Fatih Birol, head of the International Energy Agency, recently warned that the current global energy crisis is in fact bigger than the oil crises of the 1970s and 80s. “Now we have an oil crisis, a gas crisis and an electricity crisis at the same time,” he said. He also warned it’s likely to last longer.
Europe is in the eye of the storm as it races to try and delink itself from Russian energy. Prior to Russia’s invasion of Ukraine, 40% of Europe’s gas supply came from Russia and half its coal supply. While energy prices are up all over the world, European prices have skyrocketed as fears remain of fuel shortages in the months ahead.
American energy is playing a critical role in replacing Russian supply. The U.S. Energy Information Administration (EIA) reported this week that during the first four months of 2022, the U.S. exported 74% of its liquefied natural gas (LNG) to Europe, compared to 34% last year. And there are clear signs the same thing is happening with coal.
According to Energy Ventures Analysis (EVA), a leading energy consultancy, U.S. thermal coal exports over the first four months of the year are up 77% to Europe as significant tonnage shifts from Asia. U.S. metallurgical coal exports to Europe are also up but not as dramatically.
Illinois Basin thermal coal, travelling through the ports of Hampton Roads, Mobile and, primarily, New Orleans, is making up the majority of the new supply to Europe. Even more would be heading across the Atlantic but workforce and equipment challenges, significant rail problems, and congestion at ports are all limiting production and export potential.
But even with these constraints – as substantial as they are – a picture is emerging of an industry responding to price signals and the needs of its customers.
Domestic Production is Responding
U.S. coal production rebounded 8% last year from the pandemic-induced pain of 2020, reaching 578.4 MMst, and is expected to increase by another 20 MMst this year with coal prices and demand soaring all over the world.
The U.S. is often the “swing supplier” to the global thermal coal market, and in 2021 EVA found the same with exports up 42% over 2020. Total U.S. coal exports were up 23% over 2020, reaching 85 million metric tons (MMst) last year. And while metallurgical coal exports didn’t rise at quite the same pace, increasing 8%, metallurgical coal still accounted for the majority of U.S. coal exports, meeting steelmaking needs all over the world. The top five export destinations for U.S. coal in 2021 were India, China, Japan, the Netherlands, and South Korea. Expect a reshuffling of those top destinations this year as the global energy crisis reorients trade flows.
How the market evolves over the remainder of 2022 remains to be seen but one thing is abundantly clear: coal remains inarguably essential to the global energy equation. To put a finer point on it, U.S. coal remains essential to the needs of our allies in Europe, to trade partners all over the world and to American consumers.
The pain of this ongoing global energy crisis is an important reminder of the danger of Western nations underinvesting in and demonizing the fuels that remain the lifeblood of the global economy. Reliance on geopolitical rivals to meet the West’s energy needs was always a recipe for disaster and unfortunately Europe is now reaping what it sowed. While economically painful, a decisive break from Russia’s energy exports is now a necessity.
These past months have hopefully been a wakeup call that navigating the challenges and uncertainty of the energy transition and this energy crisis demands reembracing an energy abundance agenda that not only encourages domestic energy production of all kinds but ensures we support the critical infrastructure – from rail lines and ports to the highly-trained workforce – needed to make it all happen.
- On June 8, 2022