're talking about coal,
Speaker 3: you got to always talk about China and it is
Speaker 3: probably not worth gas is time to try to dislodge
Speaker 3: coal baseload power generation in a place like China where
Speaker 3: they've got abundant, cheap coal that they can just use.
Speaker 3: So in terms of the interplay between the two, it's
Speaker 3: everything from because the two have similar characteristics. It's just
Speaker 3: that one has less emissions, and that's what the gas
Speaker 3: industry tuts as why it should be the solution as
Speaker 3: the bridging fuel for the energy transition, especially in the
Speaker 3: power sector. You start thinking about how these two are
Speaker 3: going to compete with each other. That also means that
Speaker 3: pricing between these two are highly correlated to each other.
Speaker 3: It also means that where you have a lot of coal,
Speaker 3: maybe there's not much room for gas. Where you have
Speaker 3: a lot of gas, coal doesn't matter anymore. So how
Speaker 3: coal pans out is going to almost decide or influence
Speaker 3: what the role of gas is going to be in
Speaker 3: the power sector.
Speaker 1: And so by pricing you mean there you know, at
Speaker 1: odds with one another. So when one is up, the
Speaker 1: other is down. And so the market in this fuel
Speaker 1: switching space is essentially trying to move itself to the
Speaker 1: most beneficial or lowest price at the time.
Speaker 3: Absolutely, so that's the whole fuel switching idea now for
Speaker 3: so this is specifically for a thermal coal. Now, each
Speaker 3: commodity will still have its own unique supply demand fundamentals
Speaker 3: which will influence price, but because of the switching potential
Speaker 3: between the two, because they are both equally flexible, because
Speaker 3: they are both integrated into power systems in the same
Speaker 3: manner for a lot of these major economies, that's why
Speaker 3: their prices tend to be somewhat influence influential of each other.
Speaker 3: Mostly spot traded coal can be influenced by gas par
Speaker 3: and we saw a lot of that during the energy
Speaker 3: crisis data when gas prices absolutely soared and gas was
Speaker 3: no longer affordable, so the only alternative in the power
Speaker 3: sector was call those coal prices equally shot up, even
Speaker 3: though there wasn't as big of a disruption to coal
Speaker 3: trade flows. Now, yes, Russian coal was sanctioned too, but
Speaker 3: Russian gas was a bigger thing.
Speaker 1: Can you talk a little bit more about the volatility
Speaker 1: of the price of coal, and is that something that
Speaker 1: is moving wildly like gases. I mean, you just said
Speaker 1: that it also went way up during what we were
Speaker 1: referring to many people in the world are saying was
Speaker 1: a energy crisis, and over the winter of twenty twenty
Speaker 1: two was call more volatile than gas or about the same.
Speaker 3: Gas with far more volatile for a number of reasons.
Speaker 3: We'll get into a little bit more financial markets, liquidity stuff.
Speaker 3: There's a lot more people trading gas financial contracts out there,
Speaker 3: which actually starts influencing prices a lot more does have,
Speaker 3: you know, so sort of the less players playing in
Speaker 3: the financial space for call, and it's a lot more
Speaker 3: you know, it's a lot more dictated by the physical
Speaker 3: market with a lot less speculation. So yes, less volatile.
Speaker 3: Both of these benchmarks, both of these global matchboks have
Speaker 3: somewhat stabilized, but they flattened out a little bit. They
Speaker 3: have come down now the usual volatility with seasons and
Speaker 3: some demand changes, sure that still happens, but both of
Speaker 3: them have largely stabilized aside from your usual variations. But
Speaker 3: in terms of call prices, fluctuating, very dependent on quite frankly,
Speaker 3: we'll say again China and a little bit of weather too.
Speaker 2: Actually, if I can add on to what Foules just said,
Speaker 2: so big consumers like China and India, they source quite
Speaker 2: a lot from their domestic production and at the same
Speaker 2: time those countries enter long term contracts with the peaks
Speaker 2: of like Indonesia and also Australia. So that's why the
Speaker 2: overall international prices are relatively less full at all in
Speaker 2: coal markets compared with gas.
Speaker 1: So then actually, before we go to weather, let's go
Speaker 1: to trade, and let's talk about this very much as
Speaker 1: an actively traded commodity. Has that trade really changed because
Speaker 1: we've certainly seen that with gas, We've seen the advent
Speaker 1: of gas pipelines becoming liquefied natural gas in how ships
Speaker 1: are actually running that industry because of all of diversity
Speaker 1: and energy sources that are actually now in the power sector.
Speaker 1: Are we seeing a change to the flows into the
Speaker 1: trades or even for policy reasons, and you'd already mentioned sanctions,
Speaker 1: what's happening with coal trade and how has the world
Speaker 1: changed kind where is it now? For everybody who's not
Speaker 1: familiar with coal, give us an idea where it's coming from,
Speaker 1: where it's going.
Speaker 3: Sure thing.
Speaker 1: Okay.
Speaker 3: So the interesting one to note that's actually kind of
Speaker 3: happened in the last year plus or so is that
Speaker 3: China actually banned Australian call for a little bit of time.
Speaker 3: That's actually now with diplomatic relationships easing, that trade flow
Speaker 3: has actually resumed. Now when Australian call wasn't going to
Speaker 3: China anymore, that Australian coal needed to go other places
Speaker 3: and China needed to find replacement call. So Australian calls
Speaker 3: started going to other North Asian markets, so it went
Speaker 3: more of it went to Japan, and then China started
Speaker 3: taking a whole bunch more Indonesian call and neighboring ones
Speaker 3: and even to such an extent some of the South
Speaker 3: African call. So now when this happens and then you
Speaker 3: actually put later, you've got Russian coal trade flows being impacted,
Speaker 3: you've got South African call and US call actually now
Speaker 3: having to also recalibrate and kind of cover a little bit.
Speaker 3: So when Australia couldn't send to China, it was taking
Speaker 3: a little bit more coal that was coming from South
Speaker 3: Africa and Indonesia. That couldn't go to India anymore. So
Speaker 3: now India suddenly taking coal a little bit more coal
Speaker 3: from Baltimore, so it's going it can go that far.
Speaker 3: I mean, Colombian coal can actually come out to Asia
Speaker 3: now or at least that it was coming out to
Speaker 3: Asia in certain ways. So it's really interesting to see
Speaker 3: how these can change. And this dramatically impacts price. When
Speaker 3: you try to send Colombian coal all the way to Asia,
Speaker 3: that suddenly gets a lot more expensive when you start
Speaker 3: adding your shipping. And now, especially also with Europe on
Speaker 3: a general downward trajectory for coal consumption, all the coal
Speaker 3: that used to go to Europe needs to go somewhere
Speaker 3: else because they haven't necessarily brought down production yet of
Speaker 3: a supply of coal is not necessarily down either, so
Speaker 3: it's going somewhere.
Speaker 1: So it's just redistributing to other parts of the world.
Speaker 1: So one of the things that you me referenced was
Speaker 1: how China is this big consumer of coal and they
Speaker 1: do stockpilt by more than they need on an annual basis.
Speaker 1: Is that something that other parts of the world actually
Speaker 1: do And is this practice of actually stockpiling what drives
Speaker 1: is it in order to take advantage of what is
Speaker 1: perceived to be lower prices. Is it for energy security?
Speaker 1: Where does stockpiling come in the coal space?
Speaker 3: All of the above data, So China, it went through
Speaker 3: a rough period where it had a lot of blackouts
Speaker 3: and then there was a lot of pressure on the
Speaker 3: government to ensure there was good supply of coal or
Speaker 3: energy in that sense. So they stockpiled a whole bunch,
Speaker 3: got a lot of intonation coal. They made nice for
Speaker 3: the Australians. Again, they're taking their coal and they're also
Speaker 3: producing a whole lot more coal, right, so they're increasing
Speaker 3: production in the Shanxi province that's actually been up. But
Speaker 3: we'll come back to weather. But because there were some
Speaker 3: floods there, they had to reduce some of the production.
Speaker 3: But so all of the levers were being pulled. And
Speaker 3: what made it even more perfect for them was that
Speaker 3: coal prices were coming down. So they were absolutely probably
Speaker 3: taking advantage of the situation that coal prices were on
Speaker 3: a declining trend. Another thing, so so far this whole time,
Speaker 3: we've been talking about the seaborne trade of coal as well,
Speaker 3: and that thermal coal more specifically, but in general, coal
Speaker 3: stockpiles for China. What was one thing that really was
Speaker 3: interesting is that last year there was a huge increase
Speaker 3: in Mongolian coal production. Mongolia kind of doesn't have anywhere
Speaker 3: else to send that coal to other than China through rail,
Speaker 3: so China also had this huge receipt of Mongolian coal
Speaker 3: production that also helped it have all these stockpiles, and
Speaker 3: the you know, the big other thing to think about
Speaker 3: is that China's economy, if it doesn't actually recover to
Speaker 3: that same extent.
Speaker 2: Is it going to use all this coal?
Speaker 3: Is another thing. So stockpiles have absolutely been higher than
Speaker 3: we've seen in the last couple of years, and it's
Speaker 3: probably not going to go down that much because the
Speaker 3: incremental increase in coal generation is still not going to
Speaker 3: be so much so because as Yumias mentioned, we're seeing
Speaker 3: that boom in renewable energy generation. So a lot of
Speaker 3: that additional demand can be met by renewables, it's just
Speaker 3: lots of that base generation that is needed.
Speaker 1: So we had already discussed how important coal can be
Speaker 1: as a form of baseload power, and when we think
Speaker 1: about seasonal intermittency, which is something that is certainly accompanying
Speaker 1: renewable energy, coal can fill that place, and that is
Speaker 1: one of the areas where stockpiling comes in. Now, I
Speaker 1: want to know when it comes to other extreme events,
Speaker 1: in addition to whether it's winter or whether it's summer,
Speaker 1: what does the role coal play and our countries seeing
Speaker 1: that as a form of flexibility, maybe not on an
Speaker 1: hourly basis, but on a daily basis when you have
Speaker 1: things like you know you see hurricanes and typhoons and
Speaker 1: various extreme weather events.
Speaker 3: Great question, Dana, thank you. Yes, as somebody from the
Speaker 3: gas industry, usually when you talk to me about weather,
Speaker 3: I'm like, is it going to be cold this winter?
Speaker 3: Right now, increasingly the gas industry needs to worry about
Speaker 3: is it going to be hot this summer? Because that's
Speaker 3: when I need more gas or at least more power
Speaker 3: for air conditioning. It was a huge thing in Southeast
Speaker 3: Asia this year. During the summer it got particularly hot.
Speaker 3: We saw a lot more LNG being needed in places
Speaker 3: like Thailand. Most specifically, the biggest extreme that we saw
Speaker 3: was actually in India where we saw record high temperatures.
Speaker 3: So they needed a whole lot more conditioning and a
Speaker 3: whole lot more power. They had to turn to coal.
Speaker 3: Now similarly, they increased production, they imported more lots of
Speaker 3: mandates came out to help stimulate this and make sure
Speaker 3: there was enough coal supply. One of the reasons why
Speaker 3: we also saw Chinese coal generation increase the way it
Speaker 3: did was actually due to droughts. To ass as an extent, now,
Speaker 3: for economies that particularly have a lot of hydro generation,
Speaker 3: when you have a drought and you mentioned hydro earlier
Speaker 3: as one of your main baseload ones, when you don't
Speaker 3: have you don't have hydro, you need to replace that
Speaker 3: with something, and a lot of times you do turn
Speaker 3: to coal, at least in China, you do now places
Speaker 3: like Spain where they had where you know, when they
Speaker 3: saw periods of low hydro, they had to turn to gas.
Speaker 3: So rain in that sense, you know, can have that
Speaker 3: impact as it impacts hydrogeneration and hence the other alternative
Speaker 3: base low generation. Rain's also not good for open coal
Speaker 3: pit mines. When it rains, it floods and you can't
Speaker 3: get that coal out, or your coal's wet and you
Speaker 3: can't burn it. What we're also looking at is just
Speaker 3: the impact of lanina and whether you're going to see
Speaker 3: a lot more rain this time around or at least
Speaker 3: coming soon, and that might actually impact coal production in
Speaker 3: some parts of the world, in Australia, Indonesia to a
Speaker 3: cutain extent. I mean we're even talking it might impact
Speaker 3: river levels, so on coal that you put on barges
Speaker 3: in all of these inland rivers. You know, these are
Speaker 3: things that can actually impact coal. These are also weather
Speaker 3: implications that go further than the usual fundamentals that we
Speaker 3: think about coal. We never really used to think about
Speaker 3: rain being a consideration for coal dynamics, but it absolutely
Speaker 3: is because it's a thing for China, and because China
Speaker 3: is the biggest driver of the coal market. It's a
Speaker 3: thing for coal.
Speaker 1: So very connected to the natural world. These market dynamics,
Speaker 1: as many physical commodities are. Now let's make a pivot
Speaker 1: though to finance and some of the drivers for coal retirements.
Speaker 1: Have we seen a trend around divestment and around actively
Speaker 1: managing investment portfolios to actually see less coal in them
Speaker 1: because it is a big source of emissions globally, and
Speaker 1: we've seen in certain parts of the world. So you're
Speaker 1: in the UK, earlier this year we saw the last
Speaker 1: coal fired power station shut down in the country. Over
Speaker 1: half of the coal infrastructure in the US has actually
Speaker 1: been retired. Are we seeing this in other parts of
Speaker 1: the world as well? And is it burred on by finance?
Speaker 3: So there are a couple things here. There's divestments and
Speaker 3: then there's phase outs. We're gonna talk about phase outs first.
Speaker 3: So yay for the US. They are actually retiring faster
Speaker 3: than the expectations. So when you look at the EIA's
Speaker 3: projections for coal retirements, B and EF analysis has actually
Speaker 3: shown that on average, we are retiring the US fleet
Speaker 3: earlier than expected. In places like Germany, for example, which
Speaker 3: had very clear phase out policies, that was kind of
Speaker 3: put on holds for a little bit when the energy
Speaker 3: crisis starts. It it's not back on track and they
Speaker 3: should be, you know, and then they should be meeting
Speaker 3: their targets to phase out there coal by twenty thirty eight.
Speaker 3: In other places, though, we'll take South Africa as an example,
Speaker 3: a very heavy coal based power system again from domestic resources.
Speaker 3: You got a lot of blackouts in South Africa happening, right.
Speaker 3: So when it came to having promised to phase out
Speaker 3: some particular coal plants, which actually was conditional on a
Speaker 3: climate financing pack, that South Africa had this was the JETPE,
Speaker 3: the Just Energy Transition Partnership, So when it came to
Speaker 3: that they've actually had they're trying to negotiate delaying some
Speaker 3: of those phase outs in order to ensure that there
Speaker 3: will be enough power to actually power homes because be
Speaker 3: it renewables are not growing fast enough, or because there
Speaker 3: just isn't enough replacement capacity to ensure that stability in power.
Speaker 3: Some of these things are getting delayed now. It's also
Speaker 3: something that we do need to watch out for now.
Speaker 3: As much as that our plans to phase out by
Speaker 3: X year for a lot of coal plants, there are
Speaker 3: drivers that may actually see the extension of coal plants.
Speaker 3: It's not necessarily long term. They may be a sort
Speaker 3: of like a very near term, short term fix. But
Speaker 3: we're even seeing that in places like Australia. So Australia
Speaker 3: actually delayed the closure of one of its largest coal plants,
Speaker 3: and that was really the government coming in and giving
Speaker 3: financial support to keep that plant open again, a bit
Speaker 3: of a just an insurance policy really to make sure
Speaker 3: that there would be enough power capacity if they ever
Speaker 3: needed it. It didn't necessarily mean it was going to run.
Speaker 3: They just said they won't turn it off just yet.
Speaker 1: So in the circumstance of Australia and in South Africa,
Speaker 1: this is a policy decision in order to increase security
Speaker 1: of supply. How has the financial services industry responded to it, though,
Speaker 1: and how have investors responded to it. Has it been
Speaker 1: essentially relegated to a policy decision or has it been
Speaker 1: even in transition focused investors, have they embraced this kind
Speaker 1: of way of looking at coal phase down rather than
Speaker 1: immediate phase out. Absolutely?
Speaker 3: Yeh. So we're seeing a lot of novel ways to
Speaker 3: incentivize CaAl phase out. The one thing I want to
Speaker 3: actually bring up, and it's probably less known to people
Speaker 3: outside of the region, but that a new and new
Speaker 3: and incentive started in Singapore that had to do with
Speaker 3: transition credits. And I think this one's really interesting. Like
Speaker 3: carbon offsets, it's a mechanism for you to compensate these
Speaker 3: power plants for the potential loss revenue for them closing early.
Speaker 3: Now it's gotten a lot of interest how it will
Speaker 3: work in practice, whether we're going to you know, whether
Speaker 3: it's really going to take off. So they've identified some
Speaker 3: call facilities, but we're not going to see that you know,
Speaker 3: we're not going to see the results of that for
Speaker 3: a while, but they're thinking about interesting ways to incentivize
Speaker 3: call phase out or call closures, because let's face it,
Speaker 3: you need to compensate people or you need to actually
Speaker 3: you know, it's all about making money to a set
Speaker 3: and excess, so you need to other compensate people for
Speaker 3: such early closures. And also when we look at it
Speaker 3: from an investor's point of view, let's look at it.
Speaker 3: So now now let's turn to divestments, Stina, when we
Speaker 3: look at a company, a diversified mining company that has
Speaker 3: shared older pressure to say, I don't like your coal assets,
Speaker 3: get rid of them. Do you really want to get
Speaker 3: rid of your cash cows? So this is actually what's
Speaker 3: happened in a number of metals companies earlier twenty eighteen nineteen.
Speaker 3: We're seeing a lot, you know, we're actually seeing companies
Speaker 3: divest their coal portfolios. First one to go is usually
Speaker 3: the thermal coal assets, now thermical assets, because there are
Speaker 3: a lot of alternatives in the power system that don't
Speaker 3: need to use coal for power. First one to go,
Speaker 3: less companies are perhaps letting go of their met coal
Speaker 3: assets because that still doesn't quite have an alternative, and
Speaker 3: you know, there's still steel makers out there who need
Speaker 3: a lot of coal, so it still can you know,
Speaker 3: they still can do well. One interesting one that happened
Speaker 3: was glen Core, glen Core saying that they would get
Speaker 3: rid of their coal, they get rid of their coal business,
Speaker 3: but then once again energy crisis, four hundred dollars per
Speaker 3: ton coal prices that coals worth a lot of money.
Speaker 3: It's making a lot of money, right, So we've actually
Speaker 3: seen that there's been a little bit of a softening
Speaker 3: of a position to completely get rid of coal assets,
Speaker 3: particularly if they're making money. Another reason why there's a
Speaker 3: softening of the position is it's something that we've seen
Speaker 3: in the oil and gas sector as well. When a
Speaker 3: more reputable, bigger, larger metals and mining company with good
Speaker 3: shareholder oversized good governmance frameworks, when they're taking care of
Speaker 3: a coal asset and they're making sure to report emissions,
Speaker 3: they're making sure to do their best to kind of
Speaker 3: limit the environmental impact of such operations, you make them
Speaker 3: divest it, it might go to a producer that cares
Speaker 3: a little less about that kind of stuff.
Speaker 1: Yeah, this is the classic case for why not to
Speaker 1: divest too quickly rather than wind down an asset because
Speaker 1: it operates off of the visible eyes of financial services
Speaker 1: and the necessary reporting that actually comes with having an
Speaker 1: ESG report, So it changes the outlook. So essentially, I
Speaker 1: mean the question at the end of it, with all
Speaker 1: of these things going on, with supply flows around the
Speaker 1: world changing, with demand more or less flatlining, with the
Speaker 1: finance industry looking to see retirements more quickly, but it
Speaker 1: not always actually working out the way very much focused
Speaker 1: on this transition part away from coal as opposed to
Speaker 1: immediate closures, some plants actually continuing on for longer than
Speaker 1: their actual retirement dates. What do you see in the future?
Speaker 1: Is this something when we look at our new energy
Speaker 1: outlook and when we look into the future out to
Speaker 1: twenty fifty and we think about the different scenarios that
Speaker 1: could exist in a less carbon intensive world. Is coal
Speaker 1: flat lined indefinitely or is it coming down? Just not
Speaker 1: right this moment.
Speaker 3: In a net zero world, coal will come down significantly.
Speaker 3: It will not be out.
Speaker 1: Most likely it still has a place.
Speaker 3: It does, the energy a place. So let's break it
Speaker 3: down into its two miss So let's break it down
Speaker 3: to thermaline met basically, so for thermal coal, or at
Speaker 3: least coal in the power sector, it can absolutely come
Speaker 3: down in a net zero world in economies and in
Speaker 3: countries where coal is just such a big part of
Speaker 3: the energy system, sure you might not be able to
Speaker 3: get rid of all of it. But that's when we
Speaker 3: put on ccs, right.
Speaker 1: So we got to do another show about carbon capture
Speaker 1: and storage.
Speaker 3: There you go, exactly, And so in terms of the
Speaker 3: power sector, you absolutely have that downward trajectory. It's industry though,
Speaker 3: industry's use of coal where it's a little harder to
Speaker 3: kick the habit. So where you can electrify, great, you
Speaker 3: can swap it out with clean power. Let's take you know,
Speaker 3: if we kind of drill down to some of the
Speaker 3: other ones, there isn't much replacement for cocing coal. So
Speaker 3: the steel sector is going to find it difficult to
Speaker 3: have net zero or zero emissions alternatives. You're going to
Speaker 3: require an entire new hydrogen system.
Speaker 1: To make that work.
Speaker 3: So you're looking at the only way for this to happen. So, yes,
Speaker 3: hydrogen might be a bit expensive. Slapping a whole bunch
Speaker 3: of CCS on the existing coal facilities, you look at
Speaker 3: sort of aluminium production can be highly electrified, but it
Speaker 3: can't operate with intermittent power, which is why it's usually
Speaker 3: placed next to a coal plant or hydropower or a
Speaker 3: hydropower plant. If you can switch it out with another
Speaker 3: fuel like a biomass or a clean molecule alternative, those
Speaker 3: are easier or cement as well. We're seeing in our
Speaker 3: net zero trajectories or o net zero scenarios that it's
Speaker 3: just harder to find those alternatives for the industrial sector. Now,
Speaker 3: this is where we really want to be looking for
Speaker 3: those replacement molecules. So it comes back to this notion
Speaker 3: where if you can electrify it, great, we have the solution,
Speaker 3: and we have the cheap, free renewable solution. Where we
Speaker 3: struggle is where it still needs that physical molecule. It
Speaker 3: can't be electrified in the same way and it requires
Speaker 3: a whole lot more infrastructure where it just in the
Speaker 3: scenarios we see it's just used the same system put
Speaker 3: CCS on it, and that's kind of the way. You know,
Speaker 3: that's probably one of the very limited options that you're
Speaker 3: able to deploy for these sectors. A thing to also note,
Speaker 3: you know, these bloss finaces all this steel making. If
Speaker 3: we look at our neo trajectories, the industry consumption of
Speaker 3: coal is not that different than it was twenty years
Speaker 3: ago or so. Also, these new industrial complexes, they're relatively new.
Speaker 3: They still got some life to them. That coal's not
Speaker 3: going where. I mean, they're still using their coal. They're
Speaker 3: not building new ones just yet right especially out in Asia,
Speaker 3: and Asia is where all the coal consumption is so
Speaker 3: parder to kick the habit to.
Speaker 1: Some legacy technology and legacy infrastructure that is right for
Speaker 1: technological advancement. Well, Fouls, you mean, thank you for dispelling
Speaker 1: the myths and getting me up to speed on exactly
Speaker 1: what's happening in coal right now. I appreciate coming on
Speaker 1: the show.
Speaker 3: Thanks a lot, Dana.
Speaker 2: I was a lot of fun.
Speaker 3: Thanks so much for having us, Dana.
Speaker 1: Today's episode of Switched On was produced by Cam Gray
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