Dr Tim Jones, e-coal.com 

Europe accounts for about a tenth of total world thermal coal trade with demand of around 90mt (metric tonnes) recorded last year. Although the market for thermal coal is in general decline there, the region still remains an important centre for the international coal market. Some countries have coal use and production policies that will see activity continue over the coming decades while others are reducing their activities on both supply and demand sides. Countries including Poland, Portugal, Spain, and Turkey remain steady consumers of thermal coal amid the declines elsewhere.

Within five years, European thermal coal demand is forecast to decline by some 25mtpa (million tonnes per annum) bringing the size of the market down to only about 7% of total world trade. The major economies of Germany, France, and smaller countries like The Netherlands have governments which have been supporting alternative fuels such as natural gas and nuclear to the detriment of thermal coal for some time. The coal industry in the United Kingdom has been in decline for many years, and coal-fired power stations have been shut down and even demolished in order to comply with the then European Union regulations. When the United Kingdom leaves the European Union following the democratic result of the referendum in 2016 those assets cannot now be recovered.

Total European thermal coal demand in 2017 is forecast to be about 94mt due mainly to some increase in demand in Spain which could take about 14mt compared to about 11mt last year. In the Iberian markets, Portugal’s intake is likely to be steady compared to 2016 at over 5mt.

In the Scandinavian markets, Norway showed more demand for coal last winter to supplement its power generation from hydroelectric stations, although the market is relatively small there at around 100kt each year. The Danish consumers also took more tonnage, recording an increase of 22% to 2.4mt in 2016 compared to the previous year at 1.9mt. Growth in Finland was seen, with 0.2mt more thermal coal 

taken in 2016 at 2.4mt. The other thermal coal market in Scandinavia is in Sweden which recorded demand of 0.5mt last year which was steady on the
previous year. Overall the Scandinavian markets took 5.3mt last year compared to 4.7mt in the previous year. The latest forecasts, however, predict a steady overall decline in thermal coal demand across Scandinavia in the coming years, with some expecting the total to reach just 3.7mt within five years with Sweden becoming the smallest market of the four countries by then. Conversion of existing plant to burn biomass will contribute to this decrease
in coal demand in Denmark this year and into the future. The trend towards the use of renewable energy sources will continue throughout the region in the next decade.

Western European markets are forecast to take about 70mt of thermal coal this year, but the trend is for an overall decline of around 18mt within the next five years when the market could be just over 50mtpa. This compares with a total of 111.4mt recorded in 2013. Germany dominates the thermal coal market in Western Europe now, and will continue to be the largest consumer in the coming years. A total requirement of about 40mt there will decline by some 10mt within five years according to the latest predictions. That will account for about 60% of the total thermal coal demand in the whole of Western Europe combined. The United Kingdom has seen fluctuations in thermal coal demand in recent years as competing fuel prices and the gradual closure of coal- fired facilities influenced its market. Demand was less than 5mt last year after recording 17mt in 2015, also down from the 32mt and 39mt seen in the previous two years. There is little hope of seeing a recovery in thermal coal demand in the United Kingdom from current levels in the coming years, and current forecasts suggest the market will have declined to between 1mt and 2mt within five years. Once free of European Union legislation, it will be interesting to see how the United Kingdom government regards its coal sector and overseas markets in the future. France has recorded relatively steady demand for thermal coal and last year this was around 10mt as the fuel supplemented its mainly nuclear-based electricity sector. Growth in thermal coal demand is not forecast for France either, and over the next five years it is expected that demand will decline by almost a half to around 5–6mt by 2022. Other consumer countries in Western Europe take relatively small quantities of thermal coal, with Belgium on around 1.1mt and Ireland importing around 1.7mt. These two countries, however, are expected to maintain these levels for the foreseeable future.

In the Iberian markets, the Portuguese buyers have recorded a total of around 5mt of thermal coal demand lately, and this is expected to continue over the next few years. A decrease of about 1mt could occur by about 2022 as other energy sources displace coal to some extent. Spanish consumers are recording demand of around 11–14mtpa depending on hydro availability and the price of competing fuels. A projection for thermal coal demand within five years is difficult, but a decline is expected by 2022. This may see Spain’s customers take less than 10mt by then. 

Considering the individual countries in Western Europe, France has bought thermal coal from a number of supplier countries with Russia being the main source in 2016. A total of 2.8mt was recorded as coming from there last year, and has been rising steadily from 1.5mt in 2012. The other main suppliers to France have shipped similar quantities of thermal coal recently, with Colombia, South Africa, and Australia each sending close to 1.5mt last year.
A similar quantity was recorded as being received from the ARA and UK ports. Australian tonnage is more dependent on the state of the dry cargo
shipping market due to the freight disadvantage from there, as well as coal market conditions. Variations in the supply of electricity from nuclear power stations has a large role in fluctuations in thermal coal demand in France every year. For the last full year, the French consumers recorded a total of 9.4mt of imports which was the highest since 2013 when their demand reached 10.8mt. French govern- ment policy has been to close all coal-fired power stations in the coming years.

German demand for thermal coal declined to 39.6mt last year, after a couple of years of increases, with the main source being Russia. A total of 15.8mt was imported from there and has been increasing steadily for several years now. Colombia was the next-largest supplier with 10.6mt recorded in 2016 following growth in the previous year as well. The United States was the third largest shipper to Germany last year, with 6.3mt recorded. Tonnage from there has been decreasing in recent years as shipments of Russian material has increased. South Africa and Poland have been able to ship significant quantities to the German consumers at 1.8 and 1.4mt respectively last year but these volumes are smaller than has been seen in the previous couple of years. The German government has a policy of closing down older coal-fired power stations and this is continuing. Over 10,000MW of coal-fired capacity will probably have been shut down during the second half of this decade. Some new coal-fired capacity has been commissioned, and more is planned. This

will not, however, replace the capacity being closed, and it is unclear if remaining plans will be fulfilled. Environmental issues have led to challenges to the projects. Major electricity companies such as EnBW, Vatenfall and RWE Generation have plans to close coal-fired generating capacity in Germany in the next few years, with some of the timings dependent on the state of the market for competing fuels, mainly LNG.

Germany’s production of hard coal reached only 3.9mt in 2016 which was a decrease of some 40% compared to the previous year. There are only two hard coal mines left in Germany now: Prosper Haniel and Ibbenburen.

Poland has remained heavily reliant on coal for electricity generation and the fuel  accounted for 79% of the total last year. This was only a small decrease from the 81% of share in the previous year. Total seaborne thermal coal imports reached 5.6mt in 2016 with the remainder being produced in Poland’s own mines. This was an increase of 13% compared to 2015, with additional tonnage being purchased from Russia and Colombia. The country imported more electricity to supplement its own output last year as demand increased. Poland produced 70.4mt of hard coal in 2016 and recorded a total of 57.2mt of thermal coal within that mix. This was about 2mt less than was recorded in the previous year, and coal stocks were drawn down as demand for electricity increased at the power stations. The Polish government has had a policy of maintaining its reliance on indigenous coal resources and to continue to operate its mines and coal-fired power stations. Unlike other member countries of the European Union it appears that Poland wishes to maintain some form of energy independence and use new coal- fired power technology in the future as well. The issue of climate change and global warming is expected to be a factor on this in the coming years.

The coal industry in the United Kingdom has been in decline for years, and in 2016 there was very little underground production after decreasing by a few million tonnes each year in the past decade. Five years ago underground production was 6.6mt while surface mines recorded 10.1mt in 2012. Only a few small underground operations remain, producing a combined output of 22kt last year. Opencut mining has also been declining and a total of 4.2mt was recorded last year. There is no prospect of change now. In 2013 the United Kingdom recorded consumption of 53.8mt but that quantity has been decreasing substantially since then with 14.7mt recorded in 2016. Thermal coal imports reached just 4.5mt last year after reaching 39mt in 2013. Coal-fired power stations have been closed largely due to European Union emissions regulations as well as economic factors related to competing fuels. A total of 4GW of coal- fired capacity was closed in the United Kingdom last year and that coincided with attractive gas prices as well as government policy disadvantaging coal as a choice of fuel. Consequently, coal burn and import demand slumped. The electricity sector consumed 12mt of coal last year compared to 55mt five years ago. With less requirement for thermal coal in the near future, stocks were also depleted over the course of last year by some 5.7mt to reach 6.7mt by the end of 2016.

The decline of the coal sector in the United Kingdom has had an impact on the main suppliers in Russia, Colombia, and the United States as demand for thermal coal decreased so greatly over the past few years. The Colombian exporters found a market for only 2.4mt of thermal coal in the United Kingdom last year. That compares with 11mt sold into the UK market five years ago. The situation was even worse for the Russian shippers who supplied only 1.2mt of thermal coal in 2016 after enjoying demand for more than 16mt five years earlier. Across the Atlantic last year, the US thermal coal exporters shipped just 261kt to the United Kingdom after reaching almost 10mt in 2013. The USA has always been a swing supplier in the market depending on the price of thermal coal, but this significant swing is more related to the policy related to coal use in the United Kingdom. South Africa and Poland only found a market for a few ships there last year as well, at 94kt and 85kt recorded respectively. While the Polish suppliers have never enjoyed a large market  there, the South Africans are missing the halcyon days they experienced at one time.

Portugal has been continuing to import coal for the Sines and Pego power stations with the Colombian shippers seeing most business last year. The availability of hydro power is a large influence on thermal coal demand in Portugal but around 5mtpa has been needed recently. The future of coal in Portugal is also facing challenges to comply with European Union regulations in the coming years, but unlike the United Kingdom they have not been permanently losing their coal-fired plant.

Spain’s electricity sector is also influenced strongly by hydro availability as was seen last year and more recently. The total import tonnage of 11.3mt in 2016 was a decrease of 30% compared to the previous year because of this. Colombian thermal coal shippers have a relatively steady market in Spain but despite the freight disadvantage, so do the Indonesian exporters. Spain’s boiler designs are compatible with a fuel blend produced with the Indonesian material, and unusually for Europe now, there remains a steady market for that coal. Almost 4mtpa has been imported in recent years. Five years ago the demand for thermal coal imports in Spain reached almost 20mt. Meanwhile, with European Union encouragement the Spanish government is to close 26 of its domestic coal mines within a couple of years at a cost of more than €2bn. In addition to this, several coal-fired power plant are to be shut down in order to comply with emissions regulations, and demand for thermal coal imports is expected to decrease significantly at the end of this decade.

Elsewhere in the Mediterranean region the market for thermal coal is being boosted by ongoing demand in some countries. Of the European ones, Turkey is expected to be a firm buyer of thermal coal for some time, while the current member countries of the European Union such as Italy will face restrictions on coal use. Italy’s thermal coal imports have been decreasing in recent years with 13.9mt recorded last year compared to 19.7mt in 2012. This was due to the competitive price of gas as well as maintenance closures at coal-fired power plant during the course of the year. The Italian consumers had been steady buyers of Russian material at around 4mtpa but South African, US and Indonesian shippers have seen the decrease in demand affect them. Colombian product remains attractive to the Italian generators when they are in the market. The long-term future of coal in Italy looks bleak and unless the price is attractive the level of imports will decline.

Turkey imported 30.6mt of thermal coal last year reflecting steady growth as coal- fired generation increased. Imports from Colombia more than doubled from the 7.26mt seen in 2012 to reach 15.4mt last year. Imports from Russia grew to 11.8mt but there was less trade with the South 

Africans and US exporters. A cargo of Polish thermal coal was recorded in the statistics. More than 6GW of new coal- fired generating capacity had been given the go ahead in Turkey and much of it could be online by the end of 2020. Cenal Elektrik is expanding the need for coal and its 1,320MW Canakkale power station will be a new market when ramped up to full capacity. Power producer Eren Energi has been expanding coal-fired generating capacity, and the Zonguldak power station is estimated to be a buyer of 6.5mtpa when operating at full capacity. Some projects, however, have faced challenges on environmental grounds and these include a 900MW project by Selena Elektrik.

There are some ten new projects due for commissioning by 2020 which will require imported thermal coal and these units vary in size from 10MW to 1,600MW. Most of them currently appear to be on track and shippers are negotiating coal supplies for the future. A growth in imports of 10% compared to last year has been forecast over the next two years by some analysts.

Further east, in Ukraine, the import market for thermal coal has seen around 3.5mt being shipped there annually after reaching close to 4mt in 2014. Only the USA and South Africa delivered coal by ship last year, with about 1.3mt entering the ports. The remainder was delivered by rail from Russia and Poland, which recorded 2.045mt and 0.165mt respectively. Ukraine still has a number of coal mines despite the change to its borders in the east, and last year a total of 40.86mt was produced. Of this total, 32.5mt was thermal coal (up 3.5% year on year) and 8.36mt was coking coal (down 0.5%).

Political problems persist in the country and these have affected the coal sector. Ukrainians have blockaded the rail lines used to supply coal from the Donbass region and the government has been forced to limit coal use at power stations burning anthracite. Pro- Russian separatists have been able to take control of mines and electricity generating facilities this year as well, where some 9mt of coal has been produced annually. The future of Ukraine’s mines and power stations is uncertain amid the continuing political unrest, but the seaborne import market is always set to benefit when conditions dictate.

So the overall picture of European coal trade is currently one of general decline in the years to come whereas other regions of the world choose to maintain or grow their coal sector. Carbon dioxide emissions from coal in Europe have been controlled, while those in Asian countries such as China and India have risen substantially. Economics has played a big part in the decline of the coal mining sector in much of Europe. European Union regulations on member countries have played a major role in the demise of coal-fired electricity generation across most of the continent, as well as its use in other sectors.

Poland is an example of one member state that has resisted this to a large extent so far, while the United Kingdom is an example of one with a small coal sector left on both supply and demand sides as it departs the European Union to set its own course in the world once more. In the years ahead it is noteworthy that predictions indicate that all the countries of Europe combined will be importing less thermal coal than Germany will alone with its remaining coal-fired assets, and France will continue to benefit from its nuclear power which can be exported and sold to some of those countries unable to meet their demand with their own domestic assets.

Dr Tim Jones is Director of e-coal.com Consultancy and Editor of the weekly publication Coal Market Intelligence which covers 11 spot markets worldwide, gives key information on the latest deals and tenders, company news, people and jobs, industrial relations, and ports, shipping, and freight rates.