The Minister of Energy of the Russian Federation
The coal industry, like the other sectors of the energy economy, is facing an economic impact of a global coronavirus pandemic. By comparison with the end of 2019 when the coal production in Russia reached record levels and exceeded 440 million tons, since the beginning of 2020 we have seen a decline of the key performance indicators. In these conditions, our country remains one of the leaders in the coal market and ranks among top three world exporters. On a global basis, the industry still holds a significant place in the Russian economy and continues to be one of the leaders in the world energy mix. In this regard, the efforts of Minenergo (The RF Ministry of Energy) and payers in the sector are aimed at further successful industry development and retention a stable position in the world market.
The Period between the 18th and the 21st Centuries
In Russia the history of the coal industry began in the 18th century. At the beginning, “black gold” was used in forgings and iron-making. In the first quarter of the 19th century, the main coal-mining fields had been already discovered in our country, and by the 30s–40s of the 20th century, the Russian coal industry was developed into the largest resource-based industry of the country.
Today 57 mines and 130 open pits are involved in coal production in the Russian Federation, coal processing and upgrading is carried out at 64 processing installations and plants. Notably, that Kuzbass, the largest coal-mining region in the country and in the world, accounts for almost 60% of all coal products in Russia.
By now, in consequence of the implemented reforms, the coal industry has become the first and the only sector fully represented by private capital in the Russian energy economy. Coal enterprises are the largest local employers for more than 30 cities and towns of Siberia and the Far East with a total population of about 1.5 million people. Almost 150 thousand people are employed by the enterprises of the coal industry and another 500 thousand people are engaged in such related industries as railway, port, car-building and others.
Coal is the main cargo for transportation by the Russian Railways, its share in the turnover of the natural monopoly has grown from 35% to 44% over 10 years. Export deliveries of coal, amounted to 220 million tons in 2019, has become the fifth item in terms of currency proceedings to the country’s budget after oil, oil products, gas and ferrous metals. Russian coal companies have accounted for 38% of the total growth in international coal trade. Since 1997, Russia’s share in the world market has reached a fourfold increase of 15%.
Since the 2010s, the dynamic development of traditional coal mining complexes has been in progress in Kuzbass, Khakassia and the Krasnoyarsk Territory. New perspective fields and new coal mining complexes are being developed in Yakutia, the Khabarovsk Territory, Transbaikalia, Buryatia and Sakhalin. New coal terminals are being built and the capacities of the existing coal terminals are being expanded in Russian ports of the Far East, in the Azov-Black Sea and the Arctic Basins.
As a result, from 2011 to 2019, the industry has demonstrated positive dynamics with respect to all key performance indicators. The production volume was increased by 30%, labor capacity – by 1.5 times. The records, including the world records for the loads on the running equipment are being upgraded: just over two past years seven new records have been set. The prosperity of miners is growing; over 8 years the average salary has been increased by 80%.
Minenergo of Russia pays special attention to safety and security arrangements for the employees engaged in this sector. Over the past three years, none major accident has occurred in mines, the rate of industrial injuries is being decreased.
Despite the significant progress achieved in the previous years and the high level of industry stability, today we observe the decline of global coal markets. This is essential, given the fact that in the last few years the coal export has become a driver of the industry’s development. Since 2011, Russian export has grown to 56% of the overall increase in the world market supplies. Today our country is the third leading “black gold” supplier in the world. The closest competitors, Indonesia and Australia, increased coal exports by 29% and 20%, correspondently, while Russia doubled it.
However, at the end of the first half of 2020, we saw a decrease in the coal demand and prices compared to the same period of the last year. The measures introduced for pandemic control played a significant role in this. Due to restrictions of public transportability, business communications, the demand for energy sources, including coal, has decreased dramatically. At the same time, the situation is affected by global challenges of recent years: increased competition, growing share of renewable energy sources, gas, hydrogen energy in the energy mixes of the advanced economies caused by strengthening the Climate Agenda requirements. A decrease in demand is also observed in the domestic market, which is, as well, attributable to a decline of economic activity due to coronavirus epidemic.
As far as the performance indicators, at the end of the second quarter of 2020 coal supplies to the domestic market were decreased by 11.6% and for export – by 5.6% when compared to the same period of the last year. The decrease in demand resulted in the lowering of the world coal prices, for instance, in the first quarter of this year the average price for power generating coal dropped by 10% (from $63 to $57 per ton) compared to last year. Some coal miners have to cut production in order to dispose the excess stock. As a result, in the second quarter the volume of production has been decreased by 9.6% compared to the previous year. The greatest production cut has been seen in coal mining regions located far from ports and border crossing points, especially in Kuzbass. At the same time, the Trans-Baikal Territory, the Republic of Khakassia, the Khabarovsk Territory, the Sakhalin Region, i.e. the regions located closer to the border, have managed even to increase production volumes. This suggests that in the east the level of demand is generally maintained.
Based on the average annual values estimates, in 2020 the expected total decrease in coal consumption varies between 4% and 12%. We can see a gradual recovery of demand with a slight growth already in the 4th quarter. This year export of the Russian coal is expected to be decreased in the range between 10% and 22%, mainly due to the western direction.
With that in mind, we are constantly analyzing various scenarios of the coal industry evolution and we have been prepared to countermeasures. In particular, we have already generated a list of the energy economy systemic companies, which includes coal companies. If necessary, the whole industry and particular companies can be supported by the government.
In addition, pursuant to the decree of the RF government, since June of this year, Minenergo has been approving a plan for coal products export transportation to the east, from the Kemerovo Region to Kuzbass. This mechanism will facilitate the transparency and predictability with respect to planning the production and investment programs of Russian coal companies, maintaining their positions in the Asian markets and ensuring a stable increase in coal shipments to the east.
In the medium term period we are planning to follow the Program of the Russian Coal Industry Development to 2035, approved by the government in June 2020. The key objective stipulated in the basic strategic document of the industry is to encourage Russian companies to supply coal and coal products to the domestic market in a stable manner under any conditions and scenarios, as well as to strengthen their positions in the world coal market.
When working on the document, we took into account the main parameters of a long-term social and economic forecast for the Russian Federation up to 2036, analyzed the opportunities and conditions for the development of domestic coal companies, their positioning at the coal market. When exposed to the global challenges and earlier encountered system-related issues requiring resolution, the targets for the development of coal products domestic market and for strengthening the positions of Russian coal companies in the world market have undergone significant changes.
We have generated two scenarios for the industry development: conservative and optimistic. In the conservative scenario, we proceed from the possible stagnation of coal consumption in the domestic power generating industry (at the level of 87 million tons), the minimum level of anticipated prices in the international steam coal market. In this dynamic, coal production will grow to 485 million tons in 2035. The optimistic scenario counts on the increase in production volumes to 668 million tons in 2035. It will be implemented subject to maximum volumes of coal consumption in the domestic power generating industry, specified in the Master Layout Plan of Power Supply Facilities to 2035 (120 million tons), and favorable conjuncture of prices for steam coal. However, in practice, the most presumptive scenario would be reaching the mean values of these two indicators.
According to the Coal Industry Development Program, the potential of this industry is largely owing to green fields and new production complexes. The joint licensing of “doubled” mineral property has been planned for expansion of the resource base and rational subsurface management. It makes provision for the production of coal in new prospective areas and simultaneous obligations for abandonment of the existing mining facilities. This approach has been already used in Kuzbass and, in our opinion, it is advisable to apply it in the other regions and at the interregional level.
Along with the technological modernization of the existing production in traditional coal basins (Kuzbass, Kansk-Achinsk, South Yakutsk basins, etc.) and further upgrade of new coal production complexes in the East of the country (in the Trans-Baikal Territory, Khakassia, Tyva and Yakutia), it is planned to develop coal fields of the Taimyr basin (Malolemberovsky and Syradasaysky coal fields) in the Krasnoyarsk Territory. This will be facilitated by using the opportunities of the Northern Sea Route expansion. With regard to the above mentioned, the share of the Eastern Siberia and Far East regions in the estimated coal production will be increasesd from 35% to 45–49% in 2035.
The important role in ensuring the optimal territorial-production and technological structure of coal mining and processing facilities is given to the establishment of interrelated technological complexes. At the same time, the abandonment of unpromising mines and open pits will be completed.
With regard to the domestic market, it is anticipated to implement projects for the construction and modernization of coal-fired generation facilities in Siberia and the Far East. It is planned to build 7 new coal-steam plants and to upgrade 12 existing ones.
Fundamental changes were made to the subprogram “Support of Coal Industry Technological Development”. New targets for automation and robotization of mining operations, introduction of technologies for their geoinformation support have been set. It is anticipated to develop information and control infrastructures based on the advanced technologies of the industrial Internet of things, in particular, such complexes as “Smart Mine”, “Intellectual Quarry”, “Intelligent Transport and Control Centers”.
At the same time, the targets for ensuring industrial and environmental safety are still considered to be top-priorities. It is also expected to completely abandon the potentially hazardous technologies, primarily with the underground mining method, to ensure the systematic abandonment of the mines with highly dangerous conditions, and, certainly, to implement corporate programs for employees` health preservation.
In the field of environmental protection it is planned to optimize the legal and regulatory framework and, along with strengthening the requirements, to motivate subsoil users for ensuring environmental safety.
As for the workforce capacity, in this area it is expected to involve the mechanisms of social partnership, development of the systems for the employees’ vocational and advance training based on the introduced technical and technological innovations, including a process digitalization. It is necessary to complete the started work for preparing professional standards for workers and employees. The gain in a real wage of one industry employee has been defined to be one of the indicators with respect to growth in prosperity of the population in coal-mining regions. Also, everyone is certainly concerned about the restructuring of coal industry, including the resettlement of miners` families. We expect to complete the miners’ relocating from dilapidated housing within the next few years.
Since the export orientation of the coal business is a key factor for the industrial growth of the Russian coal sector, we have thoroughly analyzed the current situation and summarized all forecasts for the world coal market development by countries and regions. Irrespective of some negative scenarios and the situation with spreading COVID-19, the growth dynamics of global coal consumption is sustained in the medium- and long-term forecasts. In particular, it is contributed by the development of the coal-fired power industry: harmful emissions into the atmosphere have been minimized almost to zero with the state-of-the-art coal power plants.
At the same time, the growth of international trade will continue. As estimated by many global analytical agencies, the common international coal trade will grow by 5–13% (from 1.45 billion tons in 2019 to 1.52–-1.64 billion tons in 2035). It is notable that its development potential is associated, first of all, with the growing (4–5% annually) market in the countries of the Asia-Pacific region, which accounts for almost 80% of all international coal trade; in 1980 this indicator was 26%.
Over the following 10 years, the demand for imported coal in the Asia-Pacific region is estimated to grow by more than 150 million tons. The fastest ramp-up will be seen in India, Vietnam, Pakistan, Bangladesh, the Philippines, Thailand and other countries in Southeast Asia. Also, the demand will be increased in Africa and the Middle East. This requires the arrangement of conditions, primarily infrastructural, for the delivery of Russian coal to the growing markets.
As part of the new program, we have estimated the growth in export flow towards the Asia-Pacific region from 100 million tons in 2018 to 237–252 million tons in 2035, i.e. 2.5 times. The total volume of exports in 2035 will be 259 million tons in the conservative scenario and almost 392 million tons in the optimistic scenario. The export of Russian coal was amounted to 220 million tons in 2019 (10 million tons more than in 2018).
I would like to emphasize that the implementation of both scenarios is subject to unconditional fulfillment of the Russian Railways plans for the transportation of coal to the East, especially in 2020–2025. We also rely upon unchangeable principles of the long-term tariff setting. Upon the removal of the system-related restrictions to the coal transportation the share of coal export flows to the markets of the Asia-Pacific region will grow from the current 50% to 75%.
It’s worth noting again that, in the midst of global challenges and an unstable market environment further successful performance of the industry shall require a systematic work targeted at the modernization of facilities, development of green fields, expansion of export potential, reduction of industrial injuries, improvement of environmental friendliness, and fulfillment of social obligations. All these measures will help to address the current challenges and to bring the coal industry to a new level of development.
We realize that even in the conditions of the deflation and decrease in demand the coal companies are trying not only to maintain their positions but also to fulfill social obligations, to ensure an adequate level of the country`s currency proceedings and investment in the fixed assets of coal companies.
We hope that, with account of the mutual support from related industries, we will fully achieve the desired goals and ensure a significant growth of the coal industry potential in the national and world economy. We anticipate that by 2035 the contribution of the coal industry to the gross domestic product will go up 1.5–2.5 times, the volume of tax revenues and insurance premiums – 1.6–2.6 times. We are confident that coal is not only the present, but also the future of the energy economy and Russia will be ramping up its potential in this area given that the coal feedstock reserve of the country is sufficient for about 500 years.