The real risk to ESKOM: coal

With all the current hype about ESKOM’s current request for massive tariff increases, a bigger threat to our energy security is currently being ignored. And that is the supply of coal.

Coal is a limited resource whose price has already come under extreme pressure (see http://www.indexmundi.com/commodities/?commodity=coal-south-african&months=300). Having sat in the range of USD20-35 per ton for many years, since Jan 2007 it has sat above USD50 per ton, spiking to over USD160 per ton last year. South Africa was largely shielded from these large increase due to long term coal purchase contracts. However, significant new investment into coal is required to supply the new power stations being planned (Medupi currently being built, Kusile to be built).

China is building new coal powered stations at a rate, and by 2030 they are likely to have more than doubled their current coal consumption (http://www.eia.doe.gov/oiaf/ieo/coal.html). In addition, oil supply is constrained, and thanks to technology from companies like SASOL, coal can be turned into oil, so these prices have become linked.

To think that South Africa will continue to be able to buy coal at its historical low price is to believe pigs can fly. Thus when ESKOM states that we need urgent investment into coal mines (http://business.iafrica.com/news/2193264.htm), this should be raising alarm bells left right and centre! If ESKOM was prepared to may a market price for coal, companies would invest. But clearly they are not, hence the investment is not happening.

Watch out, South Africa, the blackouts from lack of coal are bound to return.

Frank