The start of this year was characterized by the themes following COP26 at the end of Q4'21 where world leaders gathered around discussing how conventional fossil fuel production needed to be eliminated sooner than later. The theme was a valid one as the world is in dire need of an Energy transition to pursue the case for alternative energy supplies as a means of diversification and a cleaner climate.
But the lobbying efforts of such calls seem to be just that, a political lobby, rather than an actual plan for a smooth transition giving companies and consumers enough time to be able to switch over. We keep hearing these grand words such as "sustainable" and "clean energy" but how many governments and companies are actually involved in pursuing this for the right reasons remains to be seen. It cannot happen overnight and one thing is for sure, the taps on traditional energy supplies cannot be shut off at will.
Coal is a great example of this transition, a conventional source of Energy that was the dominant form of Energy back in 2013. Since then everyone had written off the fuel as a means of Energy supply and many coal plants had been decommissioned as it was claimed as a "dirty fuel".
But today Coal prices are up at record highs and Coal production hit a two year high as the world scrambles to use any resource possible to meet its domestic Energy needs. The War in Ukraine has exacerbated the need to get there as the world and global alliances are a lot less certain. This year has marked a big surge in Coal production as now the old coal plants have been commissioned around the world.
Even before this spike, we were a ways away from losing our reliance on traditional energy fuels. According to the EIA's Monthly Energy Review, "fossil fuels-petroleum, natural gas, and coal-accounted for 79 percent of the 97 quadrillion British thermal units (quads) of primary energy consumption in the United States during 2021 and about 21 percent of U.S. primary energy consumption in 2021 came from fuel sources other than fossil fuels, such as renewables and nuclear."
After power shortages in China going into the winter heating season followed by a shortage of European gas/electricity into the winter, China commissioned many coal plants to come back online to make up for the depleting inventories and the spike in prices.
In the first six months of 2022, China's coal production increased by 11% and as a result, coal imports fell by 18% year-on-year to 115 Mt. In the United States, where activists would make it politically contentious to do so, increased exports by 12 Mt to 36 Mt. Today, as gas inventories are picking up, and given the persistent heat waves, the power demand on the grid is causing massive spikes which compels coal plants to keep running for longer.
For now, nations only have their focus on securing cheap and reliable Energy at the cost of climate change. The war on Ukraine showed us countries like India and China care more about securing Oil at a $30/bbl. discount than engage with the rest of the world in imposing sanctions to stop this war.
Lockdowns, high budget deficits, rising interest rates and inflation means a very unsettled and angry middle class. If winter is not as cold or if the world goes into a recession, then Coal production should slowly settle down as other forms of Energy supplies play catch up. It may be the last hoorah but it does not mean it has gone away entirely. This cycle has shown that a complete transition to clean energy is years if not decades away.