Shortage of Coal Looms in Europe as Ban on Russian Imports Nears

The Russia-Ukraine war has had a significant impact on the global energy space. Given that Russia is a major player in the energy industry, sanctions meant to harm its war effort in Ukraine have had untold consequences on energy and food prices. Chief of those consequences resulted from Russia’s decision to reduce oil and natural gas exports to Europe in retaliation for Western sanctions. This forced several countries to turn back to coal for energy production, a move that irked clean-energy advocates who argued that these nations were turning back on their green-energy pledges.

Although European countries that were short on energy turned to alternative sources for coal, discounted Russian coal still made up a decent percentage of their coal imports. And now that Europe’s ban on Russian coal is looming, there are fears that it will lead to a shortfall of fuel in Europe. The continent is currently in the midst of its worst energy crisis in a century, and banning Russian coal has the potential to exacerbate the crisis.

Most of the European countries that have turned to coal had pledged to move away from the dirty fuel in an effort to slash their emissions. But once Russia cut oil and natural gas supplies to Europe, EU nations such as the Netherlands and Austria fired up their coal-power plants to supplement their energy production.

With the ban on Russian coal being finalized in the next week or so, EU countries will be deprived of one of the largest suppliers of coal. Argus Media senior coal analyst Alex Thackrah said that the 2 million tons of Russian coal set to arrive this month will be the final shipment of coal from the Kremlin.

After that, EU countries will have to increase their imports from alternative sources, with Thackrah saying that these countries will have to deal with the major logistical challenges involved with sourcing and transporting coal from other suppliers. For instance, he said, EU nations will have to deal with extremely high prices if they import coal from alternative sources, including South Africa, Columbia and Indonesia, as such regions tend to produce high-calorific types of coal. These types of coal have few impurities and contain the highest carbon content (92.1% to 98%), making them a much more superior heating fuel.

Braemar analyst Mark Nugent noted that EU countries will also have to compete for coal with players such as South Korea and India, which have already entered into coal-supply agreements with coal-producing countries.

This anticipated shortage bodes well for coal extractors such as Arch Resources Inc. (NYSE: ARCH) because they are assured of market for all the coal they can produce.

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