The European Commission recently suggested that it would be banning the purchase of Russian coal. This in response to the alleged war crimes that the Eastern European country committed in Bucha town, Ukraine. Currently, about 70% of the thermal coal imported by the European Union comes from Russia. In figures, this represents almost €4 billion worth of coal annually.
Russia is the largest supplier of coal in the European Union and the third largest exporter of coal globally, after Australia and Indonesia. Russia’s metallurgical coal, which is utilized in the manufacture of steel and iron, accounts for almost 30% of coal imports into the European Union.
Placing an embargo on the country could inflict more pain on the bloc, which is already facing high gas and oil prices and serious energy shortages. Figures show that some countries in the European Union have increased the amount of coal they import from Russia in the last couple of months as they try to find ways to decrease costs incurred to generate power following a significant increase in the price of gas.
Despite the need to phase out the use of fossil fuels in favor of renewable energy, coal is still being used in electricity generation because it is a much cheaper option.
How reliable on Russia coal are countries in the European Union?
Over the last two decades, nations in the EU have significantly decreased their consumption and production of coal in a bid to help fight climate change. This has, in turn, led to increased reliance on imported coal, especially from Russia.
Countries such as Poland, Italy, the Netherlands and Germany are especially vulnerable to the embargo on Russian coal. This is because they rely almost exclusively on Russian coal to generate electricity.
To offset this imbalance, these countries will need to find alternative sources of coal. VdKi, the association of importers of coal in Germany, announced that imports of coal from Russia could be substituted by imports from Australia, South Africa, Colombia and the United States within a couple of months.
Shunning coal from Russia is believed to be much cheaper and easier than replacing natural gas from the country, as coal doesn’t need a pipeline network or specifications for its transportation to be met.
It is expected that increased demand of coal from the European Union will considerably increase the price of the substance globally, which will mean higher energy costs for companies households. Higher demand for coal may also cause temporary local disruptions, which means that energy shortages may also worsen this coming winter as the demand for heating grows.
It may not be long before North American coal extractors such as Warrior Met Coal (NYSE: HCC) are inundated with orders for coal as the traditional suppliers in Eastern Europe get locked out of the global market by sanctions.
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