Coal Producers in a Bind
July 4, 2014
Roman Łój, President of the Board at coal company Katowicki Holding Węglowy (KHW), a member company of Central Europe Energy Partners (CEEP), talks to Witold Nieć.
Coal prices are falling on international markets, putting coal producers in a bind. The price of coal brought into Europe via the Dutch seaports of Amsterdam and Rotterdam and Belgium’s Antwerp—forming the so-called ARA region—is only $82-83 per ton, down from $170 per ton a few years ago. Is it possible that Poland will ever stop mining its own coal and focus on imports instead?
Let’s take a broader look at this situation. Since 1991, no comprehensive fuel and energy balance has been created in Poland. No one has tried to determine how much coal, and from what sources – domestic or imported – will be necessary to meet the needs of the energy sector. This causes a situation in which mining and energy companies do not make any actual long-term contracts that would allow us to outline the volume of deliveries and financial conditions, with a fairly precise determination of price indexing methods. Meanwhile, without such an approach, it is impossible to sensibly plan the investment process.
When it comes to imported coal, we have to compete with mines in Russia’s Siberia and in Mongolia, where operating costs are in the range of $11 to $29 per ton. Here, with deep mining methods, operating costs correspond roughly to the ARA prices. We use the high quality of our coal to defend ourselves, while transport and delivery costs also fulfill that role. Yet the competition is getting stronger, and, under the never-ending scenario of dumped energy prices from German wind power plants and low prices of Asian coal, Polish mines will eventually be closed. This will show, in the absence of domestic market competition, just how much energy and coal can really cost in Poland.
Europe’s energy dependence rate—which shows the extent to which the European economy relies on imports in order to meet its energy needs—is about 56 percent. Do you think it is possible to decrease this rate without coal?
No, without coal it is impossible to decrease this rate. Targeting the mines in Poland will lead to an increase in the energy dependence rate, which means the EU’s dependence on energy sources outside the EU will grow.
Poland is in a slightly different situation than most other member states, because it has the highest level of energy security among EU countries, owing to energy produced from its own fuel resources. Its coal supplies can last for at least a few decades, but they have to be used wisely.
What impact is the planned free trade agreement with the United States likely to have on the condition of the European mining industry? Could this agreement pose a threat to European coal mines?
The United States has a significant surplus of fossil fuels, so it can afford to export tens of millions of tons of coal to the EU per year, which will have a disastrous effect on the price level.
The political situation in Ukraine and the renewed threat of disruptions in gas supplies to Europe from Russia pose new challenges to the EU’s energy policy. How could that affect the coal industry?
It’s more a matter of high-level politics than economic policy. Although the EU officially speaks with one voice, its member states do not.
Acting on behalf of major players in the European conventional coal-fired power sector, Central Europe Energy Partners, together with the European Association for Coal and Lignite (Euracoal), have drawn up a document that calls for a revision in the EU’s climate and energy policy. Do you think this document, called Action Plan for Coal in the 21st Century, has any chance of resonating in the new European Parliament and European Commission?
At the cost of hundreds of billions of euros annually, the EU has undertaken to reduce greenhouse gas emissions by an average of 1 percent. This falls within the range of a statistical error. The results, in the form of reduced competitiveness of the EU economy compared with other parts of the world, are already being felt. Some analysts clearly indicate that this is only the beginning of unfavorable changes. Therefore the EU’s climate and energy policies must be revised.
I have a great appreciation for all initiatives aimed at bringing about such a revision, so I appreciate what CEEP and Euracoal are doing. I believe in a return to rational economic thinking and common sense. However, nobody knows how the new European parliament will behave.
Coal gasification tests are under way in the Wieczorek coal mine operated by your company in southern Poland. This experiment is being carried out as part of the Advanced Technologies for Energy Generation strategic research and development program funded by Poland’s National Center for Research and Development (NCBiR). How important are these tests for your company?
The experiment is part of a larger project that concerns underground coal gasification. The idea is that, instead of extracting coal from the ground and burning it on the surface, we can burn coal underground and obtain gas on the surface. This gas can then be used in boilers and engines or sold to the chemical industry. In the Wieczorek mine, we are obtaining syngas from underground installations. The gas is being tested and burned on the surface. The existing pilot plant aims to enable us to understand the mechanisms of this process, and also to determine the benefits and costs of the project as well as the problems that may occur. There is a whole series of questions that need to be answered. But first it is necessary to finish the experiment, summarize the data, and carefully calculate all the possible costs and profits. We have to proceed with the utmost care. For the time being, it is impossible to talk about including any conclusions in our strategy. If the results are promising, such technology could be developed on an industrial scale. But this is still a matter for the future.
How is methane being used in KHW’s mines?
We have launched more methane drainage stations. Their main role is to obtain methane from underground, mainly from chambers and excavations, and feed it to the surface through pipes. Methane obtained by this method is not mixed with air, so the risk of fire or explosion is reduced. On the surface, our subsidiary, Zakłady Energetyki Cieplnej SA, operates generators and boilers that burn the excess methane. We use such solutions in the Mysłowice-Wesoła, Wieczorek and Wujek Ruch Śląsk mines. Approximately 27 million cubic meters of methane are expected to be used this year. This solution is very cost-effective. It provides for both an increase in security and a reduction in emission fees. In addition, funds obtained from the sale of methane will pay for further investments. As we keep mining deeper and deeper, we obtain more methane, so it is of huge interest to us. Hence, there is a concrete plan to launch methane-powered engines.
An extended version of this interview was originally published in the May 2014 CEEP Report.
Central Europe Energy Partners (CEEP)
is an association formed by energy and energy-intensive industries that aims to unite the energy sector in Central Europe and strengthen the position of this sector in the European Union. This is the first industry-specific organization from Central Europe of a regional character. The association represents the Central European energy sector (for example coal, oil, renewables, grids) as well as energy-intensive industries (steel, chemicals and others). Its main aim is to support the integration of this energy sector within the framework of a common EU energy and security policy. At present, CEEP has 22 members—companies and research institutions from countries including the Czech Republic, Lithuania, Poland, Romania and Slovakia—employing 300,000 in total and with combined sales totaling 42 billion euros. In June CEEP celebrates its fourth birthday.