- Name the fastest growing commodity shipped on US railroads
- Name the fuel of preference used by European power generators
- Name the world’s most competitively priced fuel.
Congratulations to the readers who answered coal to each question, with their prize being a rare Hogsback smiley face ☺ – treasure it!
To anyone who doubts coal is the correct answer or who wonders what is happening in a world supposedly turning its back on coal goes a reminder that in business there is only one thing that counts – profit.
Governments might not like coal – except to tax it – and environmentalists hate it.
However, when you cut through the political nonsense a remarkable picture is emerging that could be called the “great coal fightback” with its winning feature being price.
Quite simply, the supply of coal is so strong around the world that its price has fallen to a level where it is knocking all competitors out of the race to supply consumers with the electricity they need.
For long-term observers of how business works this is not really a surprise and Hogsback has reported previously that governments are making a terrible mistake in promoting high-cost renewables which might, or might not, work – but will definitely add significantly to household and industry power bills.
Today, it is possible to see the “cost chickens” coming home to roost around the world.
There is a rising tide of evidence showing that attempts to artificially manipulate the global power system by forcing people to pay for high-cost renewable energy sources and other alternatives to coal is coming unstuck.
In Europe, the rise of coal is particularly perplexing for “green” governments.
They thought they had found a way to restrict the use of the fuel by sponsoring wind and solar power schemes and introducing an emissions trading system that required the purchase of carbon permits.
The result has been precisely the opposite thanks to a combination of low demand for electricity in the recession hit euro-region, a collapse in the price of carbon permits and heavy losses being incurred by power generators which had switched to renewable energy sources, natural gas, or nuclear.
The winner in Europe is coal with power generators who stuck to the fuel, even those burning lignite – the dirtiest member of the coal family, trading profitably and enjoying increased demand for their low-priced electricity.
According to a Reuters report filed last week, power generators can earn €10 ($A12.70) per megawatt hour from burning hard coal and &eur;20/MWh from burning cheap lignite. Burning gas incurred a loss for the generators of €14/MWh.
RWE, Germany’s biggest power generator, has reacted to the profit squeeze by adding more coal power to its electricity mix. It has started production at a 2.1 gigawatt two-unit lignite-powered plant near Cologne.
To say this is not what the German government expected is an understatement though it is one Hogsback is pleased to say he predicted because of the underlying problems with alternative power sources such as their unreliability.
Wind turbines obviously do not work if the wind does not blow and solar does not work when the sun doesn’t shine.
Base load power, of the sort needed by the great industrial engine that is Germany, must come from coal or nuclear. Since the German government has decided in its (lack of) wisdom to phase out nuclear it leaves one option – coal.
Meanwhile, across the Atlantic, a remarkably similar picture is emerging of rising coal consumption as electricity utilities switch back to coal from last year’s stampede into natural gas with the cause being a rising gas price that has made coal more competitive.
The best measure of coal’s comeback can be found in railway cargo statistics.
Bloomberg reported on Wednesday that the seven biggest railroad companies in the US lifted their coal carriage rate by 22% in the final week of April compared with the record low haulage rates recorded at the end of last year.
Of most interest in the railroad data was in how the extra coal cargoes would boost the earnings of companies such as Burlington Northern Santa Fe and Union Pacific.
What caught the Hog’s eye though, was the destination of the cargo – power generating utilities that are buying more coal.
There is an encouraging message in this changing picture for coal miners worldwide.
Increased domestic demand in the US means less coal from that country will reach the international market.
In Europe a switchback to coal-fired power generation means increased demand for imports.
Coal: 1, alternatives: 0.
