Under the new package of sanctions against Russia, the European Union will ban imports of coal from August. The move is likely to prompt a rise in prices of coal, natural gas, and electricity prices worldwide, and boost power and gas bills for households and companies.
According to the Council of the EU, the fifth package of sanctions includes a prohibition to purchase, import or transfer coal and other solid fossil fuels into the EU if they originate in Russia or are exported from Russia, as of August 2022. Imports of coal into the EU are currently worth EUR 8 billion per year, the council said.
The EU imports more than 40 percent of the coal it consumes, and half is supplied from Russia. According to Rystad Energy, Germany and the Netherlands are the largest coal importers in the EU.
Russia covers 70 percent of the EU’s imports of thermal coal, which is crucial for power production
Looking just at thermal coal imports into the EU, the dependency is much higher as Russia covers 70 percent of all shipments from abroad – it is typically high-energy bituminous coal, crucial for power stations that are designed to run on such fuel, Rystad said.
Of note, in 2021 EU produced 14 percent of electricity from coal.
The EU’s move comes at a moment when coal prices are on the rise. Northwest coal futures prices have increased from around USD 70 per tonne in January 2021 to almost USD 450 in March 2022, and the current price is at USD 300.
Eastern Europe, Germany to experience hardest blow
Eastern Europe and Germany will be hit particularly hard as they generate a significant share of their electricity with Russian thermal coal, Rystad said.
It added that EU countries will have to find alternative sources of supply in a “market where prices have more than quadrupled in the past year.”
Rystad: Sanctions are a double-edged sword
“These latest sanctions are a double-edged sword. Russian coal exports are worth an estimated EUR 4 billion per year, and there is no easy like-for-like replacement for Russian coal in Europe’s power mix. European consumers – from large companies to households – should expect high prices for the remainder of 2022 as coal and gas are essential to meet the continent’s power demand,” said Carlos Torres Diaz, head of Rystad Energy’s Power Market Research team.
According to Reuters, the EU could turn to Colombia, South Africa, Indonesia and Australia for supplies, which could push coal importers such as China, Japan, India and South Korea to switch to Russian supplies.
However, imports from South America, Asia, and Australia come at a high cost due to expensive transport.