Coal Insights, December 2019

Contents

6 | COVER STORY

21 Thermal coal offers remain firm in November 22 Seaborne coking coal offers remain rangebound in December 23 India’s October coal imports down 11% y-o-y

Coal freight to turn costly as IMO2020 set to kick in

24 New guidelines and simplified approval process for coal projects

Global shipping industry impact likely to be $50-60 billion in 1st year

28 CIL’s coal production down 4% in November 29 SCCL’s production down 5.7% y-o-y in November

20 | INTERVIEW

32 November sponge iron production up 15.4% y-o-y

“We are concerned about availability of compliant fuel in smaller ports”

33 Power capacity addition during October at 800MW

Sunil Krishnakumar, senior technical adviser at ICS talks about global preparedness to meet IMO2020 regulations

34 India’s cement production down 7.7% in October

26 | Feature

35 Traffic handled by major ports up marginally till Nov

Dues of Discoms rises to `80,000 crore

36 Indian Railways’ coal handling in November down 3.2% y-o-y

Widening cost-revenue gap, accumulated losses and poor performance exacerbated financial health of Discoms

39 Corporate Update 42 Government Update 44 Australia plans shift to Hydrogen economy 45 Oracle Power joins hands with China National Coal for Thar project

37 | CORPORATE

48 Coal is the single largest barrier to a 1.5-degree future: UN head

NTPC H1 local coal buy drops 6%, imports up 6-fold

49 US coal production estimated at 697 MMst in 2019

State-owned power generator starts importing coal for pit-head plants also.

50 Competence of holder of competency certificate 53 The rising and falling tides of ocean freight 55 Digitalisation making procurement fast and intelligent 56 E-auction data 57 Port data

4 Coal Insights, December 2019

46 | INTERNATIONAL

Asia set to support global coal till 2024: IEA Share of electric power from coal will fall from 38 percent in 2018 to 35 percent in 2024.

Cover Story

Coal freight to turn costly as IMO2020 set to kick in Global shipping industry impact likely to be $50-60 billion in 1st year Sumit Maitra

C

ome January 1, 2020, International Maritime Organization (IMO) requirement will reduce the sulphur content permitted in vessel fuel globally from 3.5 percent to 0.5 percent, except in Sulphur Dioxide emission control areas (SOx ECAs) where ships are required to use fuel with just 0.10 percent Sulphur.

A study commissioned by Regional Marine Pollution Emergency Response Centre for the Mediterranean Sea (REMPEC) showed that the designation of the Mediterranean Sea area, as a SOx ECA (the proposed Med ECA) would lower emissions by 78.7 percent for SOx and 23.7 percent for PM2.5.

In October 2016, the IMO confirmed a global limit for sulphur in fuel oil used on board ships of 0.50 percent m/m (mass by mass) to become effective on 1 January 2020.

6 Coal Insights, December 2019

Cover Story “The new rule presents a unique challenge, as majority of ships are expected to choose new types of compliant fuel oils, so-called Very Low Sulphur Fuel Oil (VLSFO), or marine gas/diesel oil. Sufficient availability of such compliant fuels on the global market, which should be compatible with the existing engines, is essential. Therefore, preparation, well before 2020, is the key to success of IMO 2020,” IMO Secretary-General Kitack Lim said while addressing a meeting on the new norms.

Furthermore, it has required shipowners to consider how and when to procure this fuel oil and to prepare their ships to receive, store and use this fuel oil on board.

“This is a significant logistical and technical challenge and indeed IMO has sought to support this process through the development of specific guidelines, including the development of a ship implementation plan,” he said.

“The implementation of this regulation by the IMO will have far-reaching implications throughout the marine fuel supply chain, from refining, through distribution, bunkering, handling and storage on board the ship, through to final use in boilers or in marine diesel engines for propulsion,” says a report by Joint Industry Project (JIP) established by the IMO to raise awareness of issues surrounding the new regulations.

The deadine is few weeks away and according to IMO “there can be no change in the 1 January 2020 implementation date, as it is too late now to amend the date and for any revised date to enter into force”.

“The shipping industry has been working hard to ensure that we are ready for January 1, but we still have concerns over safety and the availability of compliant fuels in every port worldwide. This is a pressing issue.

Shipowners rely on many other stakeholders in the marine fuel supply chain, particularly bunker suppliers and oil refiners, to ensure we are all able to fully comply with the new regulations. We need the supply side to fully contribute to a smooth changeover so that we do not have any incidents due to incompatible fuels and we can ensure safe operations for our seafarers,” said Guy Platten, Secretary General of the International Chamber of Shipping.

The background

The issue of controlling noxious gases from ships’ exhausts was discussed in the lead-up to the adoption of the 1973 of the

International Convention for the Prevention of Pollution from Ships, known as the MARPOL Convention.

While it was decided not to include air pollution at the time, the issue of airpollution from ships was raised at the Second International Conference on the Protection of the North Sea in November of 1987.

The conference issued a declaration in which the ministers of North Sea states agreed to initiate actions within appropriate bodies, such as the IMO, ‘leading to improved quality standards of heavy fuels and to actively support this work aimed at reducing marine and atmospheric pollution.’

At the next session of the IMO’s Marine Environmental Protection Committee (MEPC), held in March 1989, various countries submitted papers referring to fuel oil quality and atmospheric pollution, and it was agreed that the prevention of air pollution from ships should constitute part of the MEPC’s long-term work programme beginning 1990.

MARPOL Annex VI, which was introduced by means of the 1997 Protocol limits the main air pollutants contained in ships’ exhaust gas, including sulphur oxides (SOx) and nitrogen oxides (NOx).

MARPOL Annex VI also regulates the use of certain ozone depleting substances (ODS) and regulates shipboard incineration and the emissions of volatile organic compounds (VOCs) from tankers. A revised MARPOL Annex VI was adopted at the 58th session of the MEPC in 2008.

The ‘what’ and the ‘why’ of regulation

The main type of “bunker” oil for ships is heavy fuel oil, derived as a residue from crude oil distillation. Crude oil contains sulphur which, following combustion in the engine, ends up in ship emissions.

Sulphur oxides (SOx) are known to be harmful to human health, causing respiratory symptoms and lung disease. In the atmosphere, SOx can lead to acid rain, which can harm crops, forests and aquatic species, and contributes to the acidification of the oceans.

Limiting SOx emissions from ships will improve air quality and protect the environment.

IMO regulations to reduce Sulphur Oxides (SOx) emissions from ships first

came into force in 2005, under Annex VI. Since then, the limits on SOx have been progressively tightened.

For ships operating outside designated emission control areas the current limit for sulphur content of ships’ fuel oil is 3.50 percent m/m.

From January 1, 2020, the limit for Sulphur in fuel oil used on board ships operating outside designated emission control areas will be reduced to 0.50% m/m (mass by mass).

This will significantly reduce the amount of Sulphur oxides emanating from ships and should have major health and environmental benefits for the world, particularly for populations living close to ports and coasts.

There is an even stricter limit of 0.10 percent m/m already in effect in emission control areas (ECAS) which have been established by IMO. This 0.10 percent m/m limit applies in the four established ECAS: the Baltic Sea area; the North Sea area; the North American area (covering designated coastal areas off the United States and Canada); and the United States Caribbean Sea area (around Puerto Rico and the United States Virgin Islands).

Countries bordering the Mediterranean Sea are currently considering the possibility of applying to designate the Mediterranean Sea or parts thereof as an ECA. Fuel oil providers already supply fuel oil which meets the 0.10 percent m/m limit (such as marine distillate and ultralow Sulphur fuel oil blends) to ships which require this fuel to trade in the ECAs. A study on the human health impacts of SOx emissions from ships, submitted to IMO’s Marine Environment Protection Committee (MEPC) in 2016 by Finland, estimated that by not reducing the SOx limit for ships from 2020, the air pollution from ships would contribute to more than 570,000 additional premature deaths worldwide between 2020-2025.

How compliance would be monitored?

Monitoring, compliance and enforcement of the new limit are responsibilities of governments and national authorities of member states that are Parties to MARPOL Annex VI. Flag states (the state of registry of a ship) and port states have rights and responsibilities to enforce compliance. IMO has adopted 2019 Guidelines

Coal Insights, December 2019

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Cover Story

“We remain concerned about availability of compliant fuel in smaller ports.”

A

s the IMO2020 deadline nears, members and staff of International Chamber of Shipping are busy guiding the global shipping industry to achieve full preparedness and help stakeholders in global commodity trade meet any challenges. Over the past 18 months, ICS has produced briefings and guidance documents for ship operators including its most recent update of its Guidelines for Compliance with the 2020 global Sulphur cap which takes full account of recent decisions taken by IMO. Sunil Krishnakumar, Senior Technical Adviser at ICS spoke to Sumit Maitra via email on a range of topics on the issues including the likely impact on shippers and trade of commodity including coal.

What could be the likely impact on prices of fuel following IMO 2020 regulations implementation? Has there been any change in views of International Chamber of Shipping as the deadline approaches?

We can now see that the price of VLSFO is around twice the price of the high Sulphur fuel oil. However, this is a transition phase and we should see a change in prices once there is a more stable global supply and demand situation.

ICS has also predicted that by January only half of the fuel would be 0.5% Sulphur compliant? When do you see the situation improving?

We are encouraged to see that most major bunkering ports like Singapore already have complaint fuel (0.50 percent) available well before the implementation date. This has helped many ships to transition to the new fuels in advance of January 1 2020 and gain valuable experience in using these

20 Coal Insights, December 2019

new fuels. However, we remain concerned about availability in smaller ports. This is especially concerning for ships on tramp trades where planning bunker pots in advance is not always an option.

How do you see the global shipping freight rates rising because of these factors?

The implementation of the IMO 2020 comes at a cost for the shipping industry.

Unavoidably, a part of this increase in cost will be passed down to consumers. However, we believe that this would be a small price to pay for the benefit that this regulation would bring to the environment and health of coastal populations worldwide.

Is rise in prices partly due to supply issues of crude also?

If you mean the control of supply of crude oil affecting the price of VLSFO then, yes this is a risk, however this risk is no different from the situation right now.

Do you have any specific views on India's preparedness? International Bunker Industries Association indicates availability would be high in India.

We have noted and welcomed the very early declaration by the Indian Administration about their preparation for the implementation of IMO 2020.

This includes the very early declaration of availability in Indian ports. We remain confident of consistent availability of safe and compliant fuels in Indian ports. We are also encouraged by the fact that India is one of the few bunkering nations that operate a national bunker licensing scheme for suppliers operating in their jurisdiction.

It is predicted by a segment of the industry that globally about 4,000 ships would be fitted with scrubbers. Is this is a reasonable estimate? What is the view of ICS? Unfortunately, we do not keep track of the number of ships that have opted to comply using Exhaust Gas Cleaning Systems (Scrubbers). However, the feedback we have got from other sources that follow this topic is that around 2000 ships will be fitted with scrubbers by 1 January 2020.

FEATURE

Dues of Discoms rises to `80,000 crore

Coal Insights Bureau

M

oney payable by state-owned distribution companies to power generators has crossed `80,000 crore as on September end, as per the website of PRAAPTI. PRAAPTI is the acronym for Payment Ratification And Analysis in Power

26 Coal Insights, December 2019

procurement for bringing Transparency in Invoicing of power generators.

The viability of the power sector spectrum hinges on the financial health and operational efficiency of state distribution utilities. The widening of average cost of supply (ACS)average revenue realised (ARR) gap, the huge pile-up of accumulated losses and the dismal operational performance of distribution

utilities has exacerbated the financial situation of power generators, especially the private independent power producers, said India Ratings in a recently issued ready reckoner for the power sector. “On the distribution front, the progress in improving the financial profile of the discoms, as envisaged under the UDAY scheme remains slow, given that the

Corporate company declined to 64.28 percent in the second quarter from 72.63 percent a year ago.

The PLF of coal-based plants was also down in the first half of the previous fiscal to 69.04 per cent.

It was however above the national average of 57.87 percent.

Availability factor for NTPC plants is showing signs of improvement post the heavy monsoons.

PAF at the company’s plants within Korba coalfield (Korba Stage III and Sipat) was nearly 100 percent for the month.

Availability at Talcher also improved to 82 percent.

For H1 FY20, two coal stations of NTPC were among the top 10 performing stations in the country in terms of PLF. Barh with 86.96 percent and Singrauli with 86.26 percent ranked 7th and 9th respectively and in total 4 stations of NTPC clocked over 85 percent PLF.

NTPC H1 local coal buy drops 6%, imports up 6-fold

Imports for pithead plants

Coal Insights Bureau

P

ower generation from some of NTPC’s pithead plants has fallen because of shortage of coal, the company has said.

“Notably, stations where we generated less are Sipat, Korba, Talcher Kaniha, Kahalgaon, Farakka, etc., which used to be traditionally top generating stations,” NTPC management has told investors.

NTPC’s domestic sourcing of coal from Coal India in the first half of the current financial year dropped 6 percent on year indicating lower demand for thermal energy.

Coal India’s own problems in keeping up even with lower-than usual demand forced NTPC to resort to imports which were negligible in the corresponding period in the previous year.

Coal supply during H1FY20 was 79.13 million tons (mt), of which 77.62 mt was domestic coal while 1.51 mt was imported.

The coal supply during corresponding previous period was 82.85 mt, with 82.65 mt of domestic coal and 0.2 mt of imported coal.

Coal consumption during H1 FY20 was 84.55 mt: this comprises 83.54 mt of domestic coal and 1.01 mt of imported coal.

The coal consumption in corresponding previous period was 85.28 mt, with 84.43 mt of domestic coal and 0.85 mt of imported coal.

During the first half of the current financial year, materialisation of coal against ACQ dropped to 88.84 percent as against 96.35 percent in H1 FY19. “Actually reduction in demand is helping us in terms of availability of coal,” NTPC said.

PLF

The plant load factor (PLF) or capacity utilisation of coal-based power plants of the

Domestic coal scarcity coupled with accidents at some of the mines of Coal India have also forced NTPC import coal for pithead plants also.

“We have resorted to supply of imported coal even in some of our pit head stations like Talcher Kaniha and also Sipat, and we will be able to better manage this issue,” NTPC management has told analysts and investors post the announcement of earnings by the company.

“As far as import of coal is concerned there is award for 6.25 mt. Out of this we have received 2.8 mt. Further, under flexibilisation policy, this coal can be supplied to any station wherever there is shortage. In case of Kaniha where we experienced generation loss because of fuel shortage, we have supplied imported

Coal purchase by NTPC Company Bharat Coking Coal

Value in H1FY20 (Cr)

Value in H1FY19 (Cr)

568.36

743.76

Central Coalfields

1,086.99

1,285.23

Eastern Coalfields

3,441.46

3,613.97

Mahanadi Coalfields

1,631.61

2,242.01

Northern Coalfields

4,331.00

4,495.94

South Eastern Coalfields

2,210.90

2,615.05

Western Coalfields Singareni Collieries Company

236.28

240.65

2,929.86

2,969.25

Source: NTPC

Coal Insights, December 2019

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58 Coal Insights, December 2019

Tear along the dotted line

Tear along the dotted line