Demand for South African coal exports to remain strong past 2040: SACRM

2013-08-08

Demand for South African coal exports is expected to remain strong past 2040, with continued strong interest from India and Asia for coal for power stations currently under construction, according to the South African Coal Roadmap (SACRM).

However, the report said much of this demand is expected to be for lower grades of coal, which could threaten domestic energy supply to state utility Eskom.

The SACRM -- a national initiative between the Fossil Fuel Foundation of Africa, Eskom, South African coal producers, the Department of Energy and the Department of Mineral Resources -- was launched in November 2008 to explore South Africa's requirements to ensure domestic energy supply, as well as to ensure that coal exports remain a source of foreign revenue for South Africa.

The report said coal exports provide a substantial source of foreign revenue for South Africa, with exports amounting to 75 million mt in 2012, of which 67.7 million mt were exported through the 91 million mt/year Richards Bay Coal Terminal (RBCT).

"The SACRM analysis suggests sufficient coal reserves and resource remain in the Central Basin to grow total exports to a peak of approximately 90 million mt/year in 2023, after which exports will decline steadily, unless South Africa follows a more coal intensive path, or export-only mines in the Waterberg [coalfield in the Limpopo province] prove economically viable," the report said.

It also noted that higher grade resources in the Central Basin -- South Africa's largest coal mining area, which includes the Witbank, Highveld and Ermelo coalfields -- with a run-of-mine calorific value of over 22 MJ/kg (5,254 kcal/kg) would be depleted by 2040, although lower grade volumes would still be available.

"It is evident that to sustainably grow South Africa's exports requires the potential for export-only mines in the Waterberg to be urgently realized," the report said.

The SACRM pointed out that exports were mainly constrained by limited rail ability to transport coal to RBCT, noting that export levels could only grow through increased export rail infrastructure capacity to a consistent and predicable level.

The report suggested that currently planned upgrades in capacity on the rail line from the Central Basin to RBCT continue, as well as further expansion planning to around 85 million mt/year aligned with demand requirements.

It also said that realistic export trajectories should be explored before developing new port infrastructure at RBCT and the Matola coal terminal in Mozambique, as new ports or upgrades would only be required if the Waterberg was successfully exploited for export only mines on a significant scale.

EXPORTS VERSUS DOMESTIC SUPPLY

In addition, the SACRM said export-only mines in the Waterberg would also ease some of the tensions between exports and domestic security.

Traditionally, Eskom's power stations have been supplied by long-term contracts from dedicated mines, although these are nearing the end of their lives, requiring the utility to source new supplies to continue operations.

Eskom reported that it needs to secure, contract and build the mines to provide about 2 billion mt of the estimated 4 billion mt required to supply its current power stations to the end of their planned operating lives.

Of this new supply required by its stations near the Central Basin, it estimates that 300 million-800 million mt are at direct risk to low-grade exports.

Certain Eskom plants burn coal with a CV of 22-24 MJ/kg (5,254-5,732 kcal/kg), which competes directly with the new RB3 export grade of around 23.5 MJ/kg (5,613 kcal/kg), with producers able to sell exports at higher prices than to utility, the report said.

In addition, SACRM studies determined that investors receive the highest value from either multi-product or export-only mines.

"It is clear that there is, and will likely continue to be, tension between coal exports and domestic supply security. Therefore, ongoing co-operation is required between Eskom and industry to maintain domestic supply, enable sustainable export growth and maximize value to the country," the SACRM said.

Source from : Platts

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