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2022: The year coal became King again

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In the absence of secure global energy supplies, coal is in high demand again. Image credit: Leon Louw for WhyAfrica

2022: The year coal became King again

In conversation with Vuslat Bayoglu

The tragic events unfolding in Ukraine due to the ongoing war with Russia have had major ramifications for global energy markets. At a time when the world is talking about the great energy transition, and in the absence of secure gas supply from Russia, coal has become more important than ever. WhyAfrica spoke to Vuslat Bayoglu, Managing Director at Menar, about coal, energy and what the future has in store.    

Vuslat, with Europe in a tight spot in terms of gas supply from Russia, the demand for coal (and the coal price) has surged. How has this directly (and indirectly) affected Menar’s coal operations in South Africa?

Menar’s coal mines are predominantly export-oriented. The surge in demand for coal in Europe and elsewhere found us ready to assist clients to generate baseload power for their economies. For instance, at our Phalanndwa Extension mine, in Delmas, our mining team mined 146,779 tons (t) of Run of Mine (ROM) in August 2022, which is a new record, surpassing the previous record of 146,050t mined in May 2022. This is just an indication of the push to meet the current strong demand for our coal products.

With a transformation away from hydrocarbons dominating the global energy narrative, what, in your view, is the long-term outlook for coal, especially for African producers?

South Africa has the sixth largest coal resource in the world and over 80% of the country’s energy is produced from coal-fired power stations. And on the export side, it’s important to note that despite growing negative sentiment towards coal in Europe, they have had to change their tune drastically in light of the Russia – Ukraine war and the impact it has had on the European energy market. Even before the conflict started, 900 new coal-fired power stations were in the pipeline to be built, which would expand the world’s coal power capacity significantly. There’s a massive demand for coal, and you just can’t ignore this. The reality is that countries are using coal to power their economies and it’s not going to change anytime soon.

In the same breath, what challenges did Menar experience in South Africa that prevented the company from performing even better than it did?

There are significant bottlenecks in mining approval processes, ranging from the awarding of prospecting rights to water use licences (WULs) and environmental authorisations. The red tape in the delay of developing new projects is for the most part not the fault of the Department of Mineral Resources and Energy (DMRE). The departments of Environmental Affairs and Water do not issue them within the stipulated period and are delaying project developments owing to endless appeal processes. The Minerals Council South Africa estimates that R90-billion in mining-related projects await the logjammed regulatory approval processes to be eased. This does not only affect the coal sector.

Transnet’s declining rail capacity is also a cause of concern for us as users of the bulk commodity rail network and the country in general. In 1996, Transnet moved 56-million tons of coal to the Richards Bay Coal Terminal (RBCT). It peaked in 2017 at 76-million tons, and in 2020, it was 72-million tons. Then, in 2021, it was 58-million tons and, whether you like it or not, we are looking at around 49-million tons in 2022.

Owing to the lack of capacity many in the industry, ourselves included, have turned to using trucks to get product to the ports, other than RBCT. This is because RBCT does not receive coal by road; all coal received there is by means of rail facilitated by Transnet Freight Rail (TFR). Just to illustrate how significant the problem is, for example, at our Khanye Colliery which is about 90km from Johannesburg, it takes about 80 trucks – each carrying 34 tonnes – to replace one average Transnet train.

The net effect of this is that we are not benefitting from the buoyant market as we would if Transnet functioned optimally. This is very sad because it means Transnet’s challenges are a constraint to an already struggling economy. The overall opportunity costs on the economy equates to R385-billion or 10% of GDP, according to estimates by Professor Jan Havenga of Stellenbosch University. In addition, it increases the wear and tear of our road infrastructure.

What role can the coal mining industry play in the energy transition, and how can the abundance of coal in Africa be utilised in a sustainable manner to drive development across the continent?

Coal and renewable energy sources are not in competition with each other. Instead, they are complementary and should be treated as such. South Africa has about 110 years of coal resources left. South Africa should benefit from these existing resources. Coal will not disappear, but the coal industry will work hand in hand with renewables. The world needs renewables, but it is fanciful to think that renewables and the available battery storage technology will provide a suitable replacement for coal-fired power stations or other forms of baseload power in South Africa, let alone the rest of the world.

The current energy crisis in Europe demonstrates this fact. We need to look at how to generate energy in the least polluted way. Wind and solar are realities for South Africa, but that does not mean it will kill coal. It is also a reality that new coal plants are being built in other parts of world. Since 1985 until the present, coal use for energy purposes has continued to grow and currently stands at about 36% of all energy production worldwide. African coal producers shouldn’t stop building new coal mines and coal-fired power stations.

How can the lessons South Africa have learned about energy provision and the energy transition, be applied to other regions of Africa? (What did South Africa do right? How should other countries look at the mistakes that South Africa made to prevent the same happening in the developing countries across Africa?)

South Africa paid the following rates to purchase power from suppliers in the four bid windows for the Renewable Independent Power Producer Programme (REIPPP). Bid Window 1: R5.95/kwh Bid Window 2: R 2.94/kwh Bid Window 3: R 1.74/kwh Bid Window 4: R 1.07/kwh Eskom sells the power at R0.87/kwh.

On the other hand, coal fired power produces power 24/7. Renewables produce 1/4th of the day at best. However, coal fired power stations will always be more competitive than renewables because they produce baseload. For them not to produce power for 3/4th of a day has huge cost implications. So, while the REIPPP has added about 6 000MW to the national power grid, the price that Eskom is paying doesn’t make financial sense. Integrating renewables into the grid must be done in such a way that it needs to make financial sense.

There is no African country that has the kind of sophisticated infrastructure as Eskom – all of which was built from coal-generated revenues. Many countries still have to industrialise, which means they’ll need some form of baseload power.

There is a lot of talk about the west being prescriptive about how Africa should develop its energy sector. What is your view? Should African countries pay attention? Botswana, for example, hosts significant deposits of coal and Namibia has found substantial oil and gas deposits, should they invest money to develop these resources?

I have long been of the view that just as no one would tell Saudi Arabia to stop producing oil, no one should be pressuring South Africa, Namibia, and Botswana to stop producing coal, oil, or gas. Everyone must do what is in their own national interest, one which allows countries to develop sustainable jobs and up and downstream sectors.

No country has industrialised exclusively on renewable power. One can only hope that the energy transition is not used to keep African countries underdeveloped. If it’s used for that purpose – if that becomes an outcome – then, it will not be supported by ordinary people who need jobs and improved standards of living.

Is there an ideal energy mix to power a country? What do you think would be the ideal energy regime for a developing country like South Africa or Botswana? Would nuclear energy play a role in such a plan?

An energy mix is dependent on what natural resources a country possesses. All countries need a baseload power. At this stage, the widely used sources of baseload power are coal, gas, nuclear and hydro. These can be supplemented by renewables. But they certainly cannot be replaced by renewables. South Africa and Botswana are reliant on coal and have it in abundance, but they should supplement their grids with renewables. Nuclear is a good option but it is very expensive and neither country can afford to build new nuclear power stations currently.

How can we change the narrative that coal is dirty, bad for the environment and contributes to global warming and climate change?

It is important to note that coal miners do not produce a significant amount of carbon emissions, but this is an issue that coal power stations need to address with environmentally friendly technologies. More investment is required in carbon capture, use and storage (CCUS) as this will drive down the technology curve and become affordable enough to be implemented at scale in high emissions sectors, such as electricity generation.

South Africa’s Department of Science and Technology is involved in research and development of clean coal technologies. Unfortunately, the genuine concerns about climate change have morphed into a preference for one technology of energy generation over the other. The result is that only a few people are prepared to talk about clean coal technologies. I believe coal-producing and coal-dependent countries should spearhead conversations about this.

What is your view of carbon capture, renewable energy sources and the future of coal mining in Africa?

As stated above CCUS is very promising. Renewable energy will form part of the energy mix for certain, but at present it does not have the capacity to replace the baseload provided by coal, gas and nuclear. South Africa’s Integrated Resource Plan 2019 states that coal will “continue to play a significant role in electricity generation in South Africa in the foreseeable future as it is the largest base of the installed generation capacity, and it makes up the largest share of energy generated”. Therefore, as one of the largest economies in Africa, we will need coal domestically and Asia will also be heavily dependent on coal for many years to come. Therefore, the coal export market will remain strong for the foreseeable future.

How long do you think coal mining will remain relevant?

The long-term global outlook for coal is still positive. The search for reliable energy sources like coal from South Africa could provide long-term opportunities for the South African coal mining sector if local logistical and regulatory challenges can be overcome.

Energy demand has continued to increase exponentially with analysts forecasting global energy demand to reach 830 quadrillion British Thermal Units (BTU) by 2050 with coal forecast to comprise 193 quadrillion BTU. Coal demand in China and India is robust and is forecast to continue to remain strong due to economic imperatives of those countries. Coal demand even in places like Europe, where coal use has reduced in recent decades, is seeing a marked resurgence in light of energy uncertainty in Eastern Europe owing to Russia’s actions in Ukraine.

The big challenge for any new coal mine is getting the project funded. Because of perceptions, investors, banks, and other funders are reluctant to be associated with the coal mining industry. How does one overcome that massive challenge?

It can be challenging but there are still investors and banks that are funding coal mines. However, at Menar reinvestment of income from existing operations to fund growth projects is the strategy we have used, by and large, with great success. Menar has grown from one mine, 15 years ago, to having several operational mines. This has been made possible, by continuous reinvestment of proceeds – a strategy we follow as the business grows through green-field projects and acquisitions.

Vuslat Bayoglu, Managing Director at Menar paging through the Road Trip issue of WhyAfrica’s exclusive printed magazine. Image credit: Leon Louw for WhyAfrica

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