Pending cases crippling coal mines; output to be impacted
Demand for coal may not cripple the sector immediately, since Coal India has enough stock but the situation could get ugly really quickly, unless litigation over coal mines is not dealt with in a hurry. Out that of the 64 coal blocks allotted and auctioned in 2015, only 13 have come into production because of pending litigation. Power, Energy and Coal Minister Piyush Goyal's joy at a hugely successful coal mine auction has been short lived. That's because a majority of the coal mines auctioned and allotted in 2015 have yet to come online. The numbers speak for themselves. The coal ministry auctioned 31 coal mines and allotted 42 coal mines to state-run companies in 2015. But after that, a total of 85 cases have been filed under the Coal Mines Special Provision Act. Now while 29 cases have been withdrawn, 25 of these cases have been heard by the Delhi High Court, but judgement has been reserved. And it's been 9-18 months since that happened. The cases where judgement has been reserved include 12 schedule-2 mines which were producing coal before the Supreme Court ordered the cancellation of licenses. Nine cases have been disposed of by various High Courts. However, in 2 of these cases, the government has appealed the High Court order in Supreme Court and 20 cases are yet to be heard. It's these pending cases that are giving the government a serious case of indigestion. The chief concern is that as many as 17 coal mines allotted to states like Karnataka, Punjab, Rajasthan and West Bengal are under litigation. That means a significant drop in coal output. Now this will not become a problem in the near future because coal India has enough reserves to meet demand. So, unless these cases are disposed off quickly, the long-term impact could be crippling for an economy that hopes to achieve an 8 percent growth rate, because that growth will mean an increased demand for coal. Tags Coal India litigation Power Energy and C
http://www.moneycontrol.com/news/cnbc-tv18-comments/pending-cases-crippling-coal-mines-output-to-be-impacted_7478641.html?utm_source=ref_article
As imports get costly, CIL woos power sector afresh
It has been a bad year for Coal India as fuel sales remained flat in the April-August period, sending profits on a tailspin. To survive the slowdown, the miner is looking to substitute imports in the power sector.
Behind the project is the rising price of imported coal since February, widening the price gap with domestic coal.
According to the “India Coal Market Watch” of mjunction, popular import varieties from South Africa (5,500 kcal) and Indonesia (4,200 kcal) have become costlier by 5.5 per cent and 19 per cent respectively over the past 45 days. Import of thermal coal is down 12 per cent this fiscal.
Imported coal is used in power generation for two purposes. While the plants in the hinterland use limited quantities of these for blending, to meet emission standards; coastal power plants (away from the mining zone) run on low quality imported fuel for its freight advantage.
Hinterland imports
CIL is now planning to replace both the demands, partly or fully. While it is now flush with low-calorific value coal, the limited quantities of high value coal available in Ranigunj in West Bengal and Korea Rewa in Chattisgarh — which did not find too many takers in the past — can be used for blending.
To make it workable CIL will make Railways and port authorities party to the negotiation so that coal can be reached to these consumers at a lower price than the imported coal.
Considering India’s inefficient transportation infrastructure that (along with taxes) makes landed cost of fuel nearly two times costlier than the price of coal, the practical aspects of this proposal are yet to be tested.
But to some extent, it has already started happening — NTPC and Neyveli Lignite have stopped issuing fresh import orders. This will replace nearly 17-18 million tonne of import demand beginning the second half of FY17.
NDA-ruled hinterland States such as Chattishgarh, Punjab, Haryana and Madhya Pradesh have stopped issuing fresh import orders, too. Last year hinterland States consumed 37 million tonnes of imported fuel.
Many lose ends
The greater puzzle of servicing the coastal power plants, which are mostly idle due to low demand, is yet to be solved. A CIL source said these plants used 45 million tonnes of fuel last year, which is enough to generate over 9,000 MW of electricity.
How does coal produced in say Odisha or Madhya Pradesh travel 2,000 km to say Tata Power’s ultra-mega power plant at Mundra, by India’s inefficient trains, and still remain cheaper than Indonesian coal delivered at the doorstep by cape-size vessels?
Even if the logistics puzzle is worked out, the plan might face serious hurdles from the pricing point.
According to Deepak Kannan, Managing Editor, Asia Thermal Coal of Platts, the traction behind the current price rise is weak and is almost solely driven by the Chinese demand for imported coal over domestic fuel.
In an effort to cut the domestic production, arguably to offer traction to plummeting prices, China had cut the working days of mines from 330 to 270 for this year. This has pushed domestic prices above imported coal prices.
Also, in Indonesia, production suffered early in the year due to unseasonal rains. But, according to Kannan, as we look at the production outlook of the top 10 Indonesian miners contributing up to 80 per cent of the country’s production, no supply constraint is in the horizon.
More importantly, Chinese regulator NDRC held a meeting last week. And, the rumour is that Beijing may relax the production cap. If that happens, coal prices should melt down in the fourth quarter.
Kannan is not sure if the prices will remain firm next year. And, that’s not music to the ears of CIL. Any meltdown in coal prices may spoil its plan to tap import demands as coastal plants especially will have little logic in replacing imported coal with domestic varieties.
Coal's cost advantage over LNG slipping, but not yet enough: Russell
Thermal coal has been one of the commodity success stories this year, but there is a risk that it becomes a victim of its own success by eating into its advantage over liquefied natural gas (LNG) in generating electricity.
The benchmark Australian thermal coal price, the Newcastle Index, rose to $70.76 a tonne in the week to Sept. 16, its highest in 18 months and taking its gain since the start of the year to almost 40 percent.
In contrast, the price of spot LNG in Asia LNG-AS was $5.60 per million British thermal units (mmBtu) on Sept. 16, down almost 19 percent from the end of last year.
The two fuels are at different stages in their price cycle, with thermal coal likely to snap five years of losses in 2016, while LNG is on track to notch up a third consecutive down year.
The difference is mainly because the market for coal used in power stations has finally started to balance, with the prior years of oversupply coming to an end as mines shut down or cut back output and demand gains in Asian markets, with China proving a standout so far this year.
LNG is still some way from this point, with more supply expected to reach the market this year and for the next few years, coupled with question marks over whether demand growth will rise sufficiently to absorb the new production.
Nine liquefaction trains are expected to start up in 2016, adding 35 million tonnes of LNG to the market, ANZ Banking Group said in a research note published on Sept. 13.
The additional capacity is largely from new plants in the United States and Australia, which is poised to become the world's largest producer of the super-chilled fuel as it completes eight new projects that have been under construction.
Between 2016 and 2020, global LNG capacity is expected to rise by about 50 percent to around 370 million tonnes a year.
This surge in supply will challenge even the most optimistic demand forecasts, meaning that the LNG price is likely to have to decline further to make the fuel more tempting to buyers.
Global flows data compiled by Thomson Reuters Supply Chain and Commodity Forecasts using vessel-tracking show that the LNG market is growing, but nowhere near fast enough.
In the January-to-August period this year, the ship data showed cargoes totalling 186.6 million tonnes being delivered.
This was 7.7 percent higher than the 173.2 million tonnes for the same period in 2015, and 10.7 percent above the 168.5 million in the first eight months of 2014.
WIDENING LNG SUPPLY-DEMAND GAP
While a 10 percent gain in demand doesn't sound too bad, the additional capacity in supply in 2016 is in the order of 15 percent, opening up a substantial supply-demand gap.
This gap is likely to widen over the coming years as new plants start up in Australia and the United States, which will grow to become the third-largest exporter of LNG behind Australia and Qatar by 2020.
Overall, a picture emerges of plentiful LNG supply and a thermal coal market closer to balance
The question then is just how much further do LNG prices have to drop for the cleaner-burning fuel to displace coal in Asia, as it has been doing successfully in the United States.
One tonne of anthracite coal provides approximately 22.58 mmBtu of heating value when burned in a coal-fired plant, according to data from the U.S. Environmental Protection Agency.
Using Japan's landed costs for thermal coal, which was an average $69.30 a tonne in July, it implies an equivalent of $3.07 per mmBtu, which is roughly half of the landed cost of LNG of $6.39 per mmBtu in the same month.
Since July, the rising cost of coal and the cheaper LNG price will have narrowed that gap slightly, but not to the extent where Japanese utilities will be rushing to switch generating fuels.
But it pays to look at a bit of context here. When LNG reached its record high of $20.50 per mmBtu in February 2014, Newcastle coal was around $77 a tonne, or $3.41 per mmBtu.
This means that generating power from coal is largely the same cost now as it was 30 months ago, while using LNG is a little more than a quarter of the price, a substantial drop.
There are other factors that may help LNG's case, such as its lower carbon emissions, cheaper capital costs of building gas-fired power plants and its suitability to integrate with higher use of less consistent renewables such as solar and wind.
Nonetheless, it seems likely LNG will have to drop further to become competitive with coal in Asia on a purely cost basis.
http://in.reuters.com/article/column-russell-lng-coal-idINL3N1BW1WD
Production of coal sees 10.2% drop
CHINA’S coal output fell 10.2 percent year on year to 2.18 billion tons during the first eight months of the year, data from the National Bureau of Statistics showed yesterday.
The fall eased from the previous three months, but it still marked the fifth consecutive month of declines over 10 percent.
Coal imports rose 12.4 percent from a year earlier to 1.56 trillion tons during the period on surging demand, according to the statistics bureau.
In August alone, coal imports surged 52.1 percent year on year to 265.9 billion tons.
According to the bureau, stockpiles at coal companies amounted to 460 million tons at the end of August, down 12.2 percent year on year. It is the 10th monthly drop of coal stockpiles since November 2015.
http://www.shanghaidaily.com/business/energy/Production-of-coal-sees-102-drop/shdaily.shtml
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