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Coal export prices have been advancing in response to rising oil and natural gas prices. They, in their turn, are being driven by fast-growing demand for energy from China and India, concerns over the political situation in the Middle East and peaking or declining output from long–established fields such as the North Sea.

But whereas countries such as Saudi Arabia can in fairly short order increase their pumping rates to make good shortfalls elsewhere, coal–exporting countries are less flexible. Mine, port and rail capacity cannot be added as quickly as can be comparable oil facilities. This drawback is underscored by the fact that Australia, the world’s leading exporter, has been suffering from chronic congestion. Some of its customers, India is one, have been compelled to look elsewhere for the coal needed to fuel newly–built power stations.

Care must be taken, however, in estimating the patterns of future export demand. China is adding some 40 gigawatts to its generating capacity each year, but that does not necessarily imply a directly corresponding increase in coal usage. Old stations whose percentage thermal efficiencies are generally in the low 20s (in other words only 20% of the energy contained in each ton of coal is transformed into electrical energy) are being closed and being replaced with new generation stations that are twice as efficient. Half the coal is needed for each megawatt and, as a corollary, carbon emissions are correspondingly lower per unit of power generated.

Though China only became a net importer of coal in January 2007, in that year Beijing stated its determination not to rely on imports for more than 10% of the country’s energy (oil, gas and coal) needs. This, though, must also be seen in the context of China mining ten times as much coal as South Africa and generating just short of four fifths of its electricity at coal–fired power stations. Whether this degree of self–sufficiency can be maintained is another matter. China is not rushing to build nuclear power stations as it does not have access to the latest technology, there are limits to the country’s ability to exploit its hydro potential, and renewables such as wind power are not appropriate. In other words, the future lies with coal.

Much the same goes for India. It is building a series of new thermal power stations along its western coastline and is diversifying its coal supply sources following disruptions caused by Australian port congestion. India has been specifically seeking coal with similar specifications – comparatively low calorific value and high ash content – to that supplied by South African coal companies to Eskom.

This opens new export prospects for South African coal companies. But everything depends on expansion of coal–handling capacity at Richards Bay. At present the Richards Bay Coal Terminal (RBCT) has the capacity to handle an annual 72 million tons of export coal. And capacity is due to increase to 91 million tons by the fourth quarter of 2009. In the past, RBCT has consistently not operated at full capacity, its top throughput of coal railed from the inland mines was 69 million tons in 2006, but this fell to 66 million tons in 2008. This shortfall has not necessarily been the fault of the terminal’s operators. Rail capacity has not always matched demand, wet weather has in some years curtailed mine production and, in recent years, competitive inland prices have led to coal being diverted away from the export market. At present the rail line from inland collieries to Richards Bay has a theoretical capacity of 78 million tons but, as noted, 2008’s deliveries were only 66 million tons.

RBCT capacity utilisation

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In addition to the RBCT expansion, Maputo’s coal–handling capacity is being increased from its current 1.1 million tons to 6 million tons by 2010. That means South Africa’s coal miners could export an additional 24 million tons by 2010. Unless export and inland prices fall into line, the increased export capacity could reduce the amounts available to a local market in which domestic demand is rising.

There has, then, been a structural shift in the local market. Coal companies that formerly did not have RBCT export allocations and that needed to rely on the residual domestic market, could not benefit from rising export prices. Now, however, domestic prices are becoming strongly aligned to those for export coal and the outlook is positive for coal exporters and those without allocations alike.