In 2017, then Treasurer Scott Morrison stood before the House of Representatives, holding a lump of coal, and exclaimed: “Don’t be afraid, don’t be scared – It’s just coal”. Journalists believed they saw a mirage, while others questioned the logic behind such a stunt. Commentators criticised Mr Morrison for living in the past, with a majority believing that coal would soon be phased out in favour of cheaper and greener alternatives. Fast-forward to 2022, we’ve had a pandemic, multiple wars, and intense cost of living pressures. Coal has only continued to benefit, and our dependence on the resource may increase. But how did we get here?
History of Coal Policy
Coal has historically been the bedrock of cheap energy, supporting the rise of emerging economies. Historically, economies in Africa and East Asia could not afford renewable energy projects, compared to advanced Western economies, therefore being forced to turn to “relatively cheaper” and abundant fossil fuels, namely coal. The term “relatively cheaper” is important, as coal is quite an expensive form of energy relative to newer renewable systems. However, these low-cost green energy systems can only be leveraged by economies with advanced technology, high levels of educational attainment and higher national investment. Coal-powered energy stations are relatively cheap to build and can be maintained in environments with worse economic and societal conditions.
In 2017, world use of coal dropped 1.7%, with the UK consuming 52.5% less than in 2016. Journalists claimed that it was over for the commodity, as renewable systems became cheaper and more abundant. However, locations such as Africa hold over 60% of the best solar resources globally, yet account for 1% of installed “Solar PV Capacity”. In 2019, African coal produced over 259.7 terawatt hours of electricity, compared to the 160 terawatt-hours produced by renewables. This still doesn’t take into account oil and natural gas, which contributed over 400 terawatt hours.
In advanced economies, coal was thought of as a dead mineral; a fossil of the past. The NSW Government went as far as selling the “Vales Coal Fired Plant” for a historic $1 Million in 2015 to Brian Flannery and Trevor Baker. In 2022, the pair sold the plant to a Czech investment firm, with an estimated price of AUD $330 Million; a staggering 330x return. Such a return would have been unthinkable in 2015, however, with the raging Russo-Ukrainian War it seems the “Sick Man of Europe” has returned more potent than ever.
Coal Price Increasing
Now in 2022, we see the commodity selling for over $400USD per tonne, an 8x increase since 2016. Primarily, this is due to a rapid decrease in natural gas flows to Europe from Russia, forcing the continent to switch to other sources of energy production. Coal has become an inflexion point, with Asian and European energy producers attempting to secure supplies for domestic needs, further driving the price up.
Coal in 2022 acts as more of an ideological pillar than a future mineral. European countries, as a matter of principle, are weaning themselves off Russian natural gas, as a protest for the “Russian Invasion of Ukraine”, however just like “Trussonomics”, this too will most likely be short-lived, unless long-term secure gas supplies are developed. 40% of European demand was satisfied by Russian gas, with no short-term replacements visible. American producers lack excess capacity, Saudi Arabia has recently begun expanding natural gas production, for the purpose of hydrogen, however. Therefore coal’s resurgence is primarily due to ideological and market inefficiency; a dangerous combination – however leaving an opportunity for investors to profit handsomely, as seen in global equity markets. Chevron’s share price has risen 43% this year alone, riding on the back of these market inefficiencies.
However, the long-term solution is not simple and requires a detailed understanding of culture, geo-politics and law. For the purposes of this article, I’ll keep it concise.
A Long Term Solution – Africa
Africa is one of the most fertile and resource-rich continents on our planet, and throughout history has consistently faced adversity from European powers. More than 5,000 Billion cubic metres of natural gas reserves have been discovered to date, with the IEA believing Africa could provide over 90 Billion cubic metres of gas by 2030. Nigeria, Mozambique and Algeria, have become closer partners for European governments, with parties agreeing to $10 Billion USD expansions in natural gas production and transportation. A majority of this funding is being provided by Italy, France and Germany.
Currently, Nigerian Oil Minister, Timpire Sylva, states that security threats are limiting current deliveries of natural gas to Europe, however, the construction of a pipeline comes with extra benefits for these African countries. The European Union, has increased weapons exports and defence funding for their military missions in Mozambique with an additional $40 Million AUD, in weapons, training and extra soldiers in order to defend gas fields from Islamist attacks.
The United States has also stepped in to foot the bill for the expansion of the air arm of the Nigerian Armed Forces, through the provision of 12 AH-1Z Viper attack helicopters, worth over $997 Million USD and technical assistance worth $25 Million USD. This is on top of the 800 US troops who are known to be permanently stationed within the country.
Western Powers have historically abused African nations for their resources, however in this ever-shifting world, Africas’ position on the world stage is only increasing. The long-term benefits would be unparalleled, critical investment funds are being freed up, allowing for heavier investments in education, production capabilities and therefore the long-term future of these economies. The Russo-Ukrainian War may act as a catalyst for a new-level of cooperation between Africa and Europe, a relationship built not on historic colonial values, but on mutual benefit and understanding.
Coal and natural gas are essential geopolitical tools in 2022. As the war in Ukraine drags on, so too will the need to diversify supply and improve Europe’s long-term energy security. Africa has become the next battleground between the world powers, with the appearance that the world is descending back into its cold-war era policies. This article has aimed to highlight the interlinked nature of the world, and how one should never write off a commodity. The future of the world is incredibly uncertain, however, the world will continue to require energy, food and security, no matter where our environmental concerns lie.