China has made bold claims about how it is isolating Australia, but there are factors at play that could push it back.
China may be going through an energy crisis. Still, he’s determined not to back down on his Australian coal blacklist. But for how long?
“It seems implausible to expect that China’s energy shortage will result in a growth in China-Australia trade,” the Communist Party said. Global times stated earlier this week.
But “unprecedented” coal prices – and a global supply shortage – appear to have brushed aside any impact the coercive trade embargo might have had.
“Unprecedented because international prices for thermal coal have already risen more than 100 percent since May this year,” he says. Dr. Lurion De Mello, expert in energy economics at Macquarie University. “This is not normal.”
The global economy has begun to emerge from its shutdown imposed by the pandemic. This, combined with a series of extreme weather events, geopolitical problems, the disruption of coal production and storage by Russia and China has led to dramatic fuel shortages.
Gas. Coal. Petroleum. All are experiencing increased demand.
And things get tough.
China has been experiencing major power outages. Its industrial heart has been ordered to reduce operations. Corporations must take efficiency measures. Residents are subject to surprise blackouts.
Europe is in a similar situation. Gasoline prices have skyrocketed. Electricity now costs more than 200% more than it did in January. Soon, nations will have to choose between keeping industries producing or keeping people warm.
The crisis can be a bonanza for coal and gas exporting countries like Australia.
But how long will it last?
On the balance sheet
“Some believe that China may depend on coal imports to some extent to alleviate the power shortage that has spread to several provinces,” the Global times reports.
It has already dipped into the 1 million tonnes of Australian coal found on ships since Chinese customs refused to accept deliveries. Even though it’s already paid for.
“There has even been speculation that China’s coal shortage could provide an opportunity to ease a coal-focused trade dispute between China and Australia,” the report added.
But he concludes that such an embarrassing attitude change is not necessary.
“Indonesia, Russia and Mongolia were the three largest sources of coal imports to China. In the first eight months of this year, China’s coal imports from the US, South Africa, Canada and the Philippines recorded significant growth. In this sense, the coal trade friction between China and Australia did not have much of an impact on China’s coal imports. ”
It does not mention that those imports have so far failed to alleviate its own climate change-induced production problems. Not the extra cost that it entails.
“We are entering a weather pattern in which the Northern Hemisphere is going to experience a longer and colder winter than usual,” says De Mello. “If the winter is really extreme, I think the coal supply will be a critical factor. Therefore, they may still decide to relax the import restrictions on Australian coal because there have been many disruptions. “
Australia is the world’s second largest exporter of thermal coal. China, Japan and South Korea are its three main clients.
Prices, at about $ A330 a ton, are at record levels.
However, it is uncertain how long it will remain that way.
All three nations have adopted net zero carbon emission targets as climate change begins to make its mark on the planet. Japan and South Korea have emphasized the desire to make an early move to do so.
So has coal peaked? Not yet, says De Mello.
China operates 303 coal-fired power plants, says De Mello. “It continues to be the reference fuel for generating electricity there. And China, like many countries, is trying to store thermal coal. “
Despite the push towards low-carbon energy, demand for coal has started to rise again in places like Germany and India.
“They are concerned that they cannot afford the high prices of gasoline,” says De Mello. “The renewable energy supply is also spotty in bad weather, and the Germans don’t get enough gas from Russia. So they have been forced to go back to coal, and they have already started to run out. “
This year, the world’s coal supply got off to a bad start after heavy rains and floods in Newcastle dampened Australian exports in March.
Charcoal absorbs moisture. Leaving it in the rain makes it much heavier to transport and less efficient to burn. So it makes economic sense to leave it underground.
Since then, prolonged periods of bad weather have also affected Indonesian production. Now China is experiencing heavy flooding in many of its domestic coal-producing regions.
Buildings collapsed and landslides washed away roads and infrastructure in more than 70 districts in northern China. The floods have affected 1.8 million people in Shanxi province, where 30 percent of China’s total supply of thermal coal is mined.
That puts further pressure on China’s power-generating coal reserves, which are already dwindling.
Add to the mix a resurgent economy after the pandemic-imposed shutdown and a rapidly expanding, energy-hungry middle class, and you’ve got a minimal margin of error.
China is not the only place in trouble.
India is also suffering. Last week, government agencies reported that 63 of the country’s 135 coal-fired power plants had only two days of supply available. Like China, India’s shortages have been caused by transportation problems brought on by extreme weather.
But it won’t last forever, says De Mello.
“Once the whole winter cycle is over, I think prices are likely to go down because it’s a bit crazy right now. There will have to be some kind of correction. “
Winds of change
“China is always looking for alternative mineral resources and fossil fuels,” notes De Mello. “And as soon as they get their hands on it, it will be a problem for Australia.”
China’s coercive economy isn’t just about coal. It is also about everything else.
“Australia has the best quality iron ore in the world. But they have reduced imports, ”explains De Mello. “Now a lot of Brazilian iron ore is entering China, even shipments from Canada and Peru are expected to arrive next month. These alternatives, together with the relaxation of steel production, caused the price of iron ore to fall by 30 or 40 percent so far this year. “
A similar situation looms for gas.
“China has overtaken Japan as the leading importer of Australian liquefied natural gas (LNG). The Russians have launched this 4000 km long Power of Siberia gas pipeline project and a massive LNG project on the Yamal Peninsula to supply gas to eastern China. All of these projects, once fully operational, are likely to put great pressure on Australian exports. ”Australia’s coal industry has survived by diverting its exports to India, South Korea and Japan.
And, once these countries start to enforce their zero-carbon targets, De Mello believes other nations will take a little slack.
“If you look at places like Pakistan and Bangladesh, they are pretty desperate,” he says. “Pakistan is burning wood to keep warm and to cook because gas is so hard to come by. Now they are planning to import high sulfur fuel oil (HSFO), the nasty things the shipping industry is trying to get away from.
“That’s the problem. I mean, we can’t just move away from fossil fuels. That’s not enough. We have to do it gradually and thoughtfully.”
And China will soon find itself in a similar situation when it comes to Australian coking coal.
“There are no alternatives to coal at this time for efficient steel production,” says De Mello. “People are experimenting with hydrogen, like Sweden. But mass production capacity just doesn’t exist. “
Jamie Seidel is a freelance writer | @JamieSeidel