I am still attempting to make sense out of this story, reported by William Boston at the Wall Street Journal via MarketWatch:
BERLIN—Germany will restart coal-fired power plants and offer incentives for companies to curb natural gas consumption, marking a new step in the economic war between Europe and Russia.
Berlin unveiled the measures Sunday after Russia cut gas supplies to Europe last week as it punched back against European sanctions and military support for Ukraine.
The steps, part of a broader strategy initiated after the invasion of Ukraine, aim to reduce gas consumption and divert gas deliveries to storage facilities to ensure that the country has enough reserves to get through the winter.
Russia’s gradual cutting of gas supplies has raised the specter of a potential fuel shortage if Europe goes into winter with less-than-full stowages. It has also raised prices, putting additional pressure on economies that are already struggling with high inflation and rising borrowing costs and face the prospect of a recession.
Why am I puzzled? Germany imports all of the coal it uses for energy production, half of it from Russia. So if Russia cuts back on its shipments of gas or oil to Germany, the Germans plan to replace it with Russian coal?
I don’t see how that makes any sense at all. It doesn’t make sense from a carbon emissions standpoint. It would mean that Germany continues to finance Russia’s war against Ukraine so it doesn’t make any sense from an opposition to the war standpoint. The price of coal rose after Russia’s invasion of Ukraine, too, so it doesn’t make a great deal of economic sense. It’s just barely possible it makes sense from an arbitrage standpoint since the prices of oil, gas, and coal don’t rise in perfect lockstep but that’s pretty cynical. Could that be the plan?
Do they have more confidence in their ability to import all of the coal they need from the United States and Australia? Cue President Biden’s announcement of the end of coal-mining.
Or does it just not make any sense?
When did Biden announce the end of coal mining. I just drove by one yesterday and the guys were working. Should I drive back up and tell them to stop?
Steve
The EU banned Russian coal already; so I don’t know where this new coal is coming from.
I have heard coal is relatively abundant but even so; coal prices are at multi-year high.
Today, $1 gets you P53.85, down about 30% from a year ago (then about P75). Brent is $115/bbl, and WTI is $111/bbl.
The West, including its Asian allies, had committed economic suicide before Covid and the Ukrainian war via its de-industrialization and its commitment to renewable energy sources. The sanctions are just the icing on the cake, but they will accelerate the dying process. What we are seeing is a decisive shift in power away from the West to Eurasia, specifically Russia-China.
The main problem now is that the dying West is continually escalating the war against Russia, and the possibility of a major expansion into Europe and North America is rising rapidly. Lithuania’s little stunt blocking rail traffic to Kaliningrad might just get the ball rolling. It now depends on Russia’s response.
PS. I thought Germany had large deposits of brown coal that can be used for power generation.
PPS. My daughter who lives in Germany told me Sunday that Germany is considering a law that would prohibit setting thermostats higher than 66 F.
China is by far the world’s largest coal producer. They shut down a lot of their mines which I suspect was the biggest driver of prices, along with their own demand. If Russia suddenly has an extra 70 million tons of coal they try to sell to India and China but the the really big exporters, Indonesia and Australia are affected unless China and India can absorb all of that extra.
Steve
US has curtailed coal production dramatically in the last 5 years (steve; and do you understand the meaning of cue?):
https://www.eia.gov/coal/annual/#:~:text=U.S.%20coal%20production%20decreased%206.6%25%20year%20over%20year,779%20from%20the%202018%20level%20to%2052%2C804%20employees.
If Germany intends to import from the US it is not clear how long it would take to ramp up. This is the same problem with gas and oil. Along with coal this is Bidens axis of evil. Who invests in capacity under this situation?
Not feeling terribly sorry for Germany. They have the right to go green, and be stupid, if they want. And fear not, US consumer! After you have maxed out your credit cards on rent, food and gas…………go out and buy an electric car for $60K! Its as easy as that ! Hey!!
As for China being so big a producer, that’s why its folly to destroy the US industry while China and others just keep keepin’ on. Of course, I’ve heard that when China and India burn coal the global warming stays over there, you see.
Its just what I heard. On the internet….
would prohibit setting thermostats higher than 66
Enforcement by thermal imaging flyovers?
There’s a war worth fighting.
And here I thought natural gas costing less than coal was why coal production was down. That started happening when we started fracking and it had been going on for a while. Gas plants are also easier to ramp up and down. Can the coal companies increase production? Are we facing labor shortages?
https://kleinmanenergy.upenn.edu/news-insights/the-natural-gas-war-on-coal/
Steve
Shale gas as mention in your link requires fracking which is on the no list for professing Democrats, much like coal mining. BTW, when time permits glance over the UMWA’s position paper on the future whom they assign blame for their current lack of jobs.
Wouldn’t surprise me if snap elections, votes of confidence are called in Europe as the tension between appeasing greens and folks wanting electricity at a reasonable price increases.
The International Energy Agency issued a ten point plan to address the EU’s reliance on Russian natural gas back in early March, which highlighted the potential need to switch to coal to bridge the gap. The UK and Germany delayed projects to shutter some coal-burning power plants and Greek lignite mines have increased production 50%. I would bet all European countries have increased coal usage to some extent in the face of high energy prices.
“AMSTERDAM, June 20 (Reuters) – The Netherlands on Monday said it would activate the “early warning” phase of an energy crisis plan and lifted a cap on production by coal-fired power plants as it seeks to reduce reliance on Russian gas in the wake of the war in Ukraine.
. . .
‘With these measures, less money will flow to Putin’s war chest,’ Dutch Energy Minister Rob Jetten said at a news conference in The Hague to announce the moves.”
https://www.reuters.com/business/energy/netherlands-activates-energy-crisis-plan-removes-cap-coal-plants-2022-06-20/
“Shale gas as mention in your link requires fracking which is on the no list for professing Democrats,”
Yet it grew by leaps and bounds when Obama was POTUS. There is a core group opposed to fracking but not big enough to matter. Not going to go read the UMWA paper right now, but my guess is that they want to blame it on politicians, especially Democrats. Probably helps to have someone to blame than accept that you are in a slowly dying industry.
Steve
Oil refining capacity:
Chevron’s CEO Mike Worth said earlier this month that he doesn’t see any relief to the refining capacity issue in sight, even going so far as to suggest that the United States may not see any new refineries built, ever, given their long lead times and lengthy ROI combined with the uncertainty of the future of fossil fuels in general given climate concerns.
https://oilprice.com/Latest-Energy-News/World-News/EIA-US-Refining-Capacity-Sinks-To-Near-Decade-Low.html
Note the date on changes to refining capacity.
It probably would take 12-18 months to restart coal mines. Policy has consequences. And as I always note, and the steves of the world fail to understand, capital move at the speed of light………..when it chooses to.
Thanks, Joe.
Even if capital flow is instantaneous, adding refinery capability is not. That’s a point I’ve made again and again. And I just read a plea in The Nation to nationalize our refineries. What could possibly go wrong?
Actually, I was the one saying from the beginning that even if we wanted the oil companies to produce more it would take them a while to do it while Drew keep saying it is all the fault of govt, actually Biden. Part of that time would be spent trying to determine if the shortages are going to be persistent enough to merit new drilling.
The mines opening will vary by type of mine. The open strip mines out west could, in theory, ramp up pretty quickly. The underground mines would take longer. However, they do face labor shortages and would need capital investments in new equipment if you want large increases.
Steve
If Germany intends to import from the US it is not clear how long it would take to ramp up.
The surface mines in Wyoming could probably ramp up quickly. The UP and BNFS railroads that haul coal out of northeastern Wyoming could probably bring coal cars out of retirement and ramp up quickly. The biggest problem is likely to be a “last 100 miles” sort of thing: added handling capacity at the port coal terminals along the Atlantic and Gulf coasts, and significant increases in local rail volume there.