Weaning the world off coal

The demand for coal, especially thermal coal, will doubtless decline as countries opt for cleaner forms of energy generation, and the Paris Agreement on global pollution takes effect. The Paris Agreement has been ratified by more than 70 countries that account for almost 60% of global greenhouse gas (GHG) emissions.

According to the CRU Group, the business intelligence company, approximately 38% of the world’s electricity is generated using coal, and the company believes that, based on various and current government policies, this will decline to 33% over the next 15 years.

China, South Korea, the European Union and the US are all reducing their reliance on coal and, as considerable amounts are imported, this will have consequences for the dry bulk shipping sector. It has already happened in the
UK with coal imports plummeting in the first half of 2016 (see box story, p17).

Clean California

In the US, plans to develop coal terminals at west coast ports have been thwarted. In July, Jerry Brown, the governor of California, introduced a bill that will cut off statesupported funding for the building and/or expansion of
export coal handling facilities in the state. Effectively, SB1279, which will come into force on 1 January 2017, will prevent the California Transportation Commission from allocating state funds for new coal-related projects.

The planned legislation means that Terminal Logistics Solutions’ (TLS) plan to develop a US$250M bulk terminal on a 30-acre portion of land at the former army base in the port of Oakland is unlikely to happen.

This is because a principal element of the project is the construction of a highly automated terminal, whose main function is to handle coal that is mined in Utah and is destined for markets across Asia. The handling of coal at California ports has become an increasingly sensitive and political issue in the state, given the commodity’s poor record on emissions when burned and the various risks associated with its transport. 

TLS argued that its project was environmentally friendly and everything was in place to prevent coal dust escaping into the community. The company’s management also argued that its project would improve the supply chain of
coal from Utah, allow miners in the region to capture new markets and bring valuable additional traffic to the port and employment to the city. 

It explained that special  hopper cars fitted with Ecofab-designed covers would be used on the trains carrying the coal, and that once in the port, the coal would be stored in covered domes and then loaded on the ships by covered
conveyors. 

Determined

It is clear that Brown and his team want to eliminate coal handling activities in Californian ports. “I believe action on multiple fronts will [still] be necessary to transition away from coal,” he said. “In California, we’re divesting from thermal coal in our state pensions, shifting [instead] to renewable energy. Last year, coal exports from California ports declined by more than a third, falling from 4.65 Mt to 2.96 Mt, and that’s a positive trend we need to build on.”

But, overall, this year has seen something of a reprieve in the coal markets, with prices for both thermal and coking coal up significantly, and global trading volumes looking as if (for the full calendar year) they will be up. Princi-pally, this is related to Europe and Japan keeping their imports of thermal coal at similar levels, as well as China and certain other emerging markets increasing their imports.

In the case of China, it has been domestic miners that have been mainly affected as the government has forced mining companies to cut their output of low quality coal, and forced power companies to use less polluting imported coal. The government has also introduced strict working times for the nation’s coal mines, with production only allowed on 276 days of the year, versus 330 days previously. 

Consequently, in H1 2016, the import of thermal coal rose by more than 31% yearon-year to 67 Mt. For the full year, analysts’ projections are generally in the range of 152 Mt to 158 Mt, which would be up between 9 Mt and 15
Mt on last year’s level. 

Rising exports

Australia, Russia and Indonesia have all seen their exports of thermal coal to China increase, partly because China also cut its imports of anthracite from North Korea. The latter country had shipped an estimated 15.7 Mt of this type
of coal to China in 2015. 

But this trade has almost  ceased. This situation has helped owners/operators of Panamax and Capesize vessels, which have seen an increase in demand for this tonnage on both Australia-China and Indonesia-China routes, over the  last 12 months or so.

Combined with the import of coking coal, overall shipments of the commodity into China in the first six months of 2016 reached 108 Mt. This was up about 8% on the same period of 2015. A similar rise is expected in the second half
of 2016. 

The situation in China has had a significant bearing on the global trade in thermal coal, which, after a decline in 2014, posted a recovery in 2015, and also in the first half of 2016 when a total of 465 Mt was shipped. This was up
1.6% on the 449 Mt moved in the same period of 2015.

But this is only viewed as a short-term respite for this sector of the bulk market, as all major economies in the world, including China, have energy policies geared to using more renewable forms of energy. The Chinese government, for example, has imposed a ban on the development of all new coal-fired power stations. Ultimately, therefore, the transport of coal for energy projects will decline.

The only growth areas are likely to be in regions such as South Asia, especially India and Pakistan, and parts of South East Asia (Indonesia and Malaysia in particular), where massive industrialisation is taking place and populations are moving to urban environments. In theses areas, the demand for electricity is soaring. In Pakistan, existing coal handling facilities are being expanded and new ones developed. Early next year, Pakistan International Bulk Terminal
(PIBT) will open a new 12 Mtpa capacity facility at Port Qasim. This facility will more than double the country’s coal handling capacity. 

“PIBT will have two dedicated ship-unloading cranes to handle 1,850t of coal, and one shiploading crane to handle 1,200t of exportable cement and clinker per hour,” said the company’s CEO Sharique Azim Siddiqui. These cranes will be supported by a mechanised truck loading station, which will accommodate two trucks simultaneously, with a rated capacity of 50t per minute per truck.

Siddiqui added: “Compared to six to seven handling days at Karachi Port, a 50,000t vessel will be discharged at PIBT within a-day-and-half.”

In addition to serving the electricity sector, PIBT’s facility will serve Pakistan’s expanding cement industry. Exports of both cement and clinker are on the rise, and PIBT will have the capacity to process 4 Mt of these products each year. 

In terms of storage, the PIBT facility will be able to accommodate 1 Mt of coal, 200,000t of clinker and 60,000t of cement at any one time. Ultimately, the terminal could be expanded to handle 20 Mtpa. 

Private sector

The PIBT project is privately controlled, with the Marine Group of Companies holding 51% of the equity, the IFC 20% of the shares, and the remaining 29% being held by a local banking syndicate. The group has invested over  US$255M in the complex, with the OPEC Fund for International Development being a major financier of the project. 

Pakistan is investing heavily in coal-fired electricity generating stations, with at least nine large power plants under construction. These are expected to become fully operational by 2020 and will boost the country’s power output by 7.8 GW a year. The new power plants will need an estimated 20 to 22 Mt of coal a year to function. 

As Pakistan industrialises and its population increasingly moves to urban environments, the demand for electricity could become even stronger. With PIBT able to increase the capacity of its facility by a third to 20 Mtpa, the company is in a good position to accommodate this potential growth.

However, management is likely to adopt a cautious approach, given the Paris Agreement and some recent signs from the Pakistani government that the use of imported coal for power generation needs to be cut. Elsewhere in South Asia, India is also investing in coalhandling facilities. 

One of the most interesting projects involves the Bay of Bengal port of Ennore, which is located about 16 km north of Chennai. A new 27-year concession agreement has been concluded between the government-controlled company 
Kamarajar Port Ltd, which owns the port, and Sical Iron Ore Terminals Ltd.

It involves the latter group spending approximately INR2.2B (US$33M) on converting an existing, but redundant, iron ore handling facility into a modern coal terminal with the capacity to process 8 Mtpa of coal. The investment  covers the purchase of new handling equipment and systems.

Sical Iron Ore Terminals is a joint venture between Sical Logistics Ltd (74%) and the state-owned commodity trader MMTC Ltd (26%), and was set up to develop and operate the iron ore terminal at Ennore for 30 years. 

Sical secured the INR480M contract for the 12 Mtpa facility in September 2006, and had phase one – representing an investment of INR360M and output of 6 Mtpa – ready for operation in January 2011. However, bans imposed on  the mining of iron ore in various districts of Karnataka in 2010 meant that the facility’s cargo base dried up. The terminal has been idle since it was completed. 

Volume decline 

But the conversion to a coal terminal might prove overly optimistic, too, as figures recently published by the Indian Ports Association (IPA), and covering the first six months of the current 2016/17 fiscal year, reveal a 9.4% decline
in the port’s coal traffic, with only 11.4 Mt processed. 

A major reason for the dip in coal volumes has been the decision of Tamil Nadu Generation and Distribution Corporation to reduce its stock of coal by more than 20%.

Overall, the IPA figures, which cover the country’s 12 major cargo-handling complexes, revealed that the nation’s coal imports fell by 3% in the first half of the 2016/17 fiscal year to 73.6 Mt. While the import of thermal coal fell by almost 5% to 49.2 Mt, coking coal exports edged up by 0.4% to 24.4 Mt.