SA burns more coal than it digs
August 19, 2008
By Sherilee Bridge
South Africa could experience a coal deficit by 2017 if the country continues at its current rate of production, it emerged on Tuesday.
"We are burning more coal than we are producing," warned Keaton Energy managing director Paul Miller.
While there is less transparency in the domestic coal market because of Eskom's dominance as a buyer, the recent coal shortage has forced more information out into the open.
Coal majors, most of which have long-term supply contacts with Eskom, have stepped in to fill the gap without any dramatic increase in output or new projects yet on stream.
"South African coal production growth has effectively zero for the past three years, said Miller.
This suggests that the major coal producers may have found a market for what is known as discard coal, said Miller.
Discard coal is the product of export coal after beneficiation, in other words the remaining coal once the export quality product had been removed and sold abroad.
Without a buyer this 'discard coal' was stockpiled and has now been fed to Eskom to make up the utility's shortfall.
Eskom announced in February that it would have to make 45 million ton emergency coal purchases over the next two years to boost stockpiles after coal stores fell to 3.3 days at some power stations in January.
This was well off the regulator's target of 20 days and just above a tenth of the up to 32 days' supply historically maintained by the utility.
Besides forcing Eskom to purchase more coal at spot price, which is significantly higher than its long-term contracted prices, the emergency has had a secondary impact on the domestic industrial market, or residual market at it is known.
Miller said this market has been hurt by the crisis because all the companies that used to supply this market are now tied into contracts of up to three years with Eskom.
The residual coal market, which makes up about 10% of the domestic market, is now paying prices of between R180 and R200 a ton for its coal, said Miller.
It is this market environment that has created opportunities for junior coal mining companies, and as a 2 million ton a year producer, Keaton would be classified as a "big junior", supplying roughly 1% of the market.
"We have not seen reasons why there is not room for all of us," said Miller about the competition in the market.
He said coal prices are "stratospheric" and even through there has been a pullback in both domestic and export coal pricing last month, the coal industry still holds enough of this black gold for juniors to make a small fortune before the cycle turns.
|
|
