India continues to face a severe and protracted energy crisis after a sustained spike in global coal prices at the end of 2021 was further aggravated by Russia’s invasion of Ukraine in February.
Global price pressure has eroded India’s import volumes and reduced its power plant inventories to extremely low levels, just as a relentless heat wave has pushed demand to unprecedented levels. The country produces more than 75% of its electricity from coal and is the world’s third largest electricity producer with 1,383 TWh/year.
The crisis is so severe that government authorities in India – the world’s second-largest coal producer, importer and consumer after China – are threatening to cut off the domestic coal supply to power plants that are reluctant to import coal at the current high prices.
But how did we get here?
World coal prices jump 30%
The current deficit, the second such coal shortage since October 2021, was initially triggered by the sharp rise in global coal prices in mid-2021.
In early 2022, before Russia invaded Ukraine, Indonesia’s most popular coal grade, Kalimantan 4,200 kcal/kg GAR coal, traded at $65.45/t FOB. Since then, the disruption in global coal supply has led to a nearly 30% rise in the quality price to $86/mt on June 9, according to data from S&P Global Commodity Insights.
Major Suppliers Redirect Cargo to Europe
The price spike accelerated as countries that once relied on Russian coal began rushing for alternative supplies from the United States, South Africa, Australia and Colombia.
The price of Australian NAR coal of 5,500 kcal/kg with 23% ash jumped 83.6% year-to-date to $189.95/mt FOB on June 9, according to data from S&P Global .
Indonesia and Australia were among the biggest exporters to India in the 2021-22 financial year (April-March), together forming 66% of India’s import basket, the data shows. Indian Department of Commerce Provisionals.
Domestic supply increases but remains insufficient
To meet India’s growing electricity demand as COVID-19 restrictions eased, the government first tried to boost domestic coal production, which rose to 777 million tonnes in the in fiscal year 2021-22 compared to 716 million tonnes in fiscal year 2020-21, according to data from the Ministry of Coal.
India has long had ambitions to cut coal imports to zero by 2030 and state-owned Coal India has said it aims to increase domestic production to 1 billion tonnes of coal by then. 2023-24 financial year.
The government has also attempted to hand over blocks of coal to private companies in recent years as an incentive for them to increase India’s overall coal production.
Stocks fall to critical levels
Years of ambition to be completely independent of coal imports fell flat in April when stocks fell below the critical threshold of being enough for eight days.
From a comfortable position of over 50 million tonnes in April 2020, stocks at power stations had fallen to 23.88 million tonnes by June 8, according to the Central Electricity Authority. A total of 96 power plants reported critical levels of day-to-day coal stocks at 173 coal-fired power plants in the country.
As coal inventories dwindled to extremely low levels, the summer weather arrived early, causing extremely high electricity demand.
Domestic coal-fired power generation could not keep pace with rising power demand and India began to experience widespread power shortages worse than anything the country has ever experienced. had known for at least seven years.
Monsoon relieves demand, but hinders production
While the onset of the monsoon has given a respite to electricity demand for the time being, the rainy season is expected to hamper national coal production.
The Indian Department of Energy is currently trying to obtain an estimate of the coal shortage outlook for September and called on the world’s largest coal producer, Coal India, to procure coal on behalf of federal, state and other power plants.
With global coal supply expected to remain tight in the second half and winter months away, coal shortages and power outages could well remain a pressure point for India for the rest of the year.
With contributions from Rituparna Nath, Anupam Chatterjee and Wendy Wells