The geography of Russian coal supplies will change by 2030

Coal exports (energy and metallurgical) from Russia will be stable until 2050, but in order to maintain its volumes, Russian companies will have to redirect supplies from China to other Asian markets. Such an assessment is given in a study by the consulting company Yakov and Partners (formerly McKinsey in Russia).

The review (available from Vedomosti) notes that in the baseline scenario (maintaining GDP growth rates in developing countries, stagnation or no growth in developed countries and a moderate level of energy prices), exports of Russian coal (energy and metallurgical) in 2030 will amount to 219 million tons, which is 0.9% less than in 2022. In 2050, deliveries will slightly decrease to 218 million tons (-1.4% by 2022).

At the same time, experts from Yakov & Partners expect multidirectional trends in the markets for thermal and metallurgical coal. Deliveries of Russian energy coal will decrease due to falling demand for this fuel in the world. By 2030, according to the company, they will be reduced by 16% compared to 2022 to 147 million tons, and by 2050 – by 32% to 119 million tons. The supply of metallurgical (coking) coal, on the contrary, will grow – to 73 million tons by 2030 (+55%) and up to 99 million tons by 2050 (by 2.1 times). This will compensate for the decline in energy coal exports.

At the same time, the priority export markets for Russian coal will change significantly. The study notes that the desire of key consumers of Russian coal for self-sufficiency will lead to a gradual drop in supplies to the markets of these countries. For example, exports from Russia to China will decrease to 12 million tons by 2030 and to 5–10 million tons per year by the mid-2030s.

At the same time, from 2030, an increase in export deliveries to the countries of Southeast Asia (SEA) – Vietnam, Malaysia, Pakistan, Taiwan, etc. this region will include Malaysia, Thailand, the Philippines and Vietnam.

In general, buyers of Russian coal in 2030 will be India – 87 million tons (about 40%), Southeast Asian countries – 48 million tons (22%), Turkey and non-EU European countries – 41 million tons (19%). The countries of Africa and the Middle East will account for 14% of exports (31 million tons), China – only 5%. By 2050, the geography of deliveries will also change significantly: the share of Southeast Asian countries will exceed 50% (110 million tons), India will decrease to 28% (61 million tons). Africa and the Middle East will account for 12% of Russian coal exports (26 million tons), while non-EU European countries and Turkey will account for about 10% (21 million tons).

The key consumers of Russian energy coal by 2030, according to the company, will be India – 42 million tons (28.5%), Turkey and European countries – 34 million tons (23%), Southeast Asian countries – 33 million tons (22%). By 2050, more than 60% of steam coal exports from the Russian Federation will go to Southeast Asian countries – 74 million tons (62%).

More than 60% of exports of metallurgical coal from Russia (46 million tons) by 2030 will go to India, about 20% (15 million tons) – to Southeast Asian countries, less than 10% (6 million tons) – to Turkey and Europe. By 2050, the share of India will decrease to 55% (although in absolute terms, supplies will increase to 56 million tons), the share of Southeast Asian countries will increase to 39% (36 million tons), another 5% of supplies (5 million tons) will come from the countries of the Middle East (Iran, Lebanon, UAE).

China will gradually reduce the import of Russian metallurgical coal, reaching self-sufficiency, the review says. By 2030, imports of Russian metallurgical coal to China will drop by 7 times to 3 million tons.

At the same time, Russian companies will have to significantly reduce the cost of production in order to compete in Asia with suppliers from Indonesia, experts from Yakov and Partners say. The cost of shipping coal in the world, according to their estimates, could grow by 20% by 2028 due to the decarbonization of shipping. Australia will also compete with Russia in Asia, and South Africa in the Middle East and North Africa, Umrikhin specifies. He explains that there is a potential for reducing the cost of coal in the Russian Federation through the development of technologies and direct transport corridors (for example, to India).

“In order to remain competitive, Russian suppliers already today need to plan to revise their product strategies and pricing policies,” sums up Dmitry Vasyukov, partner at Yakov & Partners.

Vedomosti sent inquiries to the largest coal companies in Russia.

The press service of the Ministry of Energy reminded Vedomosti that the main consumer of Russian thermal coal is China, India is interested in the supply of coking coal. “The Ministry of Energy does not have a calculation of the increase in costs for transporting coal by 2028. At the same time, Russian coal companies are already taking measures to reduce costs on an ongoing basis,” the ministry added.

According to the forecast of the Ministry of Energy, coal exports from Russia in 2023 will remain at the level of last year, Sergey Mochalnikov, Deputy Minister of Energy of the Russian Federation, said in June. In 2022, coal exports decreased by 1% to 221.2 million tons, while Russia increased supplies to China by 25.6% to 67.3 million tons, to India – 3 times to 20.1 million tons. coal in Russia in 2022 increased by 0.3% to 443.6 million tons.

Kirill Rodionov, an expert at the Institute for the Development of Technologies in the Fuel and Energy Complex, notes that the need to reorient exports to the countries of the Asia-Pacific Region (APR) became obvious even before the EU embargo on coal imports from Russia (effective from August 10, 2022), including due to the refusal Europe from coal generation. But the choice is still limited in the Asia-Pacific region: according to the Global Energy Monitor, by July 2023, 204.2 GW of coal-fired thermal power plants were under construction in the world, of which 136.2 GW (67%) were in China, 31.6 GW (15%) – to India. 3rd place belongs to Indonesia (14.5 GW, 7%), which itself is an exporter of coal, the share of other countries is only 11% (21.9 GW).

The rate of commissioning of new coal-fired power plants in China is declining, Rodionov draws attention: in 2015 – 66 GW, and in 2022 – only 26.8 GW. At the same time, China is increasing investments in coal mining: in 2015 they amounted to $19 billion, in 2023, according to the International Energy Agency, they will reach $43 billion.

Leading expert of Finam Management Management Company Dmitry Baranov sees the potential for growth in Russian coal supplies to Asian countries. In his opinion, the development of technologies for processing coal with a reduction in emissions from its use will increase the consumption of this fuel in the region. India can indeed become one of the largest consumers of Russian coal, Baranov agrees. He recalls that in 2021 Moscow and Delhi signed a memorandum on increasing the supply of Russian coking coal to India up to 40 million tons per year. Africa can become another major market for Russian coal, according to the expert.

Dmitry Smolin, senior analyst at Sinara investment bank, disagrees with the authors of the study: in his opinion, China will not be able to significantly increase coal production in the next 7-10 years, so China’s imports will remain at a consistently high level. “Russian companies will continue to bet on India and China,” the analyst said. At the same time, the real factor in the growth of the competitiveness of Russian coal exporters, according to Smolin, is now only the weakening of the ruble.

Alexander Volobuev contributed to the preparation of the article