Putin bets coal still has a future

European governments are making plans to phase out coal, U.S. coal-fired power plants are shut down as clean energy prices fall, and new Asian projects are being scrapped as lenders move away from local fossil fuels. dirtier.

What about Russia? The government of President Vladimir Putin is spending more than $ 10 billion on modernizing railways that will help boost exports of this product. Authorities will use prisoners to speed up work, rekindling a vilified Soviet-era tradition.

The project to modernize and expand the railways that serve Russia’s Far Eastern ports is part of a larger initiative to make the country one of the last exporters of fossil fuels as it continues to grow. other countries are turning to greener alternatives. The government is betting that coal consumption will continue to increase in major Asian markets like China even if it dries up elsewhere.

“It is realistic to expect Asian demand for imported coal to increase if the conditions are right,” said Evgeniy Bragin, deputy managing director of UMMC Holding, which owns a coal company in the Kuzbass region of Siberia. western. “We must continue to develop and expand the rail infrastructure in order to have the possibility of exporting coal. ”

The latest 720 billion ruble ($ 9.8 billion) project to extend Russia’s two longest railways – the Tsarist-era Trans-Siberian and Soviet Baikal-Amur main line that connects the west of the Russia to the Pacific Ocean – will aim to increase the loading capacity of coal and other goods. to 182 million tonnes per year by 2024.

Capacity has already more than doubled to 144 million tonnes as part of a 520 billion ruble modernization plan that began in 2013. Putin called for accelerating progress on the next step in a meeting with coal miners in March. “

Russia is trying to monetize its coal reserves fast enough that coal contributes to GDP rather than getting stuck in the ground, ”said Madina Khrustaleva, regional analyst for TS Lombard in London.

Putin is betting that his country’s land border with China and good relations with President Xi Jinping make him a natural candidate to dominate exports to the country which consumes more than half of the world’s coal. His case is helped by the fact that Australia, currently the largest exporter of coal, faces trade restrictions from China amid a diplomatic dispute over the origins of the coronavirus.

But the plan carries many risks, both for the Russian economy and for the planet. The UN Intergovernmental Panel on Climate Change recommends the immediate phase-out of coal to avoid catastrophic global warming and the effects of climate change are expected to cost Russia billions in decades to come.

Earlier this month, the International Energy Agency went further and said that no new fossil-fueled infrastructure should be built if the world is to keep global warming below 1.5 degrees Celsius . While all but one of the top 10 economies have pledged to achieve zero net emissions within decades, the IEA’s Net Zero by 2050 roadmap calls for the phase-out of all coal-fired power plants without carbon capture from 2040.

It is also not certain that Asian demand for coal will continue to grow. China’s coal consumption is set to hit a record high this year, and the country continues to build coal-fired power plants, but it also plans to start cutting consumption from 2026.

At the same time, the production of national mines is increasing, leaving less room for foreign supplies. Even under the IEA’s worst-climate scenarios, global demand for coal is expected to remain stable in 2040 compared to 2019.

A coal strategy approved by the Russian government last year envisages a 10% increase in coal production from pre-pandemic levels by 2035 in the most conservative scenario, based on a demand growing not only from China, but also from India, Japan, Korea, Vietnam and possibly Indonesia.

The relatively low sulfur content of Russian coal could give it an advantage in Korea, which has tightened pollution laws in recent years, but other Asian countries have struggled to secure funding for the proposed plants and the Indonesia said this week it would not approve any new coal. – power plants. At a meeting of the Group of Seven Nations, environment ministers agreed to phase out support for building carbonless coal-fired power plants before the end of this year.

For Putin, there is more at stake than money. During a video conference in March, he reminded government officials that the coal industry is the engine of local economies in several Russian regions which number around 11 million people. Unrest among coal miners helped put pressure on the government before the collapse of the Soviet Union in 1991, although the sector is now a much smaller and less influential part of the economy.

“We need to carefully assess all possible scenarios in order to ensure that our coal-mining regions grow even if global demand declines,” Putin said.

The country’s largest coal producers are privately run, which means they don’t face the kind of funding problems that companies listed elsewhere are currently facing as banks pull funding from dirty energy. .

Suek PLC, owned by billionaire Andrey Melnichenko, and Kuzbassrazrezugol OJSC, controlled by Iskander Makhmudov, both plan to increase production. Russia also plans to boost the production of coal for steelmaking.

A-Property, owned by Russian businessman Albert Avdolyan, bought the Elga coal mine in Russia’s far eastern region of Yakutia last year and plans to invest 130 billion rubles to expand production to 45 million tons of coal against the current 5 million tons by 2023. A third stage of the Russian railroad expansion project will focus on strengthening infrastructure for shipping coal out of Yakutia, an official said. Russian Railways last month.

In 2021, many Asia-Pacific states saw their economies recover from the pandemic, ”said Oleg Korzhov, CEO of Mechel PJSC, one of Russia’s largest coal companies. “We expect demand for metallurgical coal in Asia-Pacific to remain high over the next five years.”

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