Let’s talk about coal, the fuel that’s both loved and loathed, one of the backbones of our economy and the bane of our environment. As the ugly stepsister to natural gas, it is the primary target for our “carbon tunnel vision”; the idea that monetising greenhouse emissions is the only answer to the climate crisis.
Meanwhile, of far more concern is toxic chemical and plastic pollution, responsible for destroying pollinators and plankton, which we depend on for our food and the oxygen we breathe.
For my sins, I co-founded globalCOAL – the online coal marketplace – in London in the late 1990s, where the world still trades physical coal today. It was a heady time, filled with yacht parties on the French Riviera serving as honeypot traps to secure the occasional deal on a lucrative coal contract. I could probably write a book on the things we witnessed, but apparently discretion is the better part of valour.
We commoditised and standardised coal by setting up quality benchmarks, but coal is a fickle beast with a myriad quality criteria. The most important? Its calorific (heat) value. Export coal packs a punch, but Eskom’s power plants are designed for a lower-grade fuel. Trying to burn export-quality coal in an Eskom plant is like trying to feed a vegan steak – a recipe for disaster.
In a surprising twist, South Africa’s load-shedding has come to an abrupt end. Wind and solar panels, those sunshine-loving slivers of silicon, have played a role, but the real hero is Eskom’s energy availability factor (EAF). The EAF, which measures the performance of its power stations, increased from 57% in April to 67% at the end of July.
Quite understandably, it has proven beneficial not to burn rocks and stones any more, with the replacement in station management having stopped the flow of brown paper bags that was (allegedly) enabling the practice, among other shenanigans.
Rush to the coal cliff
But this newfound efficiency has a downside. Eskom is now burning coal like there’s no tomorrow. Recent tenders for more than 600Mt of coal have everyone from small-time miners to multinational giants salivating. While we’re confident that there’s enough coal in the ground, the problem is that new coal mines are harder to fund than a Kardashian divorce.
Thankfully, the rest of the world is reducing its coal usage. Even China and India, the world’s biggest coal consumers, are nearing their consumption peaks – India by 2030 and China as soon as next year. Renewable energy is finally starting to replace coal-fired generation instead of simply soaking up new domestic power demand. Meanwhile, if you truly want to save the planet, stop buying cheap Chinese and Indian goods, as we’ve effectively offshored our production and emissions to our fellow Brics members.
As coal oversupply looms in the global economy into 2030, South Africa faces a shortage locally due to the problem of funding more mines. It could, as a result, finally be facing the dreaded “coal cliff”. Transnet is doing its part to prevent this by keeping coal in the country and not railing anywhere near the volumes it used to move to Richards Bay (though the National Treasury might bemoan the lack of foreign exchange income that comes with it).
Adding to the dilemma, Sasol’s reduction of gas imports out of Mozambique from 2026 could lead to a “gas cliff” alongside the “coal cliff”, where Eskom and industry are capable of producing the energy sources, but the fuel is not there.
But here’s where things could get interesting. Eskom is already paying higher than export netback prices on a heat-adjusted basis for its low-quality coal. Before I lose you, netback is a pricing method that estimates the price a producer receives in Witbank in rands, after subtracting rail and port costs from the export dollar price in Richards Bay.
Eskom’s fixed-price contracts have built-in escalation clauses, guaranteeing that their costs will rise – unlike in a normal commodity market where prices can go up as well as down.
While Eskom is burning more low-quality coal, other industries like cement, sugar and paper need higher-quality coal that needs to be washed alongside export coal. With Eskom’s increased demand, there’s bound to be less coal washing, meaning less high-quality coal all around. That is good for local water sources and the environment, but bad for these industries facing the “gas cliff” being brought on by Sasol’s move.
So, where does South Africa go from here? Renewable energy seems to be an answer, but there’s the question of jobs and a just energy transition to address the potential impact on coal-dependent communities. There’s also the issue that wilder weather can make renewables less reliable in terms of grid performance.
It’s going to be a bumpy ride, but those coal miners that start looking into other revenue streams such as renewable energy, extracting rare earth elements from coal, growing biomass for co-firing and biodiversity credits, as well as underground fungi for plastic replacement, while using old coal shafts for pumped storage gravity power, can emerge more sustainable and resilient than ever before.
The dawn is coming.
Bevan Jones is an ex-commodities broker, trader and resources consultant. He lives now as an off-grid homesteader while offering commodity-market advice to clients at www.sourcemarkets.co.za.
Cover: Collage by Currency.