China’s Coal Shortage Grants Kazakhstan Unique Opportunity
Oct 25, 2021
China’s coal consumption increased in 2021 despite assertions from Beijing that it would boost green energy production and advance decarbonization efforts. Even with the economic problems associated with the global COVID pandemic, China saw further increased demand for energy and the growth in natural gas and renewables could not meet the growing needs.
The country is the world’s largest coal user, consuming 4.04 billion tons in 2020. However, tighter safety regulations and a growing concern on environmental issues has impacted China’s ability to meet domestic electricity demands. Several coal mines in Shanxi, Shaanxi, and Inner Mongolia regions were identified as emergency suppliers to ensure that the country has a sufficient supply for the winter. In addition, China’s extraordinarily high energy demand has meant lofty coal prices. China imports about 10 percent of its coal, but China’s political dispute with Australia, the largest exporter of the commodity to the country, has put strains on supplies. China will seek other trading partners to help meet its growing demand for coal and Kazakhstan could serve as an opportune choice for China in this regard.
Historically, Kazakhstan has not been an attractive source of coal for China. Even after Kazakhstan gained its independence, Kazakhstani coal companies were still bound by Soviet contracts to export a certain portion of coal to Russian markets each year. As a result, China looked to other countries with significant coal reserves and without legal constraints dictating their coal export destinations. Moreover, China’s large coal reserves and its strong bilateral relationship with Australia meant there was no need for it to seek other sources in Central Asia. However, now the situation has changed, and the China’s record-high coal prices combined with the growing energy demands and a desire to punish Australia in a dispute over the possible origins of the COVID-19 outbreak have pushed Beijing to look west.
On October 4, China’s Zhejiang Energy Group received a 136,000 ton shipment of thermal coal from Kazakhstan, the first batch of Kazakhstani coal to Zhejiang province in eastern China. Zhejiang province normally sources its coal from Indonesia, Vietnam, and Australia due to shorter transport routes, but the increase in demand has prompted the province to seek newer partnerships. The shipment demonstrates China’s need to secure sufficient supplies of coal before the winter. The Kazakhstani cargo had to be transported by land to Russia’s Zhelezny Rog Port on the Black Sea and travel for 30 days from the Black Sea, through the Suez, before eventually making it to Zhejiang. The complicated travel route was chosen because sea transport between Kazakhstan’s coal reserves and China are quicker than overland rail transport. The United States serves as another viable source of coal, but transporting coal between Kazakhstan and China via rail is still much quicker than shipping it across the Pacific.
Strange as it might seem, China’s desire to acquire new sources of coal could lower Kazakhstan’s direct carbon emissions – but in reality, just shift the impacts of burning the coal elsewhere. About 90 percent of coal mined in Kazakhstan is used domestically, but as the country shifts away from coal in favor of natural gas, it can export its coal supplies. Furthermore, coal prices sold domestically are regulated. Companies in Kazakhstan’s coal extractive sector could sell their product for three times the price to consumers abroad.
Nur-Sultan’s coal exports to China could have a profound impact on its domestic energy market, despite Kazakhstan representing a fraction of China’s total coal imports. China imported 308 million metric tons of coal in 2019, which is three times Kazakhstan’s total coal production. China’s coal shortage, and growing demand, has already triggered higher coal prices worldwide, a positive for Kazakhstan as it seeks to boost coal exports. Kazakhstan can use the revenue generated from heightened coal exports to China to finance projects to transition the country towards a path of greener energy usage.