Coal crisis in India worsens as energy demand rises, record world prices affect

  • Energy demand growth shifts to industries from housing
  • Rising global coal prices negatively affect Indian coal imports
  • Coal stocks in power plants are at multi-year lows

Chennai (Reuters) – Indian utilities are scrambling to secure coal supplies as inventories fall to critically low levels after increased energy demand from industries and slowing imports due to record global prices pushed power plants to the brink.

Government data shows that more than half of India’s 135 coal-fired power plants have fuel stocks of less than three days, well below federal guidelines recommending at least two weeks of supply.

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Energy fuel prices are rising globally as demand for electricity picks up with industrial growth, and supplies of coal and liquefied natural gas shrink. Read more

India is competing with buyers such as China, the world’s largest coal consumer, which is under pressure to ramp up imports amid a severe energy crisis. Read more

Rising oil, gas, coal and energy prices are fueling inflationary pressures around the world and slowing the economic recovery from the COVID-19 pandemic. Read more

“The supply crunch is expected to continue, with the non-energy sector facing heat as imports remain the only option to meet demand but as costs rise,” the Standard & Poor’s credit rating agency’s Cresil unit said in a report this week, adding that it expected Asian coal. Prices to continue to increase.

“Coal stocks in (Indian) thermal plants will gradually improve by next March,” he added.

Indian energy producers who are bound by long-term agreements with distribution utilities cannot pass on higher input costs unless a clause to pass on such expenses is written in the contract.

Traders and utilities officials said purchases by power plants based on imported coal were weak due to higher prices.

India’s average weekly coal imports during August through late September — when global coal prices rose more than 40% to their all-time highs — were more than 30% lower than the average for the first seven months of the year, according to data compiled by Kplr.

Total imports last week were less than 1.5 million tons, the smallest in at least two years.

coal imports india by supplier

The websites of major coal-importing government facilities did not show any new tenders seeking new shipments this month.

Coal prices from major exporters have soared to all-time highs recently, with Australia’s Newcastle prices up nearly 50% and Indonesian export prices up 30% in the past three months.

Indonesia’s benchmark coal price for September was seven times higher than the high-quality fuel sold by Cool India to Indian utilities, according to Reuters calculations.

“Traders who have bought coal from Coal India at spot auctions are making big profits. They are selling at 50-100% premiums,” said a senior official in charge of purchasing coal at a large Indian utility operator.

State-run India Coal Company (COAL.NS) He said this week that rising global coal prices and freight rates have pushed utilities that rely on imported coal to reduce energy production, increasing reliance on domestic coal-fired plants.

India is the second largest importer of coal in the world despite having the fourth largest reserves. Utilities make up about three-quarters of its total consumption, with Coal India accounting for more than 80% of the country’s production.

High demand for industrial energy

Power plants in India are also struggling with rising demand from industries as economic activity recovers from the latest wave of the COVID-19 pandemic.

A Reuters analysis of data from the federal grid regulator POSOCO showed that energy consumption in industrialized states including Maharashtra, Gujarat and Tamil Nadu grew between 13.9% and 21% in the three months to September.

The three states account for nearly a third of India’s annual electricity consumption. Industries and offices account for half of the country’s annual electricity consumption. During the last two quarters of the fiscal year ending in March 2021, the residential and agricultural sectors were the main drivers of energy consumption after the first wave of coronavirus.

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“This year we have seen tremendous growth in industrial demand,” Shahmina Hussain, managing director of the Gujarat Electricity Regulatory Authority, told Reuters.

POSOCO data showed that while there were no major blackouts in India, the deficit increased nearly four times from the meager levels recorded last year.

The data showed that the shortage is so far limited to northern states such as Uttar Pradesh, Bihar and Kashmir.

“Local consumption has increased by about 10 percent in the last two years due to working from home and air conditioning,” a senior official in the Tamil Nadu state government told Reuters.

“After the industries opened up after the second wave, industries became king,” the official said.

(Report) by Sudarshan Varadan. Editing by Florence Tan, Lincoln Fest, Kirsten Donovan

Our criteria: Thomson Reuters Trust Principles.

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