While coal exports generate valuable export earnings, the competition between exports and domestic coal poses a major challenge for the security of domestic coal supply, says the Department of Mineral Resources (DMR).
The demand for coal has increased in countries such as India, which had used more than 48% of South Africa’s coal exports by September this year. Demand from African countries, such as Mozambique and Egypt, will also support the export price.
Revenues generated from export coal sales increased at a yearly average of 6.23%, from R74.81-billion in 2008 to R128.93-billion in 2017.
The emergence of the export market for lower-grade coal has compromised the local availability of coal for power generation, and the situation will be compounded by existing and planned power generation expansion in the country which will drive domestic demand for coal in the short to medium term. However, the DMR notes that there is new investment in the coal sector, comprising about nine brownfield and greenfield projects, which will contribute an estimated R19-billion, and add about 20-million tons a year to coal production locally.
Being South Africa’s largest economically recoverable energy resource, coal currently accounts for about 70% of the country’s primary energy needs and is also among the country’s largest sources of foreign exchange, the DMR says.
“About 95% of the country’s electricity is coal-fired and 30% of liquid fuels derive from coal generated using integrated chemicals and energy company Sasol’s coal-to-liquid technology.”
According to State-owned power utility Eskom’s presentation to the DMR – the Coal Supply Strategy and the Black Emerging Miner Strategy – will integrate emerging black coal junior miners into its coal supply base. The DMR adds that, through these strategies, Eskom intends to contract emerging black miners to supply about 2.1-billion tons of uncontracted coal.
According to the promulgated Integrated Resource Plan 2010, coal demand for power generation is projected to increase by 40% to 2020 before declining. The current pricing model used for coal procured for power generation has resulted in the cost of electricity increasing rapidly and is the main contributor to higher inflation over the past years. The DMR adds that this is likely to have a negative impact on the downstream mineral value addition programmes, as the availability of low-cost electricity is key in driving investment in the sector.
The local coal sector employs about 18%, or more than 85 013 people, of the country’s mining industry workforce and, by the second quarter of 2018, the number of employees in the coal industry was 86 319, the DMR reports.
Over the past ten years, employment in the coal sector grew at an annual rate of 2.94% as a result of the increased number of operating mines.
However, the sector faces challenges, with Eskom stating that it buys an increasing proportion of its coal on short term contracts, and mining companies are allegedly using the export opportunities as leverage in the negotiations with Eskom. The fuel and steel industries also drive domestic coal prices, with the DMR reporting that, in February 2018, the domestic coal price reached a peak of R418/t and currently averages R394/t.
Moreover, the development of the Waterberg coalfield, in Limpopo, which is targeted for large-scale development, owing to declining resources in the Mpumalanga basin, faces various challenges in the form of water availability and lack of transport infrastructure.
Evolution of the Coal Sector
The DMR explains that transport infrastructure, particularly land-based transport, is a key determinant of the evolution of the coal sector. This is important if Mpumalanga, the Waterberg and other coalfields are to be further exploited.
The lack of availability of rail capacity is illustrative. Such capacity is essential to the coal mining sector to ensure its successful development. The DMR reports that the freight logistics group Transnet Freight Rail’s (TFR’s) coal export line has a capacity of 81-million tons, which falls short of Richards Bay Coal Terminal’s capacity of 91-million tons.
“While TFR is pursuing a project to increase the capacity of the coal line to 97.5-million tons by 2020, the availability of rail remains a constraint, especially to the black economic-empowerment companies; to deal with this challenge, TFR is transporting some coal on its general freight lines,” the DMR says.
The DMR points out that the development of new mines is sometimes hampered by lack of infrastructure, which, in turn, affects coal production.
Water supply across South Africa is highly dependent on inter-basin transfers, and the development of the Waterberg in the medium to long term will also depend on new transfer streams.
The DMR points out that the latest technological advances in the coal sector in the field of mechanised mining have not had major implications in terms of job losses, as it is only employed at new mines.
However, mechanised mining has an advantage in that human error, which often leads to accidents at mines, is reduced.