King coal heads for the exit

The Montel energy podcast – market insights from people in the know. 
Old King coal is on the way out, but somehow remains remarkably resilient in many parts of Europe and the world.

Listen to the latest episode of the Montel Weekly podcast to hear the outlook for the dirty fuel and the key market developments to keep an eye on in the remainder of the year. 

Hosts: 

• Richard Sverrisson, Editor-in-Chief Europe, Montel,
• Anna Siwecka, freelance journalist/podcaster. 

Guests: 

• Paolo Coghe, president of Acousmatics, 
• Laurence Walker, Coal Editor, Montel.

Transcript

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:05

Hello listeners and welcome to the Montel Weekly podcast, bringing Energy Matters in an informal setting. I'm Richard Sverrisson.

Anna Siwecka, freelance journalist/podcaster: 0:12

And I'm Anna Siwecka.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:13

Today we're back in London and joined by Paolo Coghe and Lawrence Walker. Paolo is an energy expert at, uh, consultancy cosmetics. He's been covering these markets for, for years and years. Uh, both coal, uh, gas carbon. Power. Of course power is a key element of this. And Laurence has been with Monte for many years and he's our coalit. So, so welcome to both of you. Thank you. Thank you. And we've got lots to discuss today, but I thought we'd start off at looking at, um, what's happening in the coal market. The, the current coal market dynamics prices have fallen to, to below a hundred. Will they ever rise above? A hundred again.

Paolo Coghe, president of Acousmatics: 0:50

Well, that's, that's a great question. Uh, prices have gone, uh, above a hundred, uh, in recent years, which was for me, news, you know? Mm-hmm. Given the, the structural problems mm-hmm. That, uh, coal markets, uh, have, especially for, for steam coal. So, uh, the first surprises, the prices went above. A hundred. Uh, I'm less surprised that they've gone below, uh, a hundred. To answer your question, I'm not sure that they will, uh, ever go, uh, above a hundred again, although never. Never say never.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:19

Mm-hmm. How low could they potentially, could we go sub, sub $50 a ton or.

Paolo Coghe, president of Acousmatics: 1:25

They could, you know, it depends whether you want to look at it from a, a sustained low versus touching the low. You know, of course they can't touch low that they've done, you know, most recently, I think in 2016 mm-hmm. We had the lowest multi, multi-year lows. Uh, so they can certainly go that way, that direction. Um, but there will be, of course, uh, support. Mm-hmm. Um, at, at, uh, levels not far. From 50. But you said you were surprised by surprised because, uh, in indeed, if we look at the dynamics of prices for coal, we need to look at the cyclicality of such a commodity. And so we know that there are booms and busts. Mm-hmm. Uh, but we also need to look at what I call the structurally. So the fact that, at least in Europe, but in reality, worldwide. Coal has been phased out. Coal is no longer the primary. The the, you know, they used to say King Cole, right? Mm-hmm. And King Cole, I am afraid is no more. I think he's, he's on his way out somewhere. He way, however, it's quite resilient at the same time.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:24

Of course. Yeah. We'll come back to that. I think Paolo, but if we, if we stay, I do not know if, Laurence, if you've got anything, uh, you'd like to, to bring up here about the cyclicality of, of these price movements?

Laurence Walker, Coal Editor, Montel: 2:33

Yes. I mean, again, I think what we've seen this year is quite a. Well, a very sharp drop in prices. And I mean, on the physical side, we've seen. Trades, uh, below, you know, or at least around the 50 level. What you find at this level is that some of the producers become less interested in exporting at such levels. Um, somewhat expensive. I suppose. Some of the first to go would be the likes of, um, the US who, as we saw last year, hiked exports to Europe quite considerably. So they'd stop

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:03

exports, uh, rather than stop producing or both? Well,

Laurence Walker, Coal Editor, Montel: 3:06

initially you'd see probably a slowdown in the exports. Um, it's, it's a longer. A longer thing to just, to, to reduce your production. Um, also for some of the higher cost producers like the us, they prefer often not to just, you know, stop because it's expensive. You still have wages to pay, you have people there. Um, the situation is perhaps different, for example, in Indonesia where you have open pip mining. They can bring people in when they need people to produce, um, the levels of coal you acquire. But certainly some of the more. You know, some of the producers, it's, it's, it's more difficult and also it takes a while. So prices need to be maybe sustainably low for a while before you start seeing them taking those sort of decisions. That said, many of them have already taken such decisions and we, we are gonna see probably less, um, less of a surplus going forward in that respect. But they're also, also other things. So, for example, we've seen in the recent weeks, we're seeing some coal being. Even reloaded from European ports and shipped to Mediterranean destinations to the far east. Um mm-hmm. We're also seeing, um, I suppose, yeah, I mean, oil playing a role. Um, we've had year to date highs for Brent, um, this crude. And obviously this has implications for the production costs, for logistic costs, um, and can again make production less, less viable for some. Some producers,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:29

um, um, yeah, absolutely. I mean, I'm interested Paolo a little bit in this cyclicality of, of prices and of markets, commodities in particular. Could you go into some more details here? I mean, are we experiencing the downturn in the cycle before we go up again? I mean, what, what, what, what are the dynamics at play here

Paolo Coghe, president of Acousmatics: 4:47

when it comes to, to, to commodities, of course, especially coal. We always also have to, to, to think about sort of germane markets such as the foreign. Currency market. Mm-hmm. Right? Where we've seen that the dollar has increased or has appreciated globally in, in recent years. Um, and also the freight, the ocean freight market. So these are important factors that should also be considered when looking at commodity prices. But to go back. To your question about the, uh, the cyclicality, uh, again, as I said, boom, bust, and, um, they alternate and they are common to all commodities. One thing that is important to notice is that the boom periods tend to be sharper. Why? Because supply moves slowly. Right. And so when there is demand that increases. And as we've seen for the past, you know, couple of decades, China is really dictating what happens on call in terms of the, of the demand and with the different regulations and. Always changing regulations in China. Demand can can shoot up quite sharply and sometimes supply can be slow in respond, and so this causes prices to boom up. Now at the same time, once supply moves, and this would be supply in terms of cold, but also supply of of dry bulk carriers, right, or shortage. If that's the case, then. There is a decline. And you know, one such example is that the fact that coal prices after reaching peak. Values in the early 2010. So 2011, 12, they went down for a period of about five, six years only to go back up quite sharply. And now they're coming back down again. So we're not, not

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:32

quite, we're not quite bused, but we're not far away. We're not,

Paolo Coghe, president of Acousmatics: 6:36

we're not bused. And then of course, we cannot, or must not forget the fact that the global economy is slowing down. You know, anywhere you look, you can look at the Eurozone. It grew by two. 0.2% in 2018, which was down, so as low down in the growth with respect to 2017. So that has a factor. Uh, similarly, um, you know, industrial production, again, global GDP has been slowing down and these factors impact demand for coal. Sure.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:07

I mean, Laura, you talked about oil. Mm-hmm. A bit. And obviously that's, that's also. You know, we are at very sort of year highs or five month highs, um, six months, even close to six month highs. But how, how, in terms of other commodities, like gas, for example, how does that play a role in, in the coal market dynamics here? Paolo, could you say something about that?

Paolo Coghe, president of Acousmatics: 7:28

Of course. Uh, if you're looking at, uh, power generation, so. Coal as a fuel for power generation in Europe. Uh, clearly its pain. Competitor is natural gas, and what we have had in the past few years was high gas prices relative to coal because there was the Asian LNG pool. So the LNG was going into Asia where Asian buyers were, uh, ready to pay a premium for LNG, um, to be, uh, dispatched. Uh, there Now. The reverses happen where now this premium is no longer available, uh, in, in Asia. LNG has come into Europe and gas prices in general in Europe have been cheap and that obviously favors gas generation. That's one of the elements. Not to be forgotten the fact that, uh, that there is legislation in Europe. Obviously looking at CO2, the, um, coming into play of the market stability reserve in the carbon market. This is in the carbon market of course, and that means that there is a strong disincentive to burn coal. And so there again, a lower demand for. Given supply.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:34

Sure. So these are all, these are all factors all at play here. I mean, um,

Laurence Walker, Coal Editor, Montel: 8:38

yeah, I mean, I think, I think that's, again, as you can see, I mean, even looking at the prices, you know, for, for coal API two prices, we reached, you know, we rose above a hundreds, been October, early October, last year's been heading downwards since you, you can look at the gas prices and they, they kind of mirror it. If you look at the sort of M-V-P-T-T-F prices, we're seeing highs again. In October, tailing off now. Um, and I think especially the API two has become very, sort of intrinsically linked with, with gas, more so perhaps than we've seen sometimes in recent years when the markets looked to Asia for directions, looked for other particular drivers. But 'cause of this absolute oversupply in LNG in in gas that we have at the moment, um, it's really kind of dominated. The whole markets and, and their, you know, the moves we're seeing are very closely linked and, um, linked to gas to yeah, to develop. Yeah. We see an upturn or downturn, they tend to move quite closely at the present. Um, and obviously there's, um, pal mentioned the. You know, the darks are dark, spreads are pretty, pretty poor. Um, loss

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:47

at the moment spread the, the profits from, from gen, from generating, uh, power from coal. Yeah, exactly. I mean, they,

Laurence Walker, Coal Editor, Montel: 9:52

some in Germany are barely scraping a dollar, um, at this, at these sort levels.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:56

So, but it's, I'm just wondering, there's interesting how it all relates. To other commodities and specifically, and to sort of cycles commodities boom and bust cycles, but isn't also, you know, a big factor here is what China decides. I mean, the policy front from China, say China decides to import less or import more and prices move accordingly. Isn't, isn't that also a major

Paolo Coghe, president of Acousmatics: 10:16

factor here? Mm-hmm. Most definitely. And that's what I was, uh, hinting at before when I mentioned sort of China. And, and its regulations, uh, impacting demand, uh, sharply in, sorry, in the, in the short term, right? Mm-hmm. They have that ability. It's such a large market that a regulation that prevents or disincentivizes its internal consumers from, from importing coal is going to have, uh, reverberating effect in the whole of the transatlantic trade.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:43

Mm-hmm. And, and for, certainly for gas as well. We're seeing that in LNG course, and there's similar moves there. And of course,

Paolo Coghe, president of Acousmatics: 10:50

yes. And, and if I may add, this also, uh, comes into play in terms of longer term trends where as I mentioned, there is decarbonization. That's the sort of global. Goal over two longer periods, say to 2040. Um, it also means that there are increasing amounts of regulation even in emerging Asian countries, that try to, once again disincentivize coal use or make it more expensive to use coal. So all of these factors are summing up in a sort of structural way, and they don't, uh, they don't spell a bright future for Coal.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:26

King Cole heading for the exit potentially. Yeah. It'd be a. By selling by 2040. Mm-hmm. Laurie, uh, anything? Yeah, I mean, as I say, it's history.

Laurence Walker, Coal Editor, Montel: 11:33

I think also what's also perhaps interesting at the moment is that the market is in contango. So we're seeing prices further out, more support, which suggests, you know, either that somewhere along the line they are expecting some sort of a bit more demand or less supply or, um, a combination of the two. Um. Possibly, you know, we, we may see some more buying from China going forward this year, which again, could be part of the reason. Also, a lot of it is obviously down to the fact we just got such heavy supply in Europe at the prompt end of the curve that it's not, you know, it's, it's just bringing, um, bringing the market into such a structure. But, but yes, while obviously the, the long term outlook is, uh, pretty grim in terms of demand for coal, it's, um, there are certainly some. You know, um, it's not gonna be a straight, straight downward dive, as it were.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:24

No, it's not gonna go off a cliff, but, but some people have been sounding the death nail for, for a coal for, for many years now. And still, it's still still larger parts of the energy mix.

Laurence Walker, Coal Editor, Montel: 12:33

Well, we, we've seen in, in the UK for example, in news this, this weekend over Easter, they had, I dunno, the longest, longest ever period without using coal since Industrial revolution. I mean, this is something we're gonna see more and more. Across Europe and eventually, you know, further afield, but it's um, it's certainly is a fuel which is relied on still by a lot of countries. Some, you know, some in Europe still.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:55

Absolutely. I mean, that's the direction of travel clearly. But, uh, the pace at which we get there is obviously determined by many factors. And my question to you, Paolo, is what's driving or this direction of travel for coal? Um, is it more. Is it policy, policy initiatives such as the carbon price for in the uk or, or market based mechanisms such as the European trading scheme or a combination of the both?'cause as, as Lawrence just mentioned, the, we've, um, we've had one, some of the longest periods without any coal fire generation in the UK for hundreds of years, the lowest for hundred hundreds of years. So,

Paolo Coghe, president of Acousmatics: 13:33

well, it's a little bit, if you think of it in terms of, um. The sea, and you have Tide, and you have wave, and you have ripple, right? Mm-hmm. So at different levels of, of analysis, you can drill into the causes. And so some of the, you know, the big, uh, driver is global decarbonization, and that's a long, so that's the tide, right? Mm-hmm. Uh, you also have these, the waves and the waves have to do more with what's actually. Happening in terms of global supply and demand and the transatlantic trade, what's happening with, uh, foreign currency exchange, what's happening with freight and so on and so forth. And the ripple is what, um, what what Lawrence was hinting at earlier when he's talking about, for example, the shape of the curve and in specifically, for example, now that the curve is in contango, we see a lot of restocking. Uh, at, at utilities. So what that tells me is that there is no premium on the, on the prompt, right. No premium in, on the short term. Mm-hmm. Um, utilities are taking this opportunity because of course coal is on the way out, but it's not quite out yet. Mm-hmm. Um, even in Europe and they're taking the opportunity to buy at, uh, relatively low prices. Mm-hmm. Now we, we may have a repeat of what happened, as I was mentioning between 2011 and 2016, where whereas coal prices in the prompt kept falling down from above a hundred to below 50, the curve for the longest time was stealing contango. So that was sort of giving hope that there would be. More demand in the future, and yet prices kept sliding down up until the point where it became really, really unprofitable for producers. Mm-hmm. To produce at that, at those low levels, which then meant that the rebalancing has occurred and demand again is catching up with supply that has paused. Mm-hmm. Right. And that. You could see this effect by the forward curve flattening initially. Mm-hmm. And then switching into backwardation as prices started increasing again. Mm-hmm. Right. So again, premium on the short term, but not a bright future. In terms of demand in the future?

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:51

I mean, you've done a lot of analysis on, for example, on the impact, at least I think you have Paula, I think on on, I've done a lot.

Paolo Coghe, president of Acousmatics: 16:00

I've done a lot of analysis on many things. Things on many, exactly. Yeah.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:03

Perfect. So I think, um, in particular on environmental legislation and rules, I'm thinking of the Industrial emissions directive and potentially the impact there on old coal fire generation. Yes. Um. I know it was you or you and your, your partner, Gerald Wynn, who, um, who covered this in, in quite a lot of detail and said potentially we could lose, what was it, um, substantial amounts of coal fire generation Yes. In, in, in, in, in Europe because of these rules. So that's, that's where the rules are correct Policies. Biting in, isn't it? Correct.

Paolo Coghe, president of Acousmatics: 16:32

That's, that's certainly what our, uh, research notes we're pushing for anyways. Um, although then we are starting to touch a, a slightly different, uh, commodity, which is ignite in which is part of the problem, but there is no doubt that recent approval of, uh, air pollution regulation, so up until now we've talked about the long term goals of decarbonization, but air pollution regulation, um, has actually put the. Impact right here, right now for coal where existing power plants have to make a decision on whether to comply or not. And compliance is expensive, especially since it happens in a context where many countries, Netherlands is about one example, have decided and put large legislation into place to phase call out the most. Um, one of the most, um. Important examples of this is if you look at the Netherlands brand new coal fired units that came online in 2015 will be retired by 2029. Okay. So coal is not a good business from this point of view. And if you want to look into what that means for the commodity, obviously less demand. Mm-hmm. Which brings me to the long term perspectives for coal, right? Even though we may have ups and downs in terms of prices, the long term perspective is not bright because there, there isn't that strong pool from emerging economies anymore. Once China is gone, India is the big hope. And then all, you know, we have the,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 18:11

the hope is in the hope for coal demand. The hope for coal demand. Right. The

Paolo Coghe, president of Acousmatics: 18:14

fact

Richard Sverrisson, Editor-in-Chief Europe, Montel: 18:15

that 'cause others, that for others, that wouldn't be a hope. That would No, no. Definitely necess certain the people camped out here at Oxford Circus.'cause that would not be a hope. That would be, no, I should, worst case scenario. Yeah. Correct, correct, correct. Yeah. Just to, yeah. Put that in the context. Anything to add to that? I mean, you're seeing, um, you know, the, the, certainly we've talked about, uh, the clear direction in which we're going, so Netherlands, but how about Poland? I think Poland's quite an interesting example here. What, what are the options for Poland?

Laurence Walker, Coal Editor, Montel: 18:41

Poland? Um, but again, they're the Anna's home now. Yes. Yeah. Well, I mean, it's obviously a, um, I mean, it's a country which is so heavily reliant on coal. It is a, it's a difficult, um, it's gonna be difficult for them to, to get away from. From it, um, you know, in, in the UK where, you know, as we were saying, we can, we, we can quite, you know, we can ramp up wind power generation, we can ramp up, ramp up nuclear, all these sort of things. Since Poland is so, you know, so heavily dependent on not only domestic coal, also imported coal. Um, and it's, I'm not, I'm not sure I can Yeah. Give a, give a clear, clear, clear answer on how, because I, I don't think they, they can show you don't have a crystal either, Laurie. But I mean, what I think what, what is sort of interesting again is um. The levels of coal. I mean, they, they, they weigh, they completely over imported coal last year. Mm-hmm. And so, um,

Anna Siwecka, freelance journalist/podcaster: 19:35

19 million tons. Yes.

Laurence Walker, Coal Editor, Montel: 19:37

Yeah. So, I mean, as a result of that, um, that was obviously, you know, something supportive in that way. It's also adding to the weight this year because although we, we, we tend to look at the stocks, maybe the Aras ports, we look at the stocks at German plants, um, obviously, um, if Poland's not gonna import. You know, several million tons that it did import last year, that's gonna have an impact as well. Mm-hmm. Um, so it's, even if it's not clear what its legislation's gonna do, how, how its future is in terms of demand, um, in the near term at least, it's certainly continuing to play quite an important role. I. In pricing in Europe. Um, and it will do certainly this year, um, if not next year as well.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 20:18

But then you mentioned also the, the cold stocks at, at German utilities, barges couldn't actually physically get to the plants by, by, by, by river, yes. By using, using the waterways. So what, what are they doing this year? I mean, we, there's certainly certain areas of Europe where they haven't seen seeing that amount of rainfall. Uh, again,

Laurence Walker, Coal Editor, Montel: 20:39

well, yes. Yeah. I mean certainly there, there is a risk and perhaps a high risk of a, a similar occurrence. Um, I think what's different, uh, several things for firstly, perhaps a better prepared this year. Um, some of the utilities are. Stocking up a little bit earlier. Um, they're booking rail capacity instead of, um, barge. Um, I know the rail operators, the DB cargo, for example, is laying on more trains than perhaps they would do in the past. Um, but the other thing is the market's very different to how it was last year. So, um, we came out of a very, very harsh winter. Mm-hmm. Um, stocks were already low. Gas stocks were were low. Um. This year, there's so much gas. Again, as we are going back into that, that even if there is a shortage of coal, um, it shouldn't roll. It shouldn't be such an issue. So I think purely, purely because of markets very different. This year, we won't see the same sort of issues, the same sort of utilities announcing disruptions to power output. Um. Um, because there, there will be alternatives. Mm-hmm. Because what,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 21:42

how low did the River Ryan fall us? Was it 40 centimeters? Well, we go down to 25 centimeters. 25, which I think was again,

Laurence Walker, Coal Editor, Montel: 21:47

the lowest since 1880. Mm-hmm. Um, so it was, it was very low. I mean, but again, the barges have got flat bottoms. They can still go through, but they have to reduce the loads. They carry so much. I mean, in, in terms, they were, you know, carrying a third of capacity, sometimes less. And as a result of that, the barge operators charge a premium. So the costs. Skyrocket for anyone who wants to bring coal in and they have to pay up for it. So although we don't see any stock data for the German plants, it's uh, um, confidential. You know, hearsay is that stocks are probably fairly, fairly good. Mm-hmm. Um, especially if, you know, if the port stocks or anything to go by.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 22:30

A big part of the political landscape in the UK over the past week or two weeks has been the Extinction Rebellion. That's part of a very public, I. Rebellion aura or a movement to, to urge the politicians to do something about climate change coming from the, the school kids rebellion, uh, and also what's happening now in on the streets, in bridges of London. Um, do you think this is gonna exert more and more pressure on politicians to maybe speed up the coal exit? You mentioned the Netherlands. Um, and in other countries such as Germany, which, which Lori's talking about, although obviously in the UK there's a big push, but, uh, the UK's already gone a long way.

Paolo Coghe, president of Acousmatics: 23:10

Correct. I think it's, uh, when it comes down to countries where coal, and again, ignite have such an important place, such an important role, there has to be a political solution that's not just an economic. Based solution. And so these may actually lengthen the time, okay. Because of the usual arguments about jobs and about, uh, you know, the regional economies. So, um, yes, protests are important, but uh, there also is the political and. We must admit it, lobbying side of things where it's sort of a countervailing force to these protests. Mm-hmm. I guess the protests get a lot of the news, but, but the, uh, economic power of the utilities gets a lot of the, uh, politicians ears perhaps. Okay.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 23:58

Maybe they get, they, they listen to them more than maybe to. Some people on the, on the street. Yes. And

Paolo Coghe, president of Acousmatics: 24:03

so in one also needs to be realistic in terms of, of, you know, how much acceleration there can be. Mm-hmm. Um, the, the United Kingdom has done things well, uh, in terms of sort of starting early, you know, um, the leg, the Coal Legacy has been, has been shed by, by the uk, um, ahead of many other countries. Countries like Germany and Poland in particular are quite a bit slower in that, but there are reasons.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 24:31

Mm-hmm. Of course. So do you expect, I mean, there's a, there's a huge pressure and I know that there's, the, the Coal Exit Commission in Germany is, you know, proposing changes to the law. I mean, how, how quickly. Do you expect things to move in, in, in Germany in this direction?

Paolo Coghe, president of Acousmatics: 24:46

Uh, I don't have a strong view on this. Mm-hmm. Um, so I cannot, um, say how quickly mm-hmm. Um, the one thing I can say is that, so sometimes these things seem to move very slowly and then there is a sudden acceleration. Um, I see it a little bit less, uh, likely in Poland because if you look at it, there is, um. Very large state or partially state owned utility that as far as I could see, does not have a plan B. Mm. Okay. Plan. There's plan A, which is coal and ignite, and they're doubling down. Mm-hmm. Mm-hmm. And they have the um, sort of agreement and help. In a way from the government. Now, of course, Poland does not live in, uh, isolation. Poland is part of the eu. Mm-hmm. So I can see these dynamics continue continuing for, uh, where there's a push and a pull.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 25:38

How does this all play out on, on wholesale power prices? And we've talked a little about the pricing curves for, for, for coal, but how, how does this play out for, for European wholesale prices? For

Paolo Coghe, president of Acousmatics: 25:49

the next, for power prices? Um. Again, what we have seen in the past few years is that prices had gotten to a low, low level, a level that made many large utilities unprofitable. Okay? And then prices have recovered. Prices have recovered from, from those lows, and it may not seem much, but a difference of say, five euros per megabit hour will have a very. Strong impact on the bottom line of, of utilities. Mm-hmm. So price recovery may not seem impressive if we move from 40 to 45, you know? Mm-hmm. But at the same time, that can have a big difference, uh, in, on the bottom line of utilities. And so utilities. That would not have survived, let's say sub 40 or sub 30. Even when we, when we reach those levels, they will not exactly thrive with current prices. Obviously, once again, keeping in mind the relatives of price, of coal, price of gas, um, but it, it is better. So we, we shouldn't expect prices to jump up.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 26:53

Mm-hmm. But slowly kind of move up in that. Yeah, exactly. But slowly move up. Yes. And, and is this cyclical as well or is this um, of course,

Paolo Coghe, president of Acousmatics: 27:00

and, and of course power has its own price, but we must not forget that the power, uh, price is a derivative of the price of the fuels that are burned, uh, to, uh, to obtain the power when we are looking at thermal generation. So again, the interplay of coal versus gas,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 27:18

I think that's quite interesting. I think, um, certainly coal plants. Also set some of the price in the Nordic region, even though coal is on the way out. I mean, when do you expect that to, to, to change? I mean, when could the gas, gas plants be the, the price setting and, uh, no, I mean, um, maybe it's, this, this is hard to say really. I, it just surprises me that, you know, in a region where there is not so much cold, it still kind of sets the, the, the price of, of the marginal, the price of power. Um. It's intriguing for me.

Paolo Coghe, president of Acousmatics: 27:49

It depends on what the marginal unity is. And of course, once again, we must not forget, uh, interplay of imports and exports, uh, across across countries. Mm-hmm. We have not touched on it. But another important dynamic of this is the fact that when we talk about. Generating power by burning coal. We are talking about certain types of units, which are usually large units and not exactly flexible units. Sure. And so then those are, those are the problems where if you look at an average price, you get an answer that may be even reassuring a bit. But then when you look at the actually operation of these plants and how much they can make, uh, in terms of returns. The flexibility, they cannot offer flexibility. And so therefore there, there are elements of that that are covered by the renewables.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 28:39

Oh, absolutely. I mean, I, I, what, what do you think, Lori, in terms of the drivers going forward now? I mean, what, what, what are the areas which we should be looking forward into in, in terms of looking, looking at in terms of the, the price setting dynamics? I mean, what are the key elements now for the remainder of this year and into next year?

Laurence Walker, Coal Editor, Montel: 28:56

Well, certainly for, for this year, um. It's gonna continue to be, well, gas is gonna play, play a key role again in Europe as always for Coal Asia. So China depends what happens in China. You know, if I know three go dam clunks out, then suddenly you've got 22 gigs which have to be replaced. So you can never really quite be sure what happens there. And obviously on the policy side, what, what sort of policy they're likely to bring in, um, whether, you know, do we get El Nino this year? Will that affect output? Um, I think there's latest forecasts are sort of. 70% likelihood. So that's, I think, triple the, the usual, usual, um, likelihood. And this again, can, can have both. Beneficial and negative impacts on, on production, um, depending on where you are. Um, how, how does that happen then? Lauren? Could you explain? Well, well, you tend to result in dry weather. So for example, in Australia you may have less, you know, flood related issues or, um, less, um, heavy rains causing problems. Um, but for example, Columbia, um, you may have productions with up. You may have problems with dust, um, maybe high levels of dust, which can restrict production. Um, so yeah, it's, uh, again, it's, it depends. Um. That can play out in a very different way as well. So yeah. Whether, again, whether weather in Europe, whether in China, what kind of, you know, are we gonna get a warm hot summer? Are we gonna get a, um, a mild one? Are we gonna get a, well, I'm like to have a cold one, but, um mm-hmm. The, these things all gonna play into it. Yeah. There's always, with coal, there's always a wild card, which, which jumps out from somewhere as a China. Um. Weather and, and gas, probably three big ones at the moment.

Paolo Coghe, president of Acousmatics: 30:32

Well, these surprises that, uh, Lawrence is mentioning, they usually hit in one direction, right? You're never gonna have a surprise where it, you all of a sudden have, um, much less supply unless some event happens, right? Um, so usually surprises tend to drive prices up.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 30:51

Does geopolitics have a role here at all? I mean, the, the talking, you know, talk of a trade war, potentially the, the China US issues, could that play

Paolo Coghe, president of Acousmatics: 31:00

in? Most definitely. And, and one of the ways that that would play in is through FX markets where, again, if we look, uh, a little bit, uh, back, uh, let's say to 2016, uh, 2016 here in Europe means Brexit. And so what Brexit did. It triggered a move towards safety. And safety for currencies means dollar, and so that meant dollar strength. In 2017, what we have seen is the US Federal Reserve increasing rates, and now to bring it to just last year. What we see again is US protectionism. So once again. Questions about trade and trade deals or disruptions of trade that have once again led to an appreciation, global appreciation of the US dollar. This has an impact on coal prices since coal is priced in US dollars, so.

Anna Siwecka, freelance journalist/podcaster: 31:57

The why we're not talking about Russia when it's such a big coal market.

Laurence Walker, Coal Editor, Montel: 32:01

Russia certainly is a very, very big one. And I think that's, I mean, that's also an, an an interesting point regarding supply. Um, for example, looking at past winter or we've actually seen an interesting thing in terms of climatic changes as well. So for example, 10 years ago, every winter there was a, you know, everyone would look at the, at the ice situation in the Baltic and think, you know what, what's gonna happen? Um, is there gonna be thick ice? If there's thick ice? It can, it can. You know, disrupt the shipping. Um, we had stories of at least one vessel, I think it was biomass actually, but at least one vessel, which took five weeks to sail from, from St. Petersburg to Helsinki. This now is not happening. They're having less ice in the Baltic, so supply issues are less of a, a less of an issue. The icebreakers are more, more efficient. On top of that, Russia has invested quite heavily in its sector infrastructure. So it's, there's a port at Tam in on the sea of, in the south, south, which is. Coming online this year, it's already started loading vessels. It's supposed to become more, well, it could reach up to 25 million tons a year. They, they say, I dunno if they'll be able to fill that capacity, but it's certainly a sign that's, if Russia wants to get coal out, it will. Um, and it's still a very, very important supplier. Its suppliers maybe 30%, 35% of German is calm.

Paolo Coghe, president of Acousmatics: 33:15

Um, what about, because the criticism has always been so, it's very cheap. But their infrastructure, the coal transport infrastructure in Russia is falling apart essentially. Mm-hmm. And so, you know, that hasn't happened yet.'cause they've been exporting and they've increased their exports. Mm-hmm. But is that a threat?

Laurence Walker, Coal Editor, Montel: 33:36

Steel, you know, it seems to be, it is always a threat. And there's, there's certainly, certainly that the, the infra the infrastructure. So the rail especially, they used to have huge problems with bottlenecks on the rail capacity. They have expanded this. Um, there, there do seem to be an improvements there. Um. Also even things just at the ports, for example, they seem to be investing more in facilities for warming the carriages when they arrive to get the ice to, so in the past they had problems unloading because they had ice freezing the coal. This is less of an issue now. So they have been quite, it's, it's always very, very hard to get a straight answer from, from any of the operators on, on what's, what's happening. And it's hard to get clear information. But certainly, I mean, they opened the new sections of rail. They've opened a new. Going a two mile tunnel or something last year, um, near the coba region. So they, they are doing things and, um, the, like I said earlier, the, the sort of disruptions to logistics, which used to be a quite a key driver for, for API two prices, for global prices. Maybe we, we are kind of hearing less of them now.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 34:40

Paolo and, and Lori, thank you very much for joining the Monte Weekly podcast this week. Um, uh, we look forward to, to having you, um, on board again to see how, how, how things then played out over the course of the year and see whether our, our analysis was, uh, was on the ball or not as it were.

Anna Siwecka, freelance journalist/podcaster: 34:58

For the latest news from the energy markets, go to our Twitter at Montel News and follow us also on our website at Montel News. Be sure to subscribe to our podcast. You can find us on Spotify and also on iTunes. This is all for today's episode. Thank you very much. Goodbye.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 35:14

Goodbye.