Just last summer and autumn, China had just experienced a blackout due to a sharp rise in coal prices, but what people did not expect was that just a few months later, a similar crisis seemed to be coming again:
On December 31, 2021 local time, the Indonesian government suddenly announced that they would stop all domestic coal export operations between January 1 and January 31, 2022.
Screenshot of related reports
Many people have the impression that Indonesia is a tropical island country full of palm trees, and it will not have the typical "northern specialty" of coal. However, the fact is that Indonesia not only has an unusually rich variety of mineral resources, but also is the number one coal supplier in the international market today:
According to the Indonesian Ministry of Mining and Energy, Indonesia's coal resource reserves are 58 billion tons, and the proven reserves are 19.3 billion tons, of which 5.4 billion tons are commercially exploitable reserves.
In order to make full use of these coal resources, the Indonesian government has long been encouraging domestic coal exports to international markets. So far, there are more than 40 coal mining companies in Indonesia, and in 2020 alone, these companies exported 405 million tons of thermal coal to the international market, accounting for 31.5% of the total exports of the global coal market that year.
Indonesian coal exports
Then in 2021, with the accelerated recovery of the global economy after the epidemic, the demand for coal in the international market has further risen, although there is no complete analysis report yet, but many analyst agencies believe that Indonesia's thermal coal exports are expected to further increase in 2021, reaching 435 million tons. Coupled with the fact that prices once soared by more than 120% year-on-year, Indonesia can be said to be making a lot of money in the international coal market in 2021.
According to multi-party forecasts, although the increase will decline compared with 2021, the demand for high-quality thermal coal in the international market will remain strong in 2022. What's more, at a time when the northern hemisphere, where the world's major industrial countries are gathered, has entered the winter and the demand for coal is the most concentrated, and the Indonesian government has 10,000 reasons to further increase the export of domestic coal.
But the truth clearly backfires with speculation:
According to the Indonesian news website Kuumparan reported on the 1st, on December 31, the website of the Indonesian Ministry of Energy and Mineral Resources suddenly published an open letter signed by Ridwan Jamaludin, director of the Mining and Coal Bureau of the Indonesian Ministry of Energy, to all coal mining enterprises, announcing that it would ban the export of all Indonesian domestic coal from January 1 to 31, 2022.
As for the reason, the letter wrote that this is due to the fact that in the past few months, many Indonesian coal mining enterprises have failed to fully supply domestic power plants in accordance with the "domestic market supply obligations", resulting in the current coal supply gap in Indonesia's domestic power plants.
The so-called "domestic market supply obligation" here refers to the fact that in order to ensure the domestic production and living electricity and ensure the energy security of indonesia, from 2018, Indonesian law stipulates that all coal enterprises in Indonesia must supply 25% of their production to the Indonesian National Power Company at an ultra-low price of no more than 70 US dollars.
Ridwan Jamaludin wrote in the letter that because coal companies have failed to meet this target, the supply of coal for domestic household electricity in Indonesia is now very tight, and the lack of electricity supply may soon force at least 20 power plants across the country to shut down, affecting 10 million household and industrial users. ”
Ridwan Jamaludin added that the ban was only a temporary measure, during which all ports involved in coal export operations must store all coal and prioritize supply to domestic power plants. When exports will resume is determined by further assessment of the stocks of national power companies and independent power plants.
As soon as this ban came out, it naturally immediately triggered a complaint in the Indonesian coal industry. The Indonesian Coal and Energy Suppliers Association said the Indonesian government's abrupt announcement of the ban because many companies had already signed long-term contracts to sell coal to overseas buyers was entirely undermining the already highly mature business environment of Indonesia's coal industry.
The Indonesian Coal Mining Association similarly called on the Energy Minister to lift the export ban. In a statement, the association said the ban was "taken hastily without discussion with business participants", which could undermine Indonesia's relatively fixed monthly coal production, triggering commercial disputes between coal companies and international buyers, which "will affect Indonesia's reputation and reliability as the world's coal supplier".
But in any case, at least so far, the Indonesian government has shown no willingness to lift the ban. In the face of fait accompli, Industry analysts at Mandili Bank indonesia are pessimistically predicting that Indonesia's export ban will push up global coal prices in the coming weeks as coal inventories fall, while also forcing Indonesia's old customers to turn to Russia, Australia or Mongolia, "in this global uncertainty, the market usually looks for the safest partner."
Coal mining
For China, the ban is also worse.
Although it has a huge amount of coal resources and mineral deposits, but due to the impact of quality and the protection of domestic coal resources, as early as 2011, China surpassed Japan to become the world's largest coal importer and has maintained it to this day.
In 2020, China imported 309 million tons of coal, accounting for about 20% of the total international coal imports, of which 140 million tons came from Indonesia;
From January to November 2021, China imported 293.7 million tons of coal, of which 178.1 million tons came from Indonesia, which not only exceeded the import volume in 2020, but also further climbed to 61%.
So in this case, the Indonesian government announced such a ban, which means that China will lose 61% of its imported coal in the first month of 2022 – if you use the november 2021 data as an analogy, this figure specifically means that 19.5 million tons of high-quality thermal coal supply is missing.
Considering that it is currently in the middle of China's winter, the Spring Festival at the end of January is coming, and the opening of the Beijing Winter Olympics on February 4, the three peaks of electricity consumption are superimposed, but the Indonesian government has cut off more than half of China's thermal coal imports at this time, and the consequences can be imagined.
China thermal power plant
Since the Indonesian government is reluctant to export coal, why don't we increase the import value of other countries to replace it? The answer is quite difficult:
In China's coal import structure, Indonesia, Australia, Russia and Mongolia are the top four suppliers in order of high to low, after which the Philippines, Canada and other countries export less than 10 million tons to China every year, and do not have the ability to replace the top four supplier countries.
Therefore, Australia, which ranks second, should have become the best substitute for Indonesia, but due to the Sino-Australian economic and trade dispute, China has basically suspended Australia's coal export business to China, and it is impossible for Australia to replace Indonesia;
Mongolia, ranked fourth, significantly reduced coal exports to China as early as March 2020, and this trend has even worsened now – according to customs data, Mongolia exported only 980,000 tons of coal to China in August 2021. Aid from Mongolia is also not counted on.
So the only substitute that can be counted on at the moment is Russia, which ranks third. But the problem is that the gap left by Indonesia is too big – from January to November 2021, Indonesia exported 178.3 million tons of coal to China, and Russia only 52.91 million tons, a gap of more than 3 times, and this is the result of Russia's efforts to expand exports to China after Australia and Mongolia withdrew.
In other words, even if the Russians are happy to fill the gap, neither their capacity nor capacity will be able to make them do so.
For China, the ban on Indonesian coal exports is no longer related to the issue of coal and even electricity prices, but whether it will repeat the major energy security problems of large-scale power curtailment across the country at the turn of last summer and autumn.
So this makes one wonder, is Indonesia's power shortage really so severe that it is necessary to block the country's coal exports?
For this problem, in fact, even Indonesia's own media are suspicious: according to the official data of the Indonesian government, Indonesia's coal production will further climb to 644 million tons in 2022, but the consumption of the domestic market is estimated to be only 190 million tons, so little demand, it is really not enough for the Indonesian government to make such a big move.
As a result, some foreign media have begun to speculate that just recently, the Indonesian side and China have a sovereignty dispute in the South China Sea, and the Indonesian government has cut off the coal supply to China for the purpose of retaliation.
Indonesian President Joko Widodo
But this statement actually can't be scrutinized:
First of all, if the Indonesian side is retaliating against China for political purposes, then the Indonesian official media will inevitably carry out a public opinion campaign in advance, but in reality, this situation has not appeared;
Secondly, Indonesia's interruption is not only coal exports to China, but all foreign exports, which are not targeted to China;
Finally, although Indonesia will increase coal production capacity in 2022, due to weather factors, especially the heavy rainfall brought by the La Niña phenomenon, the production of Kalimantan, Indonesia's main coal-producing region, will have a greater impact, and Indonesia's coal mining capacity will slow down in the last few months of 2021. As of December 17, Indonesia's coal mining volume this year totaled 581 million tons, only 93% of the annual production target of 625 million tons.
In other words, compared with giving priority to ensuring domestic power supply at a nearly loss-making price, coal companies that see money in the eye of money naturally prefer to give priority to increasing foreign coal exports, but in the context of Indonesia's coal mining targets this year, this will naturally lead to a relative reduction in Indonesia's domestic quotas, triggering Indonesia's national energy security bottom line.
What the Indonesian government has done is actually what a national government should do responsibly, and should not rely on conspiracy theories.
Coal mining in China
For China, although the lack of Indonesian coal does lose a lot, it must be noted that China's own coal production has always far exceeded imports: from January to October 2021 alone, China's coal production reached 3.3 billion tons.
In the face of such a huge production capacity, do we still need to worry about the lack of coal imports of less than 20 million tons?
Imported coal for our country, is pure icing on the cake rather than sending charcoal in the snow, all kinds of strange or ill-intentioned conjectures, can be completely put to rest.