“The two major poles of Colombian coal, which are Europe and the US, have experienced a very rapid fall in demand for coal in recent years,” says Paola Yanguas, research associate at the Coal Exit research centre.
“In the EU the main reason for the fall has been climate policy. In the US, it’s competition from other energy sources, such as shale gas [obtained by fracking] and renewable energies, mainly solar and wind power.
This situation highlights Colombia’s lack of planning. For the past five years, the country has had to start looking for new clients. But rather than targeting specific markets, the policies of the last two governments have focused on supporting production or infrastructure.
“Government policies are not focused on a particular market but on improving the sector’s competitiveness so that it can access increasingly distant and competitive markets such as Asia,” says Juan Camilo Nariño, president of the Colombian Mining Association. “We are working with the Government to promote a policy that will enable it to be increasingly competitive.”
The government of President Ivan Duque, however, has not outlined a concrete plan of action.
“I don’t think the government has sat down and looked at the details,” says Giovanni Pabón, a researcher into carbon and a former coordinator of the Environment Ministry’s Climate Change Mitigation Group. “We are going to have a serious problem with financial flows and employment generation in producing areas in about ten years or so”.
Coal companies, meanwhile, seem less inclined to talk publicly about the future of the business. At Carbones del Cerrejón, the largest company in the sector, the press office did not respond to our four interview requests since August, although their official mails returned automatic responses explaining that they were on strike.
Drummond, the second largest national producer and a private US company operating two mines in Cesar department, eventually responded, declining the offer to contribute to this article after a month of consultations with their parent company. And Prodeco, the third largest coal company in Colombia, claimed that they could answer our questions, but that they would refer them to their parent company, Glencore, in Switzerland. As of the date of publication, they had not responded. Fenalcarbón, the coal producers’ trade association, said it had no spokespersons available.
China, the promised market?
China is seen as a form of commercial promised land, an evaluation often based on wishful thinking reather than reality. Valora Analitik, an economist, however, has said that the world’s largest coal consumer could throw a lifeline to Colombian coal.
At the end of the day, it is still a colossal market. China imported 299.7 million tonnes of coal in 2019. Despite the Covid-19 crisis, its imports between January and April 2020 increased by 26.9% on the previous year to reach 126.73 million tonnes, according to statistics from the SteelGuru Strategic Research Institute.
For a few months in 2020 there was the illusion of a fast gateway to China. A diplomatic conflict between Australia and China, caused by Canberra’s call for an international enquiry into the Covid-19 pandemic, led to a temporary halt in Australian coal imports. The opportunity seemed huge – Australia is the world’s fourth largest producer.
The pandemic also led to a fall in sea freight volumes, and with it a fall in prices, facilitating access to the Asian market. Freight costs, which are normally between US$20 and $25 per tonne between Puerto Bolivar in the Colombian Caribbean and south-east China, fell $12.25 in April and $10.80 in May, according to figures from Perret Associates.
1%
China’s share of Colombia’s total coal exports
This window of opportunity, however, closed when the cost of freight rose again. In July it reached $27.25 per tonne. Several experts agree that the cost of transport means China is an unliekly major market for Colombian coal. Although it grew in the first half of 2020, China still accounts for scarcely 1% of Colombia’s coal exports.
“When freight prices rise, Colombia is at a disadvantage because it competes with Australian, Indonesian and Russian coal,” says Guillaume Perret. “Colombian coal is a volatile supplier to the east. When freight rates are low and demand is strong, it can be exported, but when costs rise, it is not competitive”.
Chinese President Xi Jinping dealt a further blow to Colombia’s coal ambitions when he announced at the UN in September that China aims to peak its greenhouse gas emissions by 2030 and achieve carbon neutrality by 2060. Like Europe, China is advancing its own energy transition.
The future of Colombian coal
While Colombia’s environmental commitments under the Paris Agreement are not linked to its coal production, changes in international demand do depend on the climate objectives of its customers. Greenhouse gas emissions that cause climate change count only for the country that burns fuels like coal, but not for those that produces and sell it, like Colombia.
Instead of China, Turkey and other emerging economies could save Colombian coal, according to observers. The huge increase in Colombian coal exports to Asia is due to the fact that Turkey is considered part of the continent. Between 2005 and 2015 sales increased by almost 400%. In 2019, Colombia exported US$1.1 billion worth of coal, representing 94.7% of its exports to the country, according to figures from the Ministry of Trade, Industry and Tourism.
There is one problem. When Turkey and other emerging economies upon which Colombian coal depends, such as Brazil and Panama, get serious about their energy transitions, this potential lifeline would disappear.
“It’s not so much a question of finding new markets,” says Giovanni Pabón, who stresses that there are structural problems the national coal industry might not recover from. “It is bad news at an economic level, but it is good news for our creativity in transforming coal jobs into renewable energies,” he adds.
As it rapidly loses one of its main sources of export revenues, Colombia may have no choice but to adapt or perish.
