Monday, January 24

Crude prices skyrocket, coal futures stagnate as western leaders debate energy future


It is ironic that, as world leaders gather at the COP26 climate change conference in Glasgow this week to discuss ways to reduce carbon emissions, South Africans have to shell out an additional 1.21 rand per liter of gasoline and 1 , 48 rand. for diesel. The fuel level of R20 per liter is now in sight.

This occurs the same week that President Cyril Ramaphosa announced a landmark agreement between South Africa and several of the world’s leading economies to secure R131 billion to finance the country’s transition to a low-carbon economy.

Read: SA secures R131bn’s commitment to transition to a low-carbon economy

While climate activists and supporters of wind and solar solutions are welcome, others are less convinced that there is a lot of good in the R131 billion deal for South Africa.

“With access to electricity in just 56% of the African continent, and less than 40% in more than a dozen countries, our top priority remains achieving universal access to energy,” says NJ Ayuk, Speaker of the Chamber. African Energy.

The charts below tell the story of energy.

Rising oil prices are the result of a global supply crisis due to the economic rebound following the collapse of Covid in March 2020. At the same time, China’s decarbonization efforts have gained urgency due to the upcoming Olympics in February next year and a campaign by the Chinese president. Xi Jinping to show the world clear blue skies.

As world leaders meet in Glasgow and plan an accelerated phase-out of coal, harsh economic realities suggest that events may not go as planned. China, like South Africa, has been getting a dose of ongoing blackouts, and that has hampered expectations for economic growth. China suffers from a coal shortage, but the country’s central economic planners have proposed a cap on coal prices to reduce the costs of power generators. That brought coal futures back to earth, along with iron ore and coking coal prices.

Crude Oil WTI (USD)

Source: Share Magic

The ripple effect on South Africa’s coal, iron and energy stocks was immediate.

Kumba Iron Ore has been cut nearly in half since peaking in August, coal producer Thungela Resources is down 35% over the past month and Exxaro Resources is down more than 12% in a month. These price drops are the result of political meddling in the Chinese energy market and are foretold to eventually fail, resulting in prices returning to the dizzying heights seen in recent weeks.

Meanwhile, Bloomberg reported that China’s central government officials “ordered the country’s major state-owned energy companies to secure supplies for this winter at all costs.”

This caused oil prices to rise, while coal futures plunged on news of China imposing caps on producer prices. Those price caps may be politically popular, but they are economically unsustainable, meaning the Chinese state will have to subsidize energy production or introduce a differentiated pricing structure for local and foreign suppliers.

General bans on public funding for fossil fuel projects

In this context, world leaders and climate activists meeting in Glasgow believe that renewable energy can replace fossil fuels in the pursuit of a ‘net zero’ carbon emissions target by 2050. As part of this effort, most of banks have pulled out of funding fossil fuel projects, something welcomed by climate activists but deplored by many oil and gas executives, particularly those involved in natural gas, which is seen as a transitional fuel to a decarbonized economy.

They come to the West, which has benefited from more than 100 years of fossil fuel-driven industrialization, now changing the rules to benefit themselves and paralyze Africa, just as it realizes its economic potential by exploiting its endowment of natural resources.

Africa’s population is expected to double in the next three decades, and with rapid urbanization, energy needs will likely double or even triple by 2040. “With blanket bans on public funding for fossil fuel projects, the West is pulling from the carpet from the bottom African hydrocarbon exploration and production, insisting that Africa meet the ever-increasing demand for the continent’s new sources of wind and solar energy, ”Ayuk says.

Gas-to-energy projects are a huge and growing opportunity for Africa, and a much more effective way to ensure a just transition to clean energy, he adds.

Ahead of the COP26 conference, Ugandan President Yoweri Museveni wrote in the Wall Street Journal that Africa cannot sacrifice its future prosperity for Western climate goals. It’s a sentiment that resonates with African leaders facing calls to walk the decarbonisation path mapped out by Western nations, many of which are among the world’s worst polluters.

“Windmills and solar panels can be very good for places like the US and Europe with their more established power grids, although the calm winds in Europe this summer mean the UK, for example, is thinking of coming back. to burn coal for heating in the months to come, but in Africa, they only exacerbate the continent’s electrification problems. By producing what Museveni called “expensive and unreliable electricity,” wind and solar power force Africans to compensate with diesel generators or batteries that emit CO2. Ironic, isn’t it? writes Ayuk in a recent editorial.

The price of coal futures plummets (ICE NewCastle Coal Nov ’21)

Source: Barchart.com

Des Muller, a spokesperson for SA Nuclear Build Platform, told Moneyweb that Western nations may try to convince SA that its coal-fired power plants can be reused with renewable energy, but renewables would be lucky enough to achieve 10% of production. of energy from a coal. -Electric plant on.


www.moneyweb.co.za

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