Although Europe’s decision to ban Russian coal will affect a major source of Moscow’s revenue, it risks soaring electricity prices on the old continent, amid tight global supplies.
The European Union on Friday formally adopted the fifth package of sanctions imposed on Russia since the invasion of Ukraine on February 24, including a ban on the import of coal, wood, chemicals and other products.
The measures also prevent many Russian ships and trucks from reaching the European Union, further impeding trade, and will ban all transactions with 4 Russian banks.
The ban on coal imports will be in full force from the second week of August, and new contracts cannot be signed from Friday, as the sanctions will be published in the Official Journal of the European Union.
These sanctions would result in Russia losing 4 billion euros annually ($4.4 billion) in revenue from coal exports, but at the same time Europe will have a very difficult time offsetting the share of Russian imports in the energy mix.
According to a report by the energy research company, Rystad Energy, released on Thursday, the European Union’s plans to ban imports of Russian coal will affect about 70 percent of European imports of thermal coal, threatening a significant increase in electricity prices this year, especially in Eastern Europe and Germany.
Russian Coal Exports
Last year, Russia exported 238 million tons of coal—more than half of its production—with 90 million tons going to European countries at the Organization for Economic Cooperation and Development, according to the U.S. Energy Information Administration.
The total demand for coal in Europe was estimated at 630 million tons last year, which means that Russian coal represented 14% of the total needs of the continent, and Germany and the Netherlands are the largest importers of coal in the region.
Considering imports of thermal coal only to the European Union, Europe depends on Russia for 70% of the total imports.
According to a previous report by Rystad Energy, the share of electricity generation from coal in Europe rose last year, for the first time in a decade, by about 18% on an annual basis, to reach 579 TWh.
Russian Coal Alternatives
The European Union’s decision to ban imports of Russian coal comes at a time when the market is experiencing a deficit and consequently rising prices.
The high demand for coal in Asia led to a rise in black fuel prices last year, as countries tried to reduce imports of natural gas after its prices rose to record levels.
The price of the May contract for API 2 – the main European coal import standard – rose to $300 a ton on Wednesday, compared to $70 a ton a year ago.
With this market, it becomes difficult to find alternative sources of coal supply, which means that European consumers will need to pay a premium to provide the supply.
The US could free up some domestic coal supplies on the international market to help balance it, but that wouldn’t do much for Europe.
As a result, prices are expected to rise to higher levels as buyers compete for non-Russian coal, which in turn is reflected in electricity prices, especially since alternative sources of gas or oil are also witnessing strong increases.