Global Insight Perspective | |
Significance | Coal stocks in South Africa are believed to have dropped considerably lower than minimum levels allowed in the country, while reports suggest India could be targeting exports of further reserves of domestic coal resources. |
Implications | This cloud on the horizon has led the Minister for Energy and Mining to announce that a “coal master plan” will be drafted. |
Outlook | South Africa relies on coal for the majority of its power generation and, with the first new coal-fired power station to be built for 20 years coming online within the next few years, it is essential that the country maintains secure supply in the face of increased exports. |
Coal-Supply Problems Cloud Horizon
South Africa's power sector could face more problems if measures are not taken to protect the country's coal supply, through which about 77% of South Africa's primary energy supply is generated. This would have a serious impact on the country's economy and could see a repeat of the action taken in February when Eskom told mining companies operating in the country that it might not be able to supply more than 90% of the usual electricity supply for up to four years. This led to firms suspending operations and Gold Fields, South Africa's second biggest gold producer, announcing that it might have to cut up to 6,900 jobs as a result of the power crisis. The output of other mining companies, AngloGold Ashanti and Anglo Platinum, was also seriously affected.
Business Day reports that coal stocks have been shrinking since March 2007 and that for six weeks from December last year to the end of January stocks dropped to 12 days’ coal burn instead of the 20-day minimum insisted upon by the National Energy Regulator (NERSA). There are now concerted efforts to rebuild the coal stocks. Another major problem affecting the country's power sector is that Eskom could be forced to compete with other countries for South Africa's coal supply as the utility's largest supplier Exxaro Resources has said that it could start exporting low grade coal to India before the end of the year, according to Engineering News.
Outlook and Implications
Department of Minerals and Energy spokesperson Bheki Khumalo said that the Minister Buyelwa Sonjica had commissioned a study to draft a "coal master plan", which would consider the "best way of preserving [South Africa’s] national coal resources". Nevertheless, exports will certainly continue as a result of the mining companies having to abide by their contractual obligations, including with rail operators, port operators, and with overseas customers.
Coal demand is set to increase substantially as last May NERSA granted Eskom a licence to build the first new coal-fired power station in the country for more than 20 years. The power station is to be named Medupi, although it has previously been referred to as two separate projects: Alpha and Charlie. The station will be on a Greenfield site in Lephalale, in Limpopo Province. Medupi will see the development of a 4,500MW six-pack station from the start, with the first 750MW unit likely to come onstream in 2010-11 and the last unit scheduled to be commissioned by January 2015. Eskom has a supply capacity of 36,000MW and a reserve margin of 6% in 2007, less than one-half of the international norm of 15% and compared with a margin of 25% in 2001. The utility's main priority is to restore reserve margins and tackle demand-side management and Eskom should make a major announcement on a new nuclear power station in the near future.