Review of the Ukrainian Steam Coal Market
The coal industry is undergoing a slow growth since the developing countries will continue refusing from this energy source due to its eco-aggressive nature. Coal generates almost 30% of the global electricity but its share is anticipated to drop at 27% in 2021 because 45% of all carbon emissions in the energy sector are connected with the coal, and it is also a source of other types of pollution. However, the reduced demand for coal in the developed countries will be compensated by an increasing demand in the developing countries, particularly from India and South-East Asia. The International Energy Agency (IEA) forecasts that the world growth of coal consumption will be only 0.6% in the period from 2016 to 2021.
According to IEA, the world coal market has undergone a shift in the coal demand towards Asia since the 2000s, which now generates the key demand. Due to its accessibility, coal remains to be the key worldwide raw material for producing electricity, steel, and cement.
Reserves and geography of coal distribution in Ukraine
The Ukrainian coal industry accounts for about 4% of the world’s confirmed reserves of coal allowing it to enter the top ten of the world’s proven reserves. According to the specialists’ estimates, the coal reserves in Ukraine were around 44,317 mn. tonnes in the beginning of 2016, of which about 70% accounted for the steam coal and about 30% — for the coking coal.
Ukraine’s key coal reserves are concentrated in two basins: Donetsk and Lviv-Volyn basins. The Donetsk coal basin is located in the territory of the Dnipro, Donetsk, Luhansk, and Kharkiv regions. The number of functioning coal beds reaches 120 with 65 of them being in service. The Lviv-Volyn basin is located in the Lviv and Volyn regions.
The key consumers of steam coal are the power generating companies: thermal power plants (TPP) and combined heat and power plants (CHP).
First, it is necessary to define the scopes of TPP and CHP in the power system. Electricity is produced at TPPs. The main difference between the thermal power plants and other power generation sources is the ability to adjust power generation output promptly depending on the changes in electricity demand. As a result of this, the power system in Ukraine mainly uses TPP to ensure a power balance in the power system for controlling peaks and setbacks in the electricity consumption.
The CHPs are largely used for heat production, and depending on their location and technology, they supply collateral power for the city or an enterprise. However, TPPs take only 10% of the total electricity generation.
TPPs and CHPs can function using coal, gas, or fuel oil. But due to a high price on gas, Ukrainian TPPs have used it for more than 30 years as a starting-up oil instead of fuel.
CHPs and TPPs are categorized by the fuel type used: steam coal or anthracite. The anthracite is used at seven thermal power plants in Ukraine: Trypilska, Zmiyevska, Pridneprovska, Luhanska, Slavianska, Kryvorizhska and Starobeshevska TPPs.
The heat and power generating companies increased the coal consumption in Ukraine by 9.4% in 2016 (by 2,701,000 tonnes) compared to 2015 — up to 338.6 thousand tonnes. The reason behind TPPs’ increasing their coal consumption and power generation in 2016 is the nuclear power stations (NPS) reducing their generation in summer due to unscheduled repairs at the power units.
The domestic heat power industry depends on an uninterrupted anthracite delivery for TPPs and CHPs. Whereas in the summer of 2016, the main burden of power generation came to the thermal power plant, 2017 changed this situation since the coal storages at TPPs were blocked, which led to a deficit of the anthracite coal. Thus, the power generation capacity was also affected. In particular, as of early 2016, the coal reserves at the storages were 2,425,300 t. and as of early 2017, this index dropped to 1,802 thousand t.
The Zmiyevska TPP is the first one in Ukraine to transit from the coal of rank ASh and P to the gas coal, which is an extremely important project for improving Ukraine’s independence in the power system.
Extraction and export/import of coal
Starting 2001 to 2013, Ukraine extracted around 60-65 mn. t. of unprocessed coal. However, starting July 2014, after the partial loss of the Donetsk coal basin, where the largest anthracite coal deposits were located, a decline in extraction was quick to take place.
Since the own coal production reduced, Ukraine gradually started increasing its imports. In particular, Russia, USA and Kazakhstan were the largest coal suppliers to Ukraine in 2015. The total volume of the products supplied amounted to 14.60 mn. t. in 2015 for the total amount of $1,632,000,000. In 2016, Ukraine’s coal import amounted to $1,467,000,000, i.e. the import rate reduced by 10.1%.
At the same time, despite a significant drop in extraction, Ukraine remains to be a coal supplier for some countries. In 2016, Ukraine 520.6 t. of coal, which amounted to $44,769,000. Ukrainian coal was exported mainly to Slovakia ($26,880,000) and Russian Federation ($7,480,000). Turkey was also among the importing countries — $7,100,000. The export to other countries amounted to $3,290,000 in 2016.
Conclusions and Prospects
Ukraine has a solid feedstock of steam coal, yet for the last three years, it has experienced a significant deficit in coal, particularly, the steam coal, whose extraction is centered around Donetsk and Luhansk regions — the territories Ukrainian authorities do not control. Now, as the transportation of the anthracite steam coal remains under blockade, the deficit in coal led to its shortage in stock of the thermal power providers. As a result, the Cabinet of Ministers of Ukraine adopted the Ordinance No. 261 “On taking emergency measures on the electricity market”. This document enables the use hourly power-off schedules and emergency blackout schedules. The emergency measures in the electricity market provide for starting a manual adjustment system in the energy sector, which allows the thermal power plants using gas coal to operate to the fullest.
In order to reduce the energy dependence on anthracite, there have been taken measures for transitioning TPPs to gas coal since 2017. Moreover, the Ukrainian Ministry of Energy and Coal Industry of Ukraine drafted a new energy development strategy of Ukraine until 2035: “Safety, Energy Efficiency, Competitiveness”.
The strategy envisages a reform of the Ukrainian energy complex, which is to be completed by 2025. The purpose of the strategy draft is to achieve the key performance on energy safety and efficiency, as well as to ensure an innovative renovation of the power-generating sector and its integration with the EU energy industry.
The strategy comprises three implementation stages:
- Reforming the power-generating sector by 2020.
- Optimization and innovative development of the energy infrastructure by 2025.
- Achieving a consistent development of the power-generating sector by 2035.
In particular, the strategy calls for establishing a coal market at the first stages and creating competitive and transparent conditions for functioning in the Ukrainian coal sector at the third implementation stage.
The industry’s further development will depend on a variety of factors, namely: ensuring the replacement of fixed assets of coal enterprises, implementation of a coal stock market, elimination of loss-generating mines and completing a privatization of the state share in companies with capacities to generate coal for the energy industry.