The current coal supplies to State electricity utility Eskom will decline rapidly after 2015, when existing large-scale mines' suppliers reach the end of their lives and require recapitalisation, says South African Coal Roadmap steering committee chairperson Ian Hall.

“There’s a serious, serious supply shortage in South Africa to supply Eskom,” says Hall, who was addressing the IHS McCloskey coal export conference in Cape Town.

From 2013 to 2019, 120-million tons of new capacity need to come on stream.

“South Africa’s biggest challenge right now remains supply to Eskom over the next six years,” says Hall.

Of the four-billion tons of coal that Eskom will need over the next 40 years, two-billion tons will have to come from new sources.

“So there’s a huge challenge but also potentially a huge opportunity,” he adds.

Three-quarters of South African coal is used domestically.

The roadmap, which attempts to chart the best way forward, will be completed by the end of February after two years of work.

The cost of electricity changes under each of the scenarios that it puts forward.

Its goals of helping to secure coal contracts for Eskom’s new and existing power stations and building 120-million new tons of capacity in the next six years are seen as a very tall order.

While Eskom is under enormous pressure to reduce its costs, coal prices are poised to rise by between 9% and 10% a year.

The reality is that the 120-million tons of new capacity has to come from new capital invested in areas that have poorer coal quality and which are further away from the power stations.

The cost of the 120-million tons is expected to represent a step-change. 

An agreement on coal pricing to create the incentive to build the mines needs to be reached urgently.

The Waterberg, with far more than half of South Africa’s remaining coal resources, has to be accessed in order to meet the commitments.

Policy and legislation needs to be aligned attractively and there has to be clarity on carbon tax and the implications of declaring coal a strategic resource need to be woven into the amendments to the Minerals and Petroleum Resources Development Act.

Coal, Hall says, will remain one of the top two primary energy sources in the world until 2035.

In the last ten years, coal has accounted for 45% of all energy demand growth in the world and in the run-up to 2035, this growth for coal will continue, fuelled by urbanisation in the developing world.

Coal, despite the bad press, will remain the second-biggest primary energy after oil even in 2035, according to the International Energy Agency, and the largest source of electricity generation.

“It will remain the biggest in South Africa despite what happens on all the other fronts,” Hall says.

Last year coal was the biggest commodity producer in South Africa by value and the resources and reserves study of the Council of Geosciences is expected to show that South Africa still has more than 60-billion tons of recoverable coal.

While South Africa is the twenty-fourth largest economy in the world, it is the twelfth largest contributor of greenhouse gases.

Seaborne trade patterns are expected to change between now and 2035 with India becoming the single-biggest seaborne coal importer in the medium term, which South Africa is well positioned to exploit.