August 13, 2022

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In the face of the global crisis, miners want more coal.  Their demands can greatly affect electricity prices

In the face of the global crisis, miners want more coal. Their demands can greatly affect electricity prices

Coal prices on world markets broke records, although this raw material is treated as a “dirty” fuel. There are at least three reasons for this to happen. The first reason is due to the significant increase that occurred after the pandemic in the demand for energy raw materials used in industry. The rapid recovery of economies due to the shutdowns led to a demand shock, which was further stimulated by the early reduction of processing capacity in the mining sector. All this was combined with the war in Ukraine, the consequences of which were much more serious and unpredictable. The necessary sanctions on Russian energy resources, on which Europe has become mainly dependent, and the past manipulations of the Kremlin in this market made the governments of many rich and prosperous countries openly talk about the need for long-term savings, and do not hide the prospects for this. Moreover, significant increases in electricity and gas prices, or finally heating and hot water bills.

The Russian issue is so complex that it is not known when the aggression in Ukraine will end, and therefore when sanctions will be applied, while creating and contracting new distribution channels in the market requires time and a lot of investment.

Another third reason for the rise in coal prices is, paradoxically, the high cost of burning it, and therefore carbon dioxide emissions fees, because the “green revolution” caused the subsequent closure of mines, which in turn led to a decrease in the supply of this raw material. This problem is largely related to Poland, which, as it was once said, “means coal”.

The above factors objectively, or at least to a large extent Regardless of our internal decisions, it generates an increase in coal prices in the Polish market, but there are also those that result from the desire for profit, not to mention the greed of some producers and suppliers of this raw material. Sometimes it may be due to incompetence or lack of imagination. It is worth noting here that the Polish energy system is based on domestic coal, and imported raw materials by definition are an additional source only in case of Polish coal shortage.

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Symptoms of the crisis can already be seen in the coal market a year ago, and it was necessary to increase production and take measures to secure production and energy security in the country. Polska Grupa Górnicza (PGG) is efficient in this regard and its board of directors decides which investments the company will make, to increase or decrease production and, finally, to maintain the level of inventory.

In recent years, imported charcoal has been used primarily to meet the needs of individual consumers, and it is likely to be a challenge to close this ‘hole’, but the biggest challenge may be securing charcoal, at a reasonable price, for consumers’ needs. energy sector. When the demand for electricity production from hard coal was at a very low level (for example in 2019-2020), for example, Polska Grupa Energetyczna (PGE) carried out a number of activities aimed at reducing the impact of the market situation on the Polish mining industry, Among other things, maintaining very high levels of coal stocks and resigning from deliveries from third parties. Let us remind you that it is their responsibility to ensure the continuity of electricity and heat supply.

Hard coal from Polish mines is the mainstay of supply for PGE’s generating units, and two years ago PGG reported the volumes of coal it was ready to collect in 2021 and 2022. Despite this, in 2021, PGG did not complete deliveries at the level of about 10% of the contract, and in 2022 the level of unrealized volumes reached up to 20%. This forces the energy sector to increase imports of coal at the expense of what is being mined in Polish mines. It is worth emphasizing that, in order to understand the situation in the mining industry, PGE does not require an increase in contractual levels, but only the execution of contracts at a constant level. Meanwhile, PGG is currently failing to comply with the contracts entered into and not meeting the contracted volumes needed for the energy sector to meet the needs of the energy market.

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This is despite the fact that in the past energy companies supported the Polska Grupa Górnicza in difficult times, including by prepaying for contracted coal, and by acquiring shares in the company at risk of bankruptcy in 2016, they invested PLN 2.31.5 billion in it. .

It turns out that in the face of a deep crisis, the PGG board of directors, with the support of trade unions, is trying to raise prices, in addition, without guaranteeing reliable deliveries.

Bogusław Hutek, president of the Solidarity mining company, declared in Onet that the Poles would freeze in the winter, and that “the gap left by Russian coal – depending on the pace of decisions made by the Polish government – will be filled with only domestic goods at home. Six or seven years.” Such a message obviously strengthens the negotiating position of PGG, which is clearly focused on a significant increase in the price of its coal, referring to prices in world markets. – We spend coal on the energy industry in the amount of PLN 250, although the average price of coal on world stock exchanges is currently about PLN 1,300 – the unionist regrets.

Such a situation would not be very surprising were it not for the fact that Polska Grupa Górnicza is a state-owned company. The Polish state, that is, in a state of deep crisis, which poses a real threat to the local economy, the social factor in calculating prices must also be taken into account.

– If we want to adjust our contracts to the price level of ARA (the average daily price level of steam coal purchased in futures contracts in Amsterdam-Rotterdam-Antwerp-Ed.), the increase must be sevenfold, which is unacceptable, among other things. Because of the complete isolation from mining costs and the impact on energy prices

– explained in an interview with Rzeczpospolita, President of PGE, Wojciech Dąbrowski, but Meanwhile, he confirmed that PGE, despite the turmoil, has ensured continuity of supplies at the appropriate level. It is worth emphasizing that PGE also has the ability to import additional quantities through the specialized company PGE Paliwa.

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Although PGE is renegotiating contracts previously with Polska Grupa Górnicza, Dąbrowski expects the purchase price of coal to not more than double year-on-year in 2023, and the decision on energy prices for consumers will ultimately be made by the head of energy. Regulatory office.

It is worth noting that in 2019-2021 the situation for miners was completely different from the current one. Although imported coal was cheaper, despite the higher prices, the Polish energy sector was buying coal from Polish mines – for example in 2019 coal prices at ARA ports fell by more than 35%, during this time in Poland they increased by 5 %.

The appetite of miners’ unions that saw an opportunity for coal prices to rise was commented on in very strong words by the head of the Jagiellonian Institute, Marcin Roskowski, noting their short memories.

– Trade union mining such cases when the price of coal begins to rise very high. However, they forgot that mining was subsidized for years and then they had no problem with the fact that the price of coal from Polish mines, which was sold to Polish power stations, was higher than the price of ARA in world markets. This is of course a grateful argument, but it is not true in the medium to long term

– The expert thought.

– For years, the Polish energy industry has been buying coal from Polish mines at above exchange rates. The fact that it has now shifted at some point, short term, is not a reason to change anything when it comes to pricing

Roskowski added.

We tried to ask a PGG spokesperson, Tomasz Głogowski, for comment on the coal price disruptions, but no one answered our calls either to a mobile phone or a landline. So we sent questions to the speaker by email. Until the article was published, we had not received any answer or feedback specifying a likely date for its submission.

Source: niezalezna.pl, onet.pl, rp.pl, biznes.newseria.pl