The future of coal mining in South Africa looks bright, despite fervent opposition by environmental groups, writes Leon Louw.
The recent announcement by several South African banks that they will no longer fund new coal mining projects in the country, has once again opened a can of worms. The action prompted Minister of Mineral Resources Gwede Mantashe to call on coal mining companies to invest in “clean” coal technologies, and impelled environmental groups to intensify their anti-coal campaigns. But are they flogging a dead horse?
The green movement’s efforts of punting renewables are commendable, and one has to admit that generating green energy sounds enticing. Coal mining is a dirty business, but weaning the world, and South Africa, from its coal addiction in the next 20 years, might be just a tad idealistic.
Besides the fact that coal generation provides the most constant and reliable base supply for the national grid, there are a deluge of reasons why coal will remain a mainstay in the South African energy mix in the foreseeable future – which is not to say that renewable energy shouldn’t be a part of the mix, or why it wouldn’t, someday, become the biggest contributor in terms of generation.
South Africa has some of the largest coal deposits on earth (and two of the largest coal fired power stations, if they function properly). In the dismal quagmire the country finds itself in, coal mining might just be a means of resuscitating what seems like a flagging economy. No matter how small a project, a coal mine is a job creator par excellence. And in an unequal society, where unemployment and poverty are at the heart of the ailment, that should count for a lot. Especially considering the knock-on effect and that up to nine people benefit financially from one job created in the mining industry.
According to the Minerals Council of South Africa, coal generated about R129-billion in sales in 2017 — about 28% of South Africa’s total mineral sales — and directly employed more than 82 000 people, whose earnings amounted to almost R22-billion. Apart from being the third-largest employer in the mining sector, it also created another 170 000 indirect jobs.
Despite their many environmental benefits, renewable energy projects unfortunately just don’t carry the same weight when it comes to sustainable job creation. How many people are, for example, employed in a solar plant? The other question is, how “green” are renewables like wind turbines really?
The real conundrum in South Africa, nevertheless, is that the coal mining space has opened a lot of opportunities for emerging black people who couldn’t be a part of the mining community not too long ago. Although it’s a fallacy to proclaim that coal mining is easy, it is, nonetheless, not overly costly drilling for a shallow coal deposit. Furthermore, coal mining can be extremely lucrative, and is the ideal stepping stone for a junior or emerging miner trying to get their foot in the door. With an abundance of coal waiting to be unearthed, would it be fair to deny them the opportunity to enter such a benign sector?
Amid calls for more clean energy, shenanigans at Eskom, and majors shunning coal, the junior coal mining sector in South Africa has almost surreptitiously become a congested space. New junior and mid-tier companies like Black Royalty Minerals, Canyon Coal, Wescoal, MC Mining and Sibambene are on the cusp of breaking into the big league. Furthermore, as the Anglo and South 32 stars fade, bright new ones like Exxaro and Seriti are shining bright, while old stalwarts like Glencore and Sasol look stable.
Despite the seemingly unsurmountable challenges at the new power stations Medupi and Kusile, and the fact that many are nearing their sell by date, South Africa still has a large fleet of coal fired power stations that will guzzle up tonnes of black gold in the short and medium term.
Although the traditional coal fields like Witbank in Mpumalanga, and KwaZulu Natal, will provide the bulk of it, new coal fields like Bronkhorstspruit in Gauteng, and Makhado and the Waterberg in the Limpopo province, host significant deposits for both export and domestic use. Despite reports to the contrary, there is still a huge appetite for coal globally, with especially India and Asia driving the demand. According to the Global Coal Plant Tracker Portal, 1600 coal plants are planned or under construction in 62 different countries around the world, which will expand the world’s coal-fired power capacity by 43%.
Global production on the rise
South Africa is ideally situated to take advantage of this projected growth in demand. At the same time, global production is expected to increase only slightly, which will be of interest to the growing list of new entrants to the South African coal mining sector.
According to data and analytics company GlobalData, world coal production is set to grow exponentially until 2022, despite major players scaling down capacities. Although Germany, the UK, US, Canada and Ukraine are phasing out domestic coal production capacity, expansion of production capacity in countries such as India and Indonesia is predicted to generate modest annual growth of 1.3% in coal production over the next four years, with output reaching 7.6 billion tonnes in 2022.
Production in India, Indonesia and Australia is forecast to grow at respective compound annual growth rates (CAGRs) of 10.9%, 3.9%, and 2.3% between 2018 and 2022, with the high growth in India helping to reduce the country’s reliance on imports to feed its expanding coal-fired power generation.
Vinneth Bajaj, senior mining analyst at GlobalData, says that coal production has yet to reached historic levels, despite growth in 2017 and 2018. “Several mining companies have withdrawn, either partially or completely, from the coal business. These include China’s Yanzhou Coal, which has disposed of five coal projects in the last five years, and Nacco Industries, POSCO, CNX Resources who have collectively scaled back their coal assets by almost 50%. Rio Tinto, BHP and Vale have also sold almost all of their coal assets with the former completely exiting coal production,” he says.
Bajaj adds that there are more than 300 coal projects that could come online between 2019 and 2022. Of these, 92 are currently under construction with the remainder at various stages of development. Of the total, 57 are in Australia, 55 in India, 54 in China, 30 in South Africa, 18 each in Canada and Indonesia and 15 in the US.
“The impact of these commencements will be marginally offset by over 100 coal projects expected to phase out over the same period, including 34 in India, 15 in China, 14 in South Africa and 13 each in the US and Australia,” says Bajaj.
The importance of coal in Africa
When Mining Mirror interviewed Benjamin Sporton, the CEO of the World Coal Association last year, he told us that Asia is the biggest growing coal market in the world, while the European and US markets are declining. According to Sporton, coal will play an increasingly important role in the development of the African continent.
“Coal will provide substantial export opportunity, especially in southern African countries, and at the same time mining is really important for economic development and job creation. It contributes to the development of skills and the local communities in general, and in addition, brings in taxes for the government,” he said.
Most of South Africa’s coal was historically exported to the European market. With that market in decline though, the country has become a prime exporter to India and a growing market in South East Asia, which bodes well for its future.
The rest of Africa is also a potential market for especially South African coal. Coal provides the most affordable and reliable source of electricity on the continent, where there is still a significant energy shortfall. Many of the larger African economies need to have affordable and reliable power, and South Africa is thus ideally positioned to take advantage of regional demand that will be driven by countries north of its borders.
With more and more world funding organisations scaling down on financing coal fired power stations, it might be in the interest of the entire coal mining sector to work towards genuinely cleaning up its act. According to Sporton, there are several technologies being developed that will ensure coal mining becomes more environmentally friendly.
“The best way to reduce emissions is supercritical or ultra-super-critical plants, also called high efficiency low emissions. Compared with older plants these ultra-super-critical plants will emit close to 30% less CO2. Thus, with a 1% increase in efficiency, there will be a 3% reduction in CO2 emissions,” said Sporton.
South Africa’s two controversial power stations, Medupi and Kusile, are both high technology super-critical plants, although if the country, and probably any other country in Africa, ever considers building more coal-fired power stations, they will have to be ultra-super-critical plants incorporating the best high-end technology available. Sporton said it would be a challenge to upgrade existing power stations but not impossible. “You can upgrade the boiler to become more efficient. China has been able to this, but it is not easy,” he said.
If South Africa intends on transforming its energy sector to be more reliant on renewable resources, the transition needs to be carefully planned and managed. According to Ndavhe Mareda, CEO of Black Royalty Minerals, one of the up and coming junior coal miners in South Africa, reliable, cost-effective electricity is vital, not only to improving people’s lives but to the economy’s ability to attract investment and create jobs.
“A rapid and aggressive transition away from coal will put the entire economy at risk. We need to strike the right balance,” Mareda told Mining Mirror recently. “It is important to recognise that coal provides 76% of South Africa’s energy at present, and the country is still investing large amounts of money in new coal-generation. In addition, the country has large reserves of coal. It is thus important that the nation gets a proper return on its investment in this technology,” he added.
Mareda recognises the important of renewable energy but questions its ability to provide the all-important base power that any economy depends on. “Renewables are subject to the vagaries of unpredictable weather patterns, which means that energy generation will usually not coincide with energy demand. Energy storage is thus critical, but at present, affordable mass energy storage remains a pipe dream,” he said.
The example of Germany is instructive. While it has been at the forefront of embracing and incorporating renewable energy into the power mix, it has experienced bumps in the road. The rapid transition to renewables led to the cost of electricity for households to almost double between 2000 and 2017. In addition, even though it has a reputation for pioneering renewables, coal continues to provide 40% of its power.
Another consequence of a badly planned energy transition is that it will discourage investment in coal mining. This in turn would affect not only the industry’s ability to keep up supplies to South Africa’s own growing fleet of coal-fired power stations, but also to supply coal to Asia’s high-growth economies.
Mareda said that the environmental consequences of coal must be faced up to. However, there are emerging technologies that attempt to mitigate many of the downsides. For example, Integrated Gasification Combined Cycle (IGCC) and Eutectic Freeze Crystallisation are leading technologies aimed at reducing the use of water, while carbon capture has become standard at many coal power stations globally to reduce emissions.
Again, the example of Germany is instructive: it has failed to meet its emission reduction targets despite its huge investment in renewables because it failed to monitor increases in other sectors, such as transport and manufacturing. Electricity generated by coal is not the only cause of carbon emissions.
Space for new companies
Although the coal playing fields in South Africa are much more clogged than they were 10 or 20 years ago, the good news is that there is still space for a lot more companies to enter the market. According to Vuslat Bayoglu, CEO of Canyon Coal, the fact that majors are exiting from coal globally, has left a big gap in the market. “South Africa is an emerging economy that needs to create jobs. Therefore, it needs to have a cheap and consistent power supply. The country’s grid has to operate efficiently, and coal is important because it generates base load,” Bayoglu told Mining Mirror during a recent interview.
“Anglo American is not putting more money into coal, they haven’t built a new mine in the last 10 years, so where is the investment going to come from? South Africa needs coal, Eskom needs coal. The reason why Eskom is short of coal is that major mining companies didn’t invest in coal because coal is unwanted. South Africa needs 130 million tonnes for Eskom, and 20 million tonnes of coal for industrial use, which means 150 million tonnes of saleable coal. Where is this going to come from? On top of that nobody is investing in new mines,” Bayoglu said.
In addition, the Richards Bay Coal Terminal (RBCT), where South Africa’s coal is exported from, can move 72 million tonnes of export coal per annum, and Maputo, in Mozambique, has capacity for another five to six million tonnes per annum. There is also the dry bulk terminal and the Navitrade Terminal at Richards Bay which, between them, can take another five to six million tonnes. In total that is about 88 million tonnes per annum.
“Between Eskom and export, it adds up to more than 300 million tonnes of raw coal that should be mined every year. There is also a 70 to 80 million tonne per annum shortfall of coal in international markets. Indonesia increased their production from 290 million tonnes per annum to 550 million ton per annum in less than 10 years. It means more jobs and foreign currency for Indonesia, it’s massive. South Africa has a world class port and infrastructure at RBCT with a capacity of 100 million tonnes, and
it’s using only 72 million tonnes per annum. There is obviously a shortfall,” Bayoglu said.
The global thirst for coal is unlikely to be quenched within the next five to ten years. Coal has always been a bedrock of the South African economy, and although it is clear that renewables will play an increasingly important role in the energy mix in future, for now coal still appears to reign supreme.