Coal Prices Surge Amid Increased Demand and Supply Challenges

Coal prices have continued their upward trajectory, marking eight consecutive days of gains. This surge is driven by a spike in demand from power plants amidst numerous mine closures and the high seasonal supply spike in India.

According to data from Refinitiv on Thursday (29/02/2024), the price of ICE Newcastle coal contracts for April closed at US$132.25 per ton, registering a 1.15% increase. Currently, coal prices have reached their highest point in the past month, or since January 10, 2024.

Yesterday's increase extended the positive trend in coal prices to eight consecutive days, with a gain of 9.52%, or almost 10%.

The strengthening of coal prices coincides with global efforts to phase out coal-fired power plants. Countries worldwide are striving to accelerate the closure of coal-fired power plants as a step towards renewable energy. However, some countries in Asia, such as China, India, and Indonesia, still heavily rely on coal to meet their energy needs.

In 2023, global coal demand reached an all-time high, as reported by the International Energy Agency (IEA), cited from Oil Price. Although global demand is projected to decline by 2.3% between 2023 and 2026, some advanced and developing economies in Asia, such as China and India, continue to experience increased demand.

China, which has rapidly developed renewable energy capacities, is expected to contribute more than half of the global green energy capacity expansion. It is estimated that China's coal demand will decline this year and remain stable until 2026.

However, global efforts to reduce dependence on coal are also challenged, especially in terms of resolving existing coal-fired power plant contracts. Some Asian countries, including Indonesia, face difficulties in terminating these contracts and transitioning to cleaner energy sources.

The Asian Development Bank (ADB) has created the Energy Transition Mechanism (ETM) to assist Asian countries in achieving these goals. For example, Indonesia has launched a technical plan with funding from the $20 billion Just Energy Transition Partnership (JETP), an investment program supported by the G7 for sustainable development. Through the ETM, Indonesia plans to close the Cirebon-1 coal-fired power plant with a capacity of 660 megawatts seven years earlier than originally scheduled, by 2035.

Although some Asian countries are committed to ambitious climate targets, some still struggle to reduce their dependence on coal. Significant changes are expected to depend on how quickly regional renewable energy capacities can be developed, as well as the financial support provided by wealthy countries to accelerate the closure of coal-fired power plants.

The strengthening of coal prices is also driven by coal-fired power plants in India massively restocking coal at the end of February, despite experiencing record-breaking electricity production to meet increased demand and the impact of drought on hydroelectric power plants.

According to Reuters, Ministry of Energy data shows that coal-fired power plants recorded a record production of 112 billion kilowatt-hours in January 2024, up from 91 billion kilowatt-hours in January 2022. However, coal stocks at power plants continue to increase as coal supply exceeds consumption.

As of February 26, coal stocks at power plants reached 44 million tons, up from 26 million tons at the end of February 2022. This supply is sufficient to meet minimal needs for over 15 days, compared to less than 10 days during the same period in 2022.

The security of coal supply is strengthened by a significant increase in the volume of coal produced from domestic mines. Domestic production reached a seasonal record of 100 million tons in January 2024, up from 80 million tons in January 2022, according to the Ministry of Coal.

As a step to support coal gasification projects, Coal India Limited (CIL) and Bharat Heavy Electricals Limited (BHEL) have formed a joint venture. This project, scheduled to start operating in 2028-2029 in the Lakhanpur area of Mahanadi Coalfields Limited (MCL), Odisha, will be India's first commercial-sized ammonium nitrate plant using surface coal gasification technology.

The government plans to provide coal subsidies for coal gasification projects, thus promoting the adoption of this technology in various sectors. Although India aims to produce 50% of its electricity from renewable energy sources by 2030 and 100% by 2070, the country still relies on coal to supply about 75% of its electricity needs.

With coal gasification projects and other initiatives, India hopes to reduce environmental impacts while meeting its growing energy needs. This project is also expected to motivate other companies to engage in similar efforts, supported by government funding programs.

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