Russian Coal Companies to Expand Global Market Sales by 2040

27 august 2019 | Expert

Today Russia's coal industry exports 17 billion dollars worth of products, accounting for 29% of rail shipments and employing some 650 thousand people including related industries, writes Expert Magazine. In an interview for the publication Deputy Head of the Department for Fuel, Energy and Housing Utilities of the Analytical Center Irina Pominova talked about the development trends in the coal industry in this country.

Irina Pominova
Irina Pominova
Department for Fuel and Energy Sector

"The Russian coal industry is growing by expanding exports to Asia: between 2010 and 2018 the export turnover increased almost by a factor of 3 and in recent years Russian coal exports to Asia have become comparable to those in the Atlantic," Ms Pominova noted, stressing that further increase in production to export more coal to the Asia-Pacific region has now become a strategic development priority for this country's coal industry.

The expert believes that Russian coal companies fully share this vision: the recent decisions to build new railway lines in the east of the country aim specifically to help expand coal exports to Asia-Pacific to 180 million tonnes per year by 2024.

In Europe, meanwhile, concerns over climate change are putting more and more pressure on companies to reduce coal consumption and that's resulting in reduced domestic coal production, which means that Russian companies still have export potential in the region, so until at least 2030 it is quite reasonable to expect to see total coal exports continue to grow as more and more shipments shifting from the West to the East, Ms Pominova believes.

"According to the existing long term program for the development of the coal industry, by 2030 total coal exports in absolute terms are projected to reach 170-240 million tonnes with 50% going to the West and 50% going to the East. At the moment, efforts are underway to upgrade the long term program and the exports milestones may be adjusted to increase both total exports and specifically the share of exports to Asia-Pacific," she explained.  

It's hard to assess specific volumes for global coal markets at the moment: there is a lot of uncertainty about coal forecasts at the moment as new climate change and environmental protection policies are being rolled out as well as on account of uncertainty about the policy of the world's largest coal producer and consumer, i.e. China.

"Russia's current share in global coal trade is 14.8% (according to International Energy Agency data for 2018)," Ms Pominova noted. "Back in 1998 it was about 4.6%. Russia's today the third largest coal exporter in the world, the only two countries that sell more coal than Russia are Indonesia and Australia. If you go by the IEA's baseline forecast, by 2025 Russia's share in global coal trade should remain at the same level as today but by 2040 it should increase to 17.4% (primarily through growing exports to the Asia Pacific region), in other words, the baseline forecast assumes that Russian coal companies will be expanding trade on global markets and that is perfectly in line with the national strategy, however, there is huge variability in these forecasts."  

Russia's main competitors in the energy coal markets, which according to the control center of the fuel and energy sector accounted for some 92% of Russian coal exports in 2018, are Indonesia, Australia, Columbia, South Africa and the US. The coking coal markets are dominated by Australia that supplies more than half of all sales there, but the US, Canada, Mongolia and Russia also offer sizeable contributions there. Nevertheless, the expectation is that by 2030 the focus of the competition for the growing demand for coal in Asia-Pacific will be between Australia and Russia: Indonesia will be using up more and more of its coal domestically, while Columbia will be exhausting its natural supplies of coals, Ms Pominova believes.

The US primarily play the role of a compensating supplier in the coal market, they depend a lot on coal prices and so, according to her, it's highly unlikely that US companies will fight too hard for access to the Asia-Pacific coal market.   

Long term global coal projections suggest that after 2035-2040 there will be a decline in the consumption of coal around the world at varying rates. The expert points out that this will be due to investment cycles, the overall trend towards ditching coal in favor of cleaner fuels and the expectation of ever stricter environmental regulations.

"The number of new projects in coal generation (the main consumer of coal) is falling, more and more major investors are announcing they will no longer be supporting them but there is still a lot of inertia in this sector. So far we're only seeing serious moves to steer clear of coal generation (in 2018 we saw 32 major announcements in this area) in countries that don't have a lot of it to begin with and all these projects have time lines stretching into 2025-2030," Ms Pominova explained. New major developments are still possible and those are covered in the alternative scenarios but they primarily assume the implementation of tougher policies on climate change.