coal stalemate
European Union open Banning the supply of Russian coal under new contracts in the fifth package of sanctions. According to Ursula von der Leyen, head of the European Commission, this measure will cost Moscow about 4 billion euros per year. At the same time, the timing of the implementation of the raw material embargo was postponed to the end of summer – August 22, 2022. According to Reuters, this was done due to pressure from Germany, along with Poland, the Netherlands and Cyprus. a The largest importer of Russian coal to the EU.
German Chancellor Olaf Scholz has called for a complete abandonment of Russian coal within the next four months. At the same time, the German authorities spoke earlier about the later dates of the coal embargo – until the end of 2022.
It seems that the EU and Germany need the current timeframe of 3.5 months to complete most of the existing contracts for the supply of Russian coal and search for new suppliers. But whether this will help the European Union prepare more effectively for the autumn-winter heating period is a big question.
Features of the new sanctions
The changes in the fifth package of sanctions should be seen as a significant change from the original text of the document that banned coal imports from Russia for “only” 4 billion Euros. This significantly expanded the room for maneuver for dependent European countries. Gazeta.ru was informed about Russian coal imports. Ru” Institute of Energy and Finance.
“At current prices, no more than a third of the physical volume of Russia’s coal exports to the EU will not be subject to such sanctions, but it will also raise troubling questions for EU officials about establishing a kind of ‘quota’ mechanism. For Russian coal purchases for each country,” he explained at the organization.
Losses of Russia and Germany
The losses that Germany will lose from the coal embargo in Europe will be much more than the losses of Russia. Sergey Kondratyev, a senior expert at the Institute of Energy and Finance, revealed that the volume of deliveries of Russian raw materials from Cyprus alone in 2021 is three times higher than German imports – 7 million tons against 21.2 million tons.
“There is an acute shortage of anthracite in the world right now. Germany imported 6.6 million tons of thermal coal and 0.45 million tons of coking coal from Russia in 2021. This is more than 50% of Germany’s total coal imports,” he said.
Alexander Frolov, deputy director of the National Energy Institute, agrees with him. According to him, the share of Russian coal in Germany’s total imports was almost 60 percent.
“Scholz’s cautious rhetoric is not accidental, because until recently Germany was 56-57% dependent on Russian resources. “Moscow provided up to 25% of the Western European country’s domestic energy consumption with coal,” he said.
However, Kondratyev added that Moscow will also feel the negative impact of the fifth package of anti-Russian sanctions. In 2021, the cost of Russia’s entire coal supply to Europe reached €3.3 billion, of which about €700 million was covered by Germany.
“Given that coal prices have risen to $350 per tonne, Moscow could receive $1.2-1.4 billion this year. Losses from the cessation of coal trade with Berlin will cost 500-700 million euros, ”the analyst said.
Stanislav Mitrakhovich, also an expert from the National Energy Security Fund, stressed that these measures “will not kill the Russian energy sector in any way.” Daily revenue from oil and gas exports alone brings $1 billion to Moscow.
Berlin Alternatives
Damage from Germany’s coal embargo against Russia will cost the country several hundred million dollars. However, Sergei Kondratyev, senior expert at the Institute of Energy and Finance, said that the main harm to Germany will be attributed to the inevitable difficulties in finding alternative external suppliers.
“Germany and Poland will have to increase domestic thermal coal production. Berlin can also switch to the extraction of brown raw materials from the eastern parts of the country. “Australia seems to be the most attractive option in foreign markets, but there will be some difficulties in this direction,” he said.
These include logistics and monetary costs,” he said.
Cargoes from Canberra will reach Europe in at least two weeks, while coal transit through northwestern Russian ports will take just a few days. A longer route will ultimately cost Europeans $20-30 a ton more than their Russian counterparts.
At the same time, Kondratyev said that South Africa is currently suffering from miners’ strikes, which could affect the country’s export potential.
Competition with Asia
Alexander Frolov, deputy director general of the National Energy Institute, said that in order to effectively replace the Russian supply, Europeans must rely on price competition with the largest coal consumers from Asia, primarily China.
120 million of Russia’s 220-230 million tons of coal exports go to Europe, including Turkey, and 100 million to Asia. However, China produces about 48% of the world’s volume and consumes 52%. Many countries, including Russia, are living well with this 4%,” he said.
With such a big player on your side, you can only attract suppliers with the help of additional fees (bonuses). Until recently, Europe was relatively successful in this task, he added.
“Coal ‘premium’ in the EU was around $50 per tonne compared to Asian markets. China, South Korea and Japan gave about $300 per tonne of coal, while in the EU this figure reached $350.
“The question is how much more Europeans can pay for Australian or South African raw materials, given the energy and financial crisis.”
Prospects for the EU coal market
In Europe, only Germany does not actively discuss the possibility of a complete abandonment of Russian coal. Prior to this, Poland had declared a raw material embargo against Russia. And given a “green” energy transition strategy, the prospects for the European coal market look rather uncertain. Frolov emphasized that Russia and the EU were prepared for such a scenario in advance, so the break in coal relations would be painless for Moscow.
“The EU coal market has only eight years left – the program to shut down coal-fired power plants by 2030 must end. The EU first started talking about abandoning coal in 2017, so Russia began to prepare in advance for a sharp decrease in export supply to the West, ”said the author.