The US Energy Information Administration (EIA) predicts that global energy demands should increase by almost 3% from 2005 to 2030. The majority of the energy demand increase during this period is predicted to be for fossil fuels such as coal and oil.
Coal is not subject to geo- political tensions commonly associated with key oil producers in regions such as the Middle East because coal deposits, unlike oil, are widely distributed and in greater supply, explains growth partnership company Frost & Sullivan senior mining industry analyst Wonder Nyanjowa.
Nyanjowa explains that the Southern African region hosts significant coal deposits, with South Africa, Mozambique, Zimbabwe and Botswana being key producers. The region relies heavily on coal for electricity generation and for powering the cement- and steel-manufacturing industries.
He says the challenge of production and consumption in the region being unbalanced arises because of “rising consumption on the one hand, while production has been constrained by depleted coal reserves, rising operational costs and challenging geological conditions”.
However, Nyanjowa believes that investors are in a unique position to capitalise on the grow- ing demand for power generation in the area by “setting up inde- pendent power plants that will sell coal to utilities such as State- owned power utility Eskom”.
This demand is made more evident by the fact that about 75% of electricity in Southern Africa is generated from coal-burning power plants and the limited availability of alternative sources of energy such as hydro-electrical and nuclear power, he explains.
South Africa’s Need for Coal Owing to expansion projects by Eskom and energy and chemicals group Sasol, the South African domestic demand for coal is expected to increase sharply over the next decade.
To meet the increase in energy demand, Eskom is building two new power stations and has recommissioned another three power stations. Domestically, South Africa consumes almost 190-million tons a year of coal, which is expected to increase to 250-million tons a year in the next ten years, says Nyanjowa.
“Eskom will require almost 200-million tons a year of coal by 2017, a significant increase from the 140-million tons a year the utility currently consumes.”
Sasol, which accounts for almost 30% of the country’s trans- portation fuel requirements, is expanding the capacity of its synthetic fuels (synfuels) production plant, in Mpumalanga. The company’s expansion projects will result in the consumption of an additional 25-million tons of coal a year when the project is completed. This will expand Sasol’s synfuels manufacturing capacity, which will, in turn, reduce South Africa’s oil import bill and exposure to oil price hikes.
Meanwhile, lower-quality thermal coal, traditionally used by Eskom for power generation, is being exported to India, China and the European Union (EU). This increased demand is because of South African coal having a low ash and sulphur content, explains Nyanjowa.
He predicts that most EU countries and the US are likely to lift their moratorium on coal-fired power plants in response to the nuclear safety concerns triggered by the March 2011 Fukushima nuclear plant disaster, in Japan. This is likely to result in greater demand for South African coal.
Currently, South Africa’s coal production capacity cannot sustain the projected increases in demand, says Nyanjowa. “Since 2003, South Africa’s coal production has remained stagnant at about 250-million tons a year, only posting small incremental changes at best.”
The main reason for coal-production and export stagnation is the depletion of the coalfields in the Central basin of Mpumalanga, which comprises the Witbank, Ermelo and Highveld coalfields. Geological difficulties have traditionally hampered increased coal production from the Highveld coalfield.
Edited by: Megan Wait
UNV Price at posting:
7.0¢ Sentiment: Buy Disclosure: Held
