TOKYO May 2 Indonesian and Australian coal
exporters are moving aggressively to fend off competition to
meet Japan's new-found appetite for the fuel to generate
electricity while the country's nuclear reactors remain offline
after the Fukushima disaster.
Japan's coal imports are set to hit another record over the
next year as utilities led by Tokyo Electric Power Co
burn more of the cheaper fuel to cut surging energy bills that
pushed the nation into a record trade deficit last year.
The move to coal has already made some inroads into the fuel
bill as Japanese utilities have been able to force down prices
for annual contracts. Competition for the market in the world's
second-largest importer is fierce as exporters struggle with a
glut of supply on global markets that has pushed benchmark
prices to a three-year low and is forcing higher
cost producers to curb output.
Japan's government is encouraging utilities to burn more
coal by relaxing environmental rules and to build power plants
that use technology to limit emissions.
"This policy is important to diversify Japan's energy
options while lowering fuel procurement costs and strengthening
our bargaining power," trade and industry minister Toshimitsu
Motegi said on Friday, referring to the easing of rules.
"We will boost usage of energy-efficient coal power
generation in the light of its contribution to a stable energy
supply and cheaper fuel costs," Motegi said, adding the
government intends to promote Japanese clean coal technology
sales overseas to help revitalize the economy.
The government estimates coal is about 10 percent cheaper
than liquefied natural gas (LNG) per energy unit. Japan is the
world's top LNG importer.
A weakening Japanese yen, the flip side of Prime Minister
Shinzo Abe's aggressive stimulus efforts, provides another
imperative for utilities to seek cheaper fuel.
The dollar's rise to a four-year high against the yen means
power companies can expect to pay 3.8 trillion yen ($39
billion)more for fuel this business year than last, the
government has said. That is double the fuel import bill before
U.S., SOUTH AFRICA AND RUSSIA
Big coal producers in the United States, South Africa and
Russia are looking for a share of a market dominated by
Indonesian and Australian firms.
Two of Japan's utilities - Tohoku Electric Power Co
and Chubu Electric Power Co - say they are looking at
U.S. coal more closely after Kansai Electric Power Co
and Kyushu Electric Power Co in November signed a
contract for 1 million tonnes at lower prices than from
Australia, Japan's biggest supplier.
Australia's exporters have had to cut prices in response to
both increased competition and falling international coal
prices. The largest thermal coal exporter Xstrata Plc
and Tohoku Electric earlier last month settled a benchmark
annual supply contract 17 percent lower than last year.
The talks dragged on beyond their usual deadline as Tohoku
Electric, which was representing Japan's utilities, refused to
The reduction was a little more than the 14 percent fall in
the past year in Asia's benchmark coal prices, Australia's
Newcastle spot index, to around $86.50 a tonne.
U.S. exports to Japan have more than tripled in the first
three months of 2013 to 311,000 tonnes - and cost nine percent
less than supplies from Australia, according to government data
released on Friday.
U.S. coal exporters such as Florida-based Oxbow Coal &
Petcoke, a wholly-owned subsidiary of Oxbow Carbon,
are looking for new export markets to compensate for falling
demand at home as domestic shale gas output rises and displaces
coal as a fuel for power generation.
Imports from South Africa are up 57 percent this year, while
the flow from Indonesia to Japan is down 15.4 percent and from
Australia down 0.4 percent.
"The reality is that there is likely to be a queue of
interested coal producers ready to spring increased volumes to
Japan and we are amongst them," said Dileep Srivastava, a
director at Indonesia's PT Bumi Resources TBK, Asia's
biggest thermal coal exporter.
RELAX RULES ON COAL-FIRED POWER
Coal consumption by Japan's 10 regional power monopolies and
the biggest coal user, wholesaler J-Power, is set to
rise 11 percent to a record 79.3 million tonnes in the business
year that started in April, according to a Reuters survey of
utilities. These companies account for nearly four fifths of
Total thermal coal imports in the last business year were at
a record 106 million tonnes with Russian supplies increasing to
a historical high of 8 million tonnes.
Japan's coal imports slipped in the first three months of
this year but will rebound after Tepco started test runs for two
new coal units with 1,600 megawatts of capacity last month.
Tohoku Electric resumed full commercial operations of a
2,000 megawatt coal power station on Friday, after repairing
damage from the natural disaster that set off the Fukushima
The government on Friday relaxed tough environmental rules
on building new coal-fired power stations. The restrictions had
been an effective ban on construction.
New plants employ burning techniques that have made Japan's
coal plants among the world's most efficient. Design advances
include combined cycle coal gasification, called IGCC, used at a
plant in Fukushima operated by Tohoku Electric and Tokyo
Electric that started in April.
"Coal has become the new source for base load power
generation following the shutdown of nuclear reactors," said Ken
Taniguchi, an analyst at Mathyos, a Tokyo-based energy
How long the window of opportunity for coal exporters will
last depends on how many reactors can restart after the
country's nuclear regulator puts in place new standards in July
before a vetting process that may take months. The regulator has
said its rules will be the toughest in the world.
Only two of Japan's 50 nuclear reactors are running, and
they need to shut for maintenance by September. Chubu Electric,
the country's second biggest user of coal, on Friday conceded it
doesn't expect to start any of its reactors until at least March
2015, over a year behind schedule. Chubu expects to use 10
million tonnes of coal over the next year.