The AME European Composite Gas price has averaged over US$37/Mbtu in 2022, prompting a temporary gas-to-coal switch that saw Germany reactivate over 6GW of coal-fired power generation. AME Newcastle 6,300 spot price will average US$359/t in 2022, up by 162% on the year. 

2022 started with Indonesia banning all thermal coal exports as critical coal shortages at domestic utilities hit the country. AME Newcastle premium thermal coal 6,300 kcal/kg spot price averaged a historic high of US$265/t in the March quarter, climbing by 44% from the December quarter of 2021. The premium ended March at US$259/t, after peaking at US$423/t on the 8th of March.

Prices hit historic highs due to Russia’s continuing military operation in Ukraine and severe weather conditions in Australia and Indonesia impacting transport logistics. Although shipping from Russian coal ports to Europe did not fell immediately, uncertainty in the gas market and decline in wind generation supported the volatility.

In the June quarter, prices hit historic highs as European countries planned to intensify the use of coal-fired power generation to improve LNG inventory levels before the winter season. Meanwhile, severe weather conditions in Australia and Indonesia continued impacting transport logistics and transport issues in South Africa restricted the global thermal coal supply.

The Newcastle premium thermal coal 6,300 kcal/kg spot price averaged a historic high of US$364/t in the June quarter, climbing by 37% from the March quarter. The premium ended June at US$386/t, after peaking at US$427/t on the 31st of May.

In the September quarter, prices hit another historic record as Gazprom’s announcement of termination of gas supplies due to unforeseen repairs drove a 36% monthly rise in AME European Composite gas price in August. The Newcastle premium thermal coal 6,300 kcal/kg spot price averaged a historic high of US$417/t in the September quarter, climbing by 15% from the June quarter.

The premium ended September at US$408/t, after peaking at US$446/t on the 15th of September. This surge was further driven by the extended heat wave in the northern hemisphere, which increased demand from South Korea and Japan. Extreme heat also resulted in record demand for air conditioning in China.

The December quarter began with ongoing cuts to Russian pipeline gas supply into Europe and the indefinite closure of the Nord Stream 1 pipeline which further supported coal-fired power generation in the region. Europe increased use of coal power generation to successfully exceed its 90% gas storage target ahead of winter.

LNG tankers backlogged at European ports eased winter supply fears, prompting lower thermal coal prices. Energy security and affordability is the global priority for 2023, outweighing coal phasedown talks at the recent COP27 summit held in Egypt.

Energy market fundamentals in Europe remain fragile. Germany must take measures to reduce short-term demand and storage depletion, as the expected surge in global LNG supply will be insufficient to offset the fall in Russia’s gas deliveries to the EU.

Imports and Exports

Coal-fired power regained momentum in 2022 with Europe struggling to secure energy supplies after imposing sanction on Russia. Russia’s invasion of Ukraine prompted a shift in coal trade flows, while limited coal supply in key mining countries intensified the energy crisis.

The European Union – and Germany in particular – is one of the regions that has faced the worst of the energy crisis given its large reliance on Russia’s natural gas supplies. Weather conditions lowering hydro and wind power output, combined with restricted nuclear power generation in France, further burdened Europe’s electricity system.  

The record-high natural gas prices that extended across the first quarter of 2022 compelled utilities in many countries, including in developed economies such as Japan and many in Europe, to attempt to replace gas-fired power generation with coal-fired power plants. This crisis has pushed European traders to battle for coal from Colombia, the US, Indonesia and Australia.

However, the severe weather conditions in Australia and Indonesia have significantly reduced availability in the market, resulting in larger consumers like Germany securing only very expensive deals. Transport issues in South Africa and social issues in Colombia also significantly impacted coal availability across the year.

India was forced to cut supplies to the non-power sector amid a drastic surge in power demand in March, which left a deficit of 574GWh. This electricity shortage represented 0.5% of the overall demand for the month, half of the shortfall registered in October 2021, when the country faced its worst energy crisis in recent years. Consequently, India has focused on increasing its domestic output, with production surging by 18% compared to the previous financial year.

India’s Union Minister for Coal and Mines Pralhad Joshi has announced, once again, that India will stop importing thermal coal but this time by 2024-2025. India’s government target is to produce 900Mt of coal in the current year and auction 163 mines.

With the operationalisation of several mines under the commercial coal mining auction process, the private sector will have a substantial share in domestic coal production. However, India’s thermal coal imports increased by 14% to 128Mt in the first nine months of the year, despite record high global prices.

China’s appetite for imported coal has eased amid lower demand driven by recurrent Covid-19 lockdowns and surging domestic production. Ensuring a stable supply of coal is a key strategic priority since China’s power shortage in 2021. Surging domestic coal supply will continue due to the State Council plans to inject US$1.5bn to advanced coal production capacity and support coal power generators.

Low levels of hydro generation forced China to rely more heavily on coalfired units and draw more heavily on coal supplies since the start of July. From January to October, China’s domestic production increased by 12.2% on the year to 3.7Bt. This has been driven by over 350Mtpa of coal mining capacity that the country brought online in the second half of 2021. China intends to increase domestic production by 300Mt in 2022, after a record-high production of 4.07Bt in 2021.

On the supply side, Indonesia will close the year accounting for 41% of the seaborne supply in 2022, followed by Australia with 20%. Both countries struggled with severe rainfall and flooding throughout the year, which heavily impacted thermal coal output.

AME estimates that Indonesia’s thermal coal exports will drop by 9.8% on the year to 390Mt in 2022, driven by the coal export ban, extreme weather conditions and issues with equipment procurement. Indonesia has strongly reinforced its Domestic Market Obligation, according to which miners are required to sell 25% of their output to the local market, with a maximum price of US$70/t for domestic power plants.

Across 2022, La Nina weather patterns caused floods in main mining areas in Australia, adversely impacting production in open-cut mines in the state of New South Wales. Resources minister urged the Queensland government to expedite thermal coal mine projects to cover the rising European demand. Lack of skilled workforce and increased Covid-19 cases also contributed to the already tight supply. Export volume in 2022 is expected to total 192Mt, remaining at 2021 levels.

Glencore is the biggest thermal coal exporter globally, currently accounting for 9.5% with operations in Australia, Colombia and South Africa. AME estimates that Glencore will export 87Mt of thermal coal in 2022, jumping by 17% on the year following the strategic acquisition of Colombia’s biggest thermal coal mine, Cerrejón. Glencore has lowered its 2022 coal production forecast by 11Mt to 110Mt (+/-4Mt), as excessive rain and flooding affected output at its Australia’s NSW operations.

Closures & Production Cuts

The New South Wales Independent Planning Commission has refused Glencore’s Glendell Continued Operations Project on heritage grounds. The project would extend mining at Glendell open cut thermal coal mine by 20 years to 2044 and expand output from 3.7Mtpa to 10Mtpa.

Glendell is one of Glencore's four coal operations in Australia that are facing closure as they reach the end of their approved mine lives. Glendell operates as part of the Mt. Owen Complex, which produced 6.9Mt of saleable coal in 2021 and contributed with US$501m to the company.

Incidentally, Glencore has scheduled the closure of its 4.5Mtpa Liddell and 5.5Mtpa Newlands by 2023. Additionally, the Colombian government has accepted the relinquishment of Prodeco’s Calenturitas and La Jagua thermal coal mines.

KEPCO’s promotion of the Bylong thermal coal project has been firmly rejected by the High Court of Australia. KEPCO aims to export coal produced at Bylong to the Asian region, with a focus on South Korea.

The Bylong thermal coal project aims to exploit two open-cut mining areas and one underground mining area to produce around 6.5Mtpa of low-sulfur thermal coal and PCI coal at full-scale operation.

However, fears of groundwater pollution surrounding the project have caused the Independent Planning Commission of NSW, the New South Wales Court of Appeal, and the High Court of Australia to reject it.

Among several companies impacted by drastic weather conditions, Australia’s Whitehaven Coal (WHC) has lowered its raw coal production guidance from a range of 20-22Mt to 19- 20.4Mt for 2023 fiscal year, as La Niña curbs output from its open cut operations.

WHC’s flagship Maules Creek coal mine is now expected to produce 10.3-11Mt, down from an existing guidance of 11.7-12.6Mt. Maules Creek is an open-cut coal mine located in the Gunnedah Basin of New South Wales, Australia, which produces semi-soft coking and thermal coal for the export market. WHC holds 75% interest in the mine.

New Mines, Restarts & Expansions

Australian New Hope Corporation (NHC) has scheduled the restart of New Acland thermal coal mine by the end of FY2023, after acquiring a water licence in October. NHC aims to produce 2.5Mt of saleable coal in FY2024 and expand output to 5Mtpa through FY2027.

Initially, the project was expected to boost New Acland's production from 4.8Mtpa to 7.8Mtpa and extend the mine's life for 12 years to 2034. New Acland has been on care and maintenance since November 2021 due to exhaustion of coal reserves in the existing mining area. NHC holds a 100% interest in the mine, whose production volume of saleable coal dropped by 77% on the year to 0.42Mt in FY2022.

Australia’s New South Wales Independent Planning Commission has given final approval to Whitehaven’s stage three expansion at its Narrabri coal mine. The life of the mine will be extended from 2031 to 2044, and ROM volume will increase to the range of 7.5Mtpa to 8.0Mtpa.

The US$300m coal mine expansion approval comes at a time when overseas demand for the state’s thermal coal is near-record highs amid Russia’s invasion of Ukraine and consistent high demand from India and Japan. Narrabri’s ROM production in 2021 dropped about 46% on the year, as the mine faced challenging geological conditions. However, improved production volume is expected in 2022.

Australia’s NSW government has approved the expansion of MACH Energy’s Mount Pleasant coal mine, which will boost the mine’s ROM output to 21Mtpa and extend the life of the mine by 22 years. This will add about 10Mtpa of thermal coal to the export market over two decades. The open-cut mine, located in the state of NSW, commenced mining in 2018 and was initially expected to cease operations in December 2026.

Australian Pacific Coal (AQC) has announced a US$214m plan to restart its Dartbrook coal mine by the end of 2023. After receiving five takeover proposals this year, the battle for Dartbrook looks to be over, with Trepang, Tetra and M Resources forming a strategic partnership for the mine’s recommissioning. Dartbrook, located in the Australian state of NSW, has been on care and maintenance since 2006.

In March 2022, AQC was granted a licence to extract 6Mtpa of thermal coal until December 2027. With thermal coal reaching historical prices and AQC expecting prices to remain above US$250/t until the end of 2027, the company aims to sell over US$1bn a year.

Czech state-run coal company OKD has delayed again the closure of its CSM coal mine until 2025, amid surging domestic demand following disruptions in supplies in Europe. The government had already approved an initial extension until the end of 2023, due to the ban on Russian energy supplies after the invasion of Ukraine.

OKD now plans to produce 1.3Mt in 2023, up from an initial volume of 0.5Mt when operations were expected to cease in mid-2023. The company supplies the northeastern industrial region with Detmarovice power plant as one of its main customers.

Detmarovice was due to stop operating in spring 2023. However, state-controlled electricity producer CEZ announced the plant will continue active to support the country’s energy security. OKD informed it had sold out its full coal production capacity for 2023, and 90% of that for 2024.

Mergers & Acquisitions

South African Thungela Resources has acquired an additional 27% interest in Anglo American Inyosi Coal (AAIC) in exchange for shares in Thungela. The miner will own 100% of AAIC and therefore 100% interest in Zibulo Colliery and Elder Production Replacement Project.

The Elder’s replacement project aims to extend Thungela operations in the Goedehoop region by about ten years, starting in 2025, and producing up to 4.2Mtpa of raw coal. Ongoing issues with South Africa’s stateowned rail, port and pipeline company Transnet has resulted in a 14% drop in export saleable production in the first half of 2022.

Glencore has sold its 6.4% interest in Yancoal Australia in a deal worth A$422m (US$293m). The transaction involved the sale of 84.5 million shares traded at A$5 (US$3.57) each. The deal closely follows Glencore’s alleged rejection of Chinese Yankuang Energy’s offer to buy Glencore’s minority stake. Glencore’s consolidation of its coal assets will remain unaffected, as the miner did not consider the shareholding in Yancoal to be a core asset for the business.

BHP ceased the sale process of its Australian largescale Mount Arthur coal mine and will close the operation in 2030. With 14.7Mt produced in 2021, the state of NSW will see a significant reduction in supply in the medium to longer term.

The unsuccessful sale of the mine highlights the structural decline in the thermal coal industry and the adverse impact of net zero policies in coal funding. BHP has focused on achieving its carbon reduction targets by divesting its coal assets, selling its 33.3% interest in Cerrejón mine in Colombia to Glencore and its 80% interest in BHP Mitsui Coal to Stanmore.

Idemitsu Australia has commenced the sale process of its 85% interest in Ensham coal mine. The company is focused on achieving its mid-term carbon reduction targets and becoming a net-zero emitter by 2050.

The sale process is estimated to obtain about US$348m. The mine produces around 5Mtpa of thermal coal, mainly for the export market. Ensham has proposed an extension of the existing underground bord and pillar operations which aims to expand the operating life of the mine by up to nine years to 2037.