EU could become global dumping ground for cheap coal: analyst
London (Platts)--22Jan2013/1204 pm EST/1704 GMT
The European Union could become the global dumping ground for cheap
coal, as the changing economics of energy markets divert the carbon intensive
fuel to the world's largest economy, an analyst warned Tuesday.
An ongoing US shale gas revolution is keeping US domestic natural gas
prices low, undermining coal's competitiveness and causing US coal producers
to ship the fuel to Europe, said Jefferies Bache commodities analyst Matthew
Gray in a research note.
The changing global energy markets "will have considerable implications
for the future of EU industry and the longevity of their climate policy," he
"The shale revolution is already distorting EU climate policy. The US,
India, China and Latin America will all have access to shale gas. US gas
prices are now so low that US coal producers are shipping their product to
Europe," said Gray.
If that trend continues, it could undermine Europe's climate policy,
which targets reductions in CO2 emissions and greater use of renewable energy
and improved energy efficiency by 2020.
Coal is among the most emission-intensive fuels, and Europe's flagship
climate policy, the EU Emissions Trading System, was intended to drive CO2
emissions down by spurring shifts in the merit order for fuels burned by
power generators, among other measures.
Year-ahead coal futures for delivery into Northwest Europe were quoted
at $98.75/mt on a CIF ARA basis Monday, down from $118/mt a year ago.
Meanwhile, carbon prices in the EU ETS have fallen so low -- Eur4.95/mt
($6.58/mt) at the close Monday -- relative to gas, that coal is still the
preferred choice for many utilities, and greater supply from outside Europe
will only add to that dynamic, said Gray.
Nevertheless, in the long term, high energy prices are a threat to
Europe's economy, and policymakers should be targeting ways to find cheaper
energy, he said.
"The surge in US coal exports is likely to be a foretaste of a bigger
problem for Brussels," he said.
"The EU must begin to focus on the impact of high energy prices or face
continued bleeding of energy-intensive manufacturing. This problem is
double-edged in that, if the EU also maintains existing climate policies, it
will become the global dumping ground for cheap coal."
"The EU is the biggest economy in the world and therefore can seek to
ignore the dramatic changes in global energy markets. But unfortunately, the
global energy markets will not ignore the EU," he said.
Under a scenario where carbon prices in Europe increase due to tighter
emissions controls in future, this could leave Europe's industry exposed to
higher energy costs, he said.
Therefore, Europe should consider the need for shale as a transitional
cheap fuel source for the period 2020-30, he said.
"The threat at the moment is cheap coal over the short-term -- the ETS
is a mess and is not incentivizing fuel switching -- and expensive energy
costs over the long term when the EU ETS does what it's intended to do," said
Gray in emailed comments to Platts.
"Ignoring Poland, this is the mainstay reason for the backlash against
EU ETS reform [to drive carbon prices higher] -- it's arguably unaffordable,
unless the EU wants to place a considerable burden on manufacturing," he said.
"In relative terms, EU gas prices are twice as high as the US. That will
not change unless the EU pursues shale," said Gray.
--Frank Watson, email@example.com
--Edited by Maurice Geller, firstname.lastname@example.org
Similar stories appear in International Coal Report.
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