Monday, November 21, 2016

Where are Imported Coal Prices going? In Turkey

In our country, investors put money in coal-burning thermal power plant projects, which are relatively cheap at upfront cost. The reason for their investment depends on the fact that imported coal is cheap in longterm in investment reports. Is it correct? It is very difficult to answer this question immediately as "True" or immediately "False". Why hard? Because this is an high risk gamble. Imported coal prices may increase- decrease over time depending on the market supply-demand situation. The price at the spot market of imported coal with the upper heat value of 6600 kcal/ kg HHV or 12,000 BTU / lb HHV can be as high as 160 US$ per metricTon as it was appeared in previous years.
Currently Australian coal (Australian thermal coal, 12000- btu / lb HHV, less than 1 sulfur%, 14% ash, FOB Newcastle / Port Kembla, US Dollars per metric ton) per ton is at 99 US $, South Africa 84 US $ (South African coal export price, US Dollars per metric ton), the cheapest is Columbia 6000 kcal / kg coal FOB price of imported US $ 78 per metric ton. 
So add 6-8% for transport to your seaport.
Today fuel cost is around 3.1-3,3 UScent per kW-hr. We may end up 4,3-4,6 UScent marginal cost which is just coinciding with daily market price of around 5 UScent. With the addition of amortization, that level is around 6,2-6,6 UScent. However with the lower utilization factor, capacity factor, amortization portion will add up more to reach 7-8 UScents whereas the prevailing domestic market electricity price is around 5-6 US cents per kW-hour. The cost of imported coal electricity production is above the market unit prices. So what happens then? The producer declares "commercial victimization". In a sense, they declare "force majeure", and stop electricity generation. Imported coal tax was tied to a certain formula with a new decision. If the prices on the ICE Rotterdam stock exchange are below $ 70, the difference between $ 70 and prevailing price in US$ will be taxed. It is currently around US$ 80. So at the moment there is no tax on imported coal for power plants.
Let's come to the actual price of imported coal. Market professionals calculate the price of the fuel in US$ per "1 million British Thermal Unit BTU (MMBTU)" at higher heat value (HHV). As of November 2016, imported coal with 6000-6600 kcal / kg higher heating value (HHV) or 12,000 BTU/lb HHV is today between FOB 78-99 US dollars at spot price of world markets quota RichardsBay- South Africa, NewCastle- Australia or Rotterdam delivered in MetricTon. Add transportation costs of 6-8% FOB-CIF at seaport delivery and then recalculate your US$ price per 1 million BTU with surcharges. Simple arithmetic yields you 4-5 US Dollars per MMBTU at today's prices.
On the other hand, in the local Afşin-Elbistan open pit coal fields, the price of 1000-1,150 kcal / kg (LHV) of low-value indigenous lignite mine is 7.50-8.00 US per ton. This figure gives you 1.10 -1.20 US Dollars / MMBTU unit price. The central quarry in Manisa Soma underground mine has a price for 2100 kcal / kg HHV sub-bituminous domestic coal mine, as 24.00 US dollars per ton. This gives you 2.00 US Dollars / MMBTU unit price. Also check the prices of Çayırhan, Seyitömer, Kangal, Soma, Yatağan lignite mines, the price is around 2.00-2.50 US$ per "1 million BTU". The price of local lignite fuel in public power plants is very low. Similarly in coal-based thermal power plants in the US, it is expected that the price of coal will be below US$ 2,00 per MMBTU. On the other hand, our domestic coal has high ash, too much water or moisture. So, total output may be 10% lower than imported coal pulverized coal firing power plants, but this will never change the price advantage for domestic coal.
"Are Imported coal prices in Russia cheap?", Russia's imported coal sales prices have never been cheaper than the world's imported coal prices. The Russians make their calculations very precise. For coal they produce, they declare their coal price slightly lower than world market prices at that delivery spot, often at the same price. Imported coal may rise uncontrollably. You may have to shut down your plant.
So playing with imported coal is a high risk gamble. Do not gamble, take only calculated risks. You never get surprised by the local coal. Build the domestic coal plant by yourself, do your design yourself. Today, even if the smallest countries can make thermal power plants themselves, we can and we do. However, we have been condemned to foreign designs for years, depended on foreign project finance. There is nothing secret in the design of the thermal power plants. Now there are Turkish engineering companies to do the thermal power plant construction, fabrication, basic and detail design. To reduce your energy dependence, to have your supply security, you should also have reasonable number of imported coal power plants. But this amount should never rise to the levels that will increase the current deficit. Imported coal plants must be built to be away from forests, agriculture, sites, tourism areas.
All of the imported coal power plants are established by the seaside, to ensure cheap bulk transportation, as sea transportation is necessary. According to my rule-off- thump humble calculations, for an imported coal plant with a capacity of 1400+ MWe, we need to burn 700+ tons of imported coal per hour based on different initial parameters. At the seashore harbor 2-3 km away from the power plant, there must be at least 500 thousand ton capacity coal stock area, at 30 days capacity at full load. The transport capacity of coal bands could be 2000 tons per hour minimum.
The cheapest imported coal is available now from Columbia. Imported cargo from Columbia now costs 78 US Dollars per metric ton, plus a 6-8% CIF carry price. If the coal stockpile is full, then bulk cargo ships with 100 thousand tons capacity would be waiting for a month and can not download. Since most plants do not work due to the price of imported coal alone because cost is expensive. Cost of electricity generation is high above prevailing market prices. So producer declares themselves as "victim of commerce", sort of "force majeure". So imported coal thermal power plants do not work for weeks, 30-day capacity coal stockyard is full, coal Cargo ships are waiting for a month for unloading order.
Are all of these real? What is the status of other imported coal plants after all this? Sugözü, Çanakkale, İskenderun, Zonguldak imported coal plants, do they work in this market conditions? Or did we lock the imported coal plants? What are the conditions of the investors who are installing the new imported coal power plants? What is the status of the new investments in coal-fired thermal power plants? Are they suddenly stopped?
Thermal power plants at seaside are explaining their status as technical failure as the reason why they are not operating at full capacity. There is a breakdown in the coal mills, a fault in the turbine generator and they had to reach to complete stop. however they were working last week despite their high cost against lower prevailing market prices. They are now out of the system. Now we can track the daily electricity generation of the individual plants through public web site, from the web. Here you can see the latest data.
Commercially we are sure that they had passed through a period of relaxed imported coal prices for the power plants. But for those months in which they do not work, at least the prices now are higher than in the spring months, they will soon suffer with greater harm.
Imported coal is not cheap. It was never cheap in the past, it is a gamble, it can be expensive. The US$ price per metric ton can be cheap if it goes below 60 US$. Today imported coal is very expensive compared to domestic coal unit prices per MMBTU. Do not look at what is written in the popular media, do your own calculations, and see the end result.


Haluk Direskeneli, is a graduate of METU Mechanical Engineering department (1973). He worked in public, private enterprises, USA Turkish JV companies (B&W, CSWI, AEP), in fabrication, basic and detail design, marketing, sales and project management of thermal power plants. He is currently working as freelance consultant/ energy analyst with thermal power plants basic/ detail design software expertise for private engineering companies, investors, universities and research institutions. He is a member of ODTÜ Alumni and Chamber of Turkish Mechanical Engineers Energy Working Group.

This article is first released by the "EurasiaReview" news web site.

Prinkipo, November 21, 2016


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