Italy's coal demand outlook bleak for 2024

Spanish Market: Coal
12/02/24

Italian coal-fired generation is likely to remain soft over the coming months, barring a stark reversal in coal-to-gas fuel-switching trends. And coal imports this year are likely to fall sharply from 2023 levels ahead of a swath of coal-fired plant retirements and as utilities struggle with oversupply in the spot market.

Italy's coal-fired generation last year collapsed by 42pc, compared with 2022 (see chart), and generation of 440MW in January was the lowest since April last year, grid operator data show.

Average coal-fired generation from August 2023-January 2024 of 740MW is equivalent to 1.2mn t of NAR 5,800 kcal/kg coal burned at a 40pc-efficient plant, Argus calculations show. This is about 2.8mn t less implied coal burn than in October 2022-January 2023.

Italy's coal imports have also fallen, but to a lesser degree than its generation, leaving the market saturated. Receipts over August 2023-January 2024 declined by 2.3mn t on the year to 1.7mn t, shipping data show.

A major Italian utility in recent weeks has been looking to resell contracted cargoes back into the market, indicating oversupply, trading firms said.

There is little concern about Italy's gas supply situation heading into the end of winter. The country's gas stocks were 61pc full as of 12 February, data from GIE show. This is up from 45pc in February 2022, just before the tumult caused by the Russia-Ukraine war.

The Italian government has announced that, at the advice of system operator Snam, the country will maintain strategic gas stocks at 4.62bn m³ for 2024-25, to ensure sufficient supply in case of a crisis.

This reduces the likelihood of a significant shift in coal-to-gas fuel-switching levels. The decline in Italy's coal-fired generation "is about the order of merit", a European trading source said. "At the moment, gas is cheaper, and coal is more expensive. It comes down to the cost," it said.

Fuel switch, maximisation plan end

Day-ahead clean dark spreads for 44pc-efficient coal-fired units were assessed by Argus at an average of €11.59/MWh last month, well below the €54.42/MWh recorded in January last year. Day-ahead clean spark spreads for 55pc-efficient gas-fired plants held an average advantage of €9.20/MWh to clean dark spreads last month, flipping from a €30.61/MWh disadvantage in January last year. Italian gas-fired generation reached 11.8GW last month, up from 11.2GW in the same month last year.

And based on forward prices, standard-efficiency coal is behind standard-efficiency gas in the Italian merit order for base and peak-load power generation for the balance of 2024.

Another key factor that cut Italian coal burn in the second half of last year was that emergency measures enacted following Russia's invasion of Ukraine came to an end. The Italian government authorised measures to operate six key coal-fired plants at a higher capacity until March 2023, later extended to 30 September 2023. The "maximisation" sought by the plan to prioritise coal and oil-fired plants over gas-fired units during periods of peak heating and cooling demand has ended.

Consumption dictated by phase-out

In the longer term, Italy's coal demand outlook will be dictated by the pace of its phase-out schedule, which is set to ramp up in the next few years.

The Italian government's National Energy Strategy (Sen), adopted at the end of 2017, outlined the country's commitment to phase out coal by 2025. In June last year, environment minister Gilberto Pichetto Fratin said Italy intended to "abandon coal by 2025 or even earlier" and switch to LNG if gas prices hold low.

Italy has 6GW of installed coal-fired power capacity, with state-run utility Enel operating 4.7GW of this. Last year, the operator said it wanted to shut all of its coal-fired plants by 2027.

The Fusina power station, with an installed capacity of 540MW, in December last year was the latest Enel plant to retire. It will be replaced by a new gas-fired plant in August this year. The 2GW Torrevaldaliga Nord is scheduled to retire by 2025, while the closure of the Sulcis plant in Sardinia has been pushed back to 2027 because of delayed interconnections with mainland Italy.

The 640MW Fiume Santo coal-fired power plant, also in Sardinia and operated by EP Produzione, is set to remain operational until 2027 for the same reason. The Fiume Santo unit has been Italy's hardest-running coal-fired facility in the past few months, with generation having averaged 240MW from 1 October-31 January.

Diversifying imports

Since August 2022, when imports of seaborne coal from Russia came under sanctions, Italy has diversified its supply and doubled down on imports from South Africa and Indonesia.

South African coal receipts rose to 1.9mn t last year, up by 32pc from 2022, while Indonesia emerged as a key player, with imports from the country rising to 830,054t in 2023, the highest in five years.

By Ashima Sharma and Timothy Santonastaso

Italy seaborne coal imports mn t

Italian coal-fired generation GW

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27/11/24

Australia's BOM forecasts severe cyclone season

Sydney, 27 November (Argus) — Australia's Bureau of Meteorology (BOM) expects the country to experience 11 tropical storms over the next few months, threatening the country's mineral-rich Pilbara region and coal infrastructure in Queensland. The number of storms is in line with historical averages, but BOM warns that rising ocean temperatures could increase their severity. The state weather agency believes that four of these storms will make landfall from late December, and that a La Nina event could start later this year, although it may not last very long. La Nina events are associated with high levels of cyclonic activity. BOM's forecasts suggest that five of the storms are likely to form around Western Australia's mineral-rich Pilbara region, which houses more than 40 operating iron ore mines and two lithium mines. Over the last three months, sea surface temperatures around Pilbara have exceeded historical averages by 1.2–2°C, warming more than in any of the country's other cyclone-prone regions. On the other side of the country, four tropical storms could form around Queensland's cattle and coking coal producing regions, although these are likely to be less severe than the Pilbara storms. Temperatures across most of Queensland are forecast to exceed historical averages by 0.4–1.2°C in October-December. Cyclonic weather in Pilbara could disrupt iron shipping and mining activity in the region. Australia's three largest iron export ports sit along the region's coast. In 2019, Cyclone Veronica forced the closure of Pilbara's three major ports and multiple mines operated by mining company Rio Tinto, prompting the firm to cut its production forecasts for the year. Harsh storms in Queensland have previously damaged vital coal transport links in the state, hampering exports. In 2017, Cyclone Debbie damaged rail lines linking coal mines to the ports of Gladstone, Hay Point, Dalrymple Bay, and Abbott Point, which handle most of the state's coking coal exports. More recently, severe weather also halted deliveries to Mackay port . Queensland and Pilbara are also home to major LNG terminals at Dampier and Gladstone ports that sit within cyclone-prone zones. The two terminals together export over 3mn t/month of LNG . By Avinash Govind Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Opinion: Bridging the divide

22/11/24

Opinion: Bridging the divide

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Japan’s Taketoyo to resume biomass co-firing in 2027

22/11/24

Japan’s Taketoyo to resume biomass co-firing in 2027

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Cost of government support for fossil fuels still high

21/11/24

Cost of government support for fossil fuels still high

London, 21 November (Argus) — The cost of government measures to support the consumption and production of fossil fuels dropped by almost a third last year as energy prices declined from record highs in 2022, according to a new report published today by the OECD. But the level of fiscal support remained higher than the historical average despite government pledges to reduce carbon emissions. In an analysis of 82 economies, data from the OECD and the IEA found that government support for fossil fuels fell to an estimated $1.1 trillion in 2023 from $1.6 trillion a year earlier. Although energy prices were lower last year than in 2022, countries maintained various fiscal measures to both stimulate fossil fuel production and reduce the burden of high energy costs for consumers, the OECD said. The measures are in the form of direct payments by governments to individual recipients, tax concessions and price support. The latter includes "direct price regulation, pricing formulas, border controls or taxes, and domestic purchase or supply mandates", the OECD said. These government interventions come at a large financial cost and increase carbon emissions, undermining the net-zero transition, the report said. Of the estimated $1.1 trillion of support, direct transfers and tax concessions accounted for $514.1bn, up from $503.7bn in 2022. Transfers amounted to $269.8bn, making them more costly than tax concessions of $244.3bn. Some 90pc of the transfers were to support consumption by households and companies, the rest was to support producers. The residential sector benefited from a 22pc increase from a year earlier, and support to manufacturers and industry increased by 14pc. But the majority of fuel consumption measures are untargeted, and support largely does not land where it is needed, the OECD said. The "under-pricing" of fossil fuels amounted to $616.4bn last year, around half of the 2022 level, the report said. "Benchmark prices (based on energy supply costs) eased, particularly for natural gas, thereby decreasing the difference between the subsidised end-user prices and the benchmark prices," it said. In terms of individual fossil fuels, the fiscal cost of support for coal fell the most, to $27.7bn in 2023 from $43.5bn a year earlier. The cost of support for natural gas has grown steadily in recent years, amounting to $343bn last year compared with $144bn in 2018. The upward trend is explained by its characterisation as a transition fuel and the disruption of Russian pipeline supplies to Europe, the report said. By Alejandro Moreano and Tim van Gardingen Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Cop: Australia backs no new coal power call: Correction

20/11/24

Cop: Australia backs no new coal power call: Correction

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