RUSSIA VS. THE FREE WORLD: COLD WAR ON COAL

Decrease in coal import in the first three quarters of 2015 was caused mainly by the falling number of coal exported by Russia to Poland. Due to the unfavorable market conditions in Poland Russians decided to look for new customers in western Europe (mainly in Germany) and decreased its involvement in Polish industry by 35%. The gap was quickly spotted by the Americans, who took the advantage from the opportunity and increased export to Poland by 57%, which gives them position of Polish 3rd largest coal importer.

US is the global 2nd largest coal consumer and also 2nd largest coal producer, holding the biggest coal reserves in the world. United States produce 756 million tons of steam coal, 78 million tons of coking coal and 70 million tons of lignite. Main production is held in Appalachian basin, Illinois basin, Powder River basin and Western region, which is placed over four states: Arizona, New Mexico, Utah and Colorado. Export terminals are located on the East, West and Gulf coasts of US, connected with mines by rail and water canals.

Since 2005 coal demand for the domestic energy industry in US is falling rather quickly due to the rapid expansion of shale gas and obsolete facilities, causing increase in export of coal, mainly to Europe. Today, Canada and EU are the main directions for American export, but soon enough US might be in need to look around for some new export markets; old power plants will be shut down, and with low prices of gas in that part of the world and new strict environmental laws the role of coal in the fuel mix will decrease even more. The situation is not easy; Europe is not likely to increase its demand for coal, while expanding to Pacific area will require expensive investments in the ports infrastructure on the West Coast.

Between January and August 2015, Americans delivered to Polish coal consumers 470,832 tons of coal. However, Russia still dominates on the Polish market, taking 60% of its share and crushing the opponents with its 2.78 million tons of coal imported in the first eight months of 2015 (2nd largest importer – Australia – exported to Poland only 760,315 tons).

Russia is also a leader in coal export to EU, with US again taking 3rd place (before Australia, after Colombia). Until the end of 2015, Russia will produce 286m tons of steam coal and 79m tons of coking coal (increase by 2.5% YOY), with 153m tons dedicated for export. Despite the global trends, Russia plans to increase production up to 370m Mt in 2018, with 165m Mt for export. Achieving these numbers will require investments in the coal industry, estimated for 184.9bn RUB.

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