ASIAN DEMAND BOOSTS COAL PRICES
Commodity rally is major problem for power-generation firms and independent power producers, say industry observers
ASIA’S huge appetite for coal as an energy source to power homes and industries in recent years is driving up coal prices, said industry observers.
Prices of coal and gas can be volatile, mainly due to the growing demand for the two commodities to fuel up power plants and generate electricity.
A rally in coal price was a major problem for power-generation companies such as Tenaga Nasional Bhd and other independent power producers, they said.
Coal, which is 100 per cent imported, is the main source of electricity generation in Peninsular Malaysia as it is cheaper than gas and renewable energy.
Global coal prices remain high after rallying more than 30 per cent to US$120 (RM499.27) per tonne in July from a low of US$92 per tonne in April. This is despite some price retracement in the past two months.
Between July and this month, the average coal price was US$116.43 a tonne, compared with US$103.42 a tonne between January and June.
In July, the Australian thermal coal prices broke through the US$120 per tonne level for the first time since 2012, driven by strong consumption in Asia.
Average spot prices for thermal coal from Australia’s Newcastle were quoted at US$114.16 per tonne last month.
Coal consumption for electricity generation was at an alltime high in Malaysia, with gas consumption not far behind, according to an energy portal, Energy Watch.
“As prices remain volatile, so does the challenge of providing a secure and reliable energy supply while, at the same time, maintaining affordable electricity prices. That means managing an electricity ecosystem requires regulation and market structures that can evolve to meet changing conditions,” it said.
Energy Watch said in a landscape that was constantly shifting, there were certain trends to indicate where prices were going.
Firstly, the rapidly growing economies in Asia will continue to drive coal and natural gas demand. Secondly, the prices of the two commodities are unlikely to remain constant.
“In that landscape, the ability to be flexible is crucial. To meet a nation’s electricity needs, a fair pricing framework is needed to reflect the changing costs for electricity. This requires consumers to pay for their part because a sustainable electricity supply industry is the only way to make sure that the lights stay on,” it said.
The story of coal was one of volatility, said the portal.
Prices had varied significantly in the past years due to rising environmental concerns, a challenging investment environment and rising Asian demand.
“A recent International Energy Agency report on coal highlights this volatility. Thermal coal costs have been largely influenced by moves within China, because as a dominant coal producer and consumer, it can have big impacts on global market prices.”
It said the results of a volatile market were clear throughout the region.
Indonesia, Southeast Asia’s largest coal producer, recently reached a six-year high for thermal coal prices, an increase of more than 32 per cent year-onyear. Indonesia’s benchmark thermal coal price averaged at US$100.89 per tonne last month against US$93.99 per tonne a year ago.
“With more than 60 per cent of Malaysia’s coal imported from Indonesia, which is also a major supplier to Vietnam, Thailand, and other regional economies, it is easy to see how price increases have impacts beyond one nation’s electricity generation costs,” said Energy Watch.
Meanwhile, global gas prices were a story in three parts, said Energy Watch.
The United States and Europe formed two sides of that triangle, both large markets for natural gas but driven by huge pipelines delivered on long-term contracts.
“Asia’s gas is predominantly liquefied natural gas transported by ships. That makes for a more complicated picture. Asia is also home to the two largest importers of natural gas — China and Japan. So natural gas prices do suffer risk of volatility.”
The portal said Asian gas spot prices had hit a three year high in January, driven by cold weather throughout Asia, and progressed to a four-year high in June.
In Malaysia, changing natural gas prices are influenced by a steady shift towards market prices from a previously subsidised fuel cost.
“Liberalisation of the gas supply market is set to support a more competitive price by next year, creating an environment where short-term cost rises to reach market levels are balanced against a more sustainable and competitive market,” it added.
Asia’s gas is predominantly liquefied natural gas transported by ships. That makes for a more complicated picture. Asia is also home to the two largest importers of natural gas — China and Japan. So natural gas prices do suffer risk of volatility.
ENERGY WATCH