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Why Australia will be one the biggest winner of the global energy crunch as China needs coal

Australia is set to be the biggest winner of the global energy crisis with coal in short supply in both China and India – the world’s two most populated nations.

Coal prices have surged to record highs, spurring demand for energy resources after the price of iron ore, Australia’s biggest export, halved in just two months.   

An approaching northern hemisphere winter has also created an energy shortage in Europe, sparking more global competition for Australian natural gas and thermal coal, used to generate electricity.

China’s attempts last year to punish Australia over its calls for a Covid inquiry appear to be backfiring with the coal futures at at record highs of $US269 per metric tonne.

Natural gas prices are now at 13-year highs, with energy production globally faltering during the pandemic.

Australia is set to be the biggest winner of the global energy crisis with coal in short supply in China and India – the world’s two most populated nations (pictured is a man using his smartphone flashlight to see his bowl of noodles at Shenyang in north-eastern China)

CommSec senior economist Ryan Felsman said China was now keen for both Australian thermal and coking coal, used respectively for power and steelmaking, with Beijing authorities on Friday ordering state-owned enterprises to secure supplies.

‘They’re keen to get their hands on both types of coal so that’s going to benefit us,’ he told Daily Mail Australia.

‘In fact, the Chinese have been saying that certainly they must get the relevant supply at all costs ahead of the northern hemisphere winter.

‘We’ve already seen outages in electricity affecting factories and schools in China, in particular, in recent weeks.’

Mr Felsman said Australia was lucky to have a diverse pool of natural resources, with coal surging as iron ore plunged.

‘The Europeans and Asians, they’re looking for whatever energy supply they can get,’ he said.

‘We’re always kind of in that fortunate situation, often, where we’ve got a diversified export sector in demand, both energy and also construction and property-focused type commodities.’ 

China officially stopped importing Australian thermal coal in October last year in retaliation at Prime Minister Scott Morrison’s call for an inquiry into the origins of Covid.

CommSec senior economist Ryan Felsman said China was now keen for both Australian thermal and coking coal, used respectively for power and steelmaking, with Beijing authorities on Friday ordering state-owned enterprises to secure supplies (pictured are piles of coal at the Port of Newcastle north of Sydney)

CommSec senior economist Ryan Felsman said China was now keen for both Australian thermal and coking coal, used respectively for power and steelmaking, with Beijing authorities on Friday ordering state-owned enterprises to secure supplies (pictured are piles of coal at the Port of Newcastle north of Sydney)

The Chinese last year refused to unload Australian coal from ships, as crews for months languished outside ports.

The Communist power, which is also Australia’s biggest trading partner, this year also embarked on an ambitious plan to slash steel production and energy consumption to meet climate change targets.

This caused the price of iron ore, the commodity used to make steel, to halve from more than $US200 a tonne in late July to less than $US100 in late September.

That, combined with the net zero by 2060 climate change plan, has also caused blackouts across China and a dramatic cutback in factory production.

Oxford Economics head of Asia research Louis Kuijs, who is based in Hong Kong, said China would have moderate its energy reduction strategy. 

‘Moreover, firms in many parts of the country are facing electricity shortages or production cuts, largely caused by strict implementation of climate and safety targets by local governments,’ he said. 

‘We expect senior policymakers to stress growth and to call for the pursuit of climate targets on a more measured timeline. 

‘As a result, we expect the electricity shortages and most production cuts to be eased in coming months.’

The Communist power, which is also Australia's biggest trading partner, this year also embarked on an ambitious plan to slash steel production and energy consumption to meet climate change targets (pictured is Chinese President Xi Jinping in Beijing)

The Communist power, which is also Australia’s biggest trading partner, this year also embarked on an ambitious plan to slash steel production and energy consumption to meet climate change targets (pictured is Chinese President Xi Jinping in Beijing)

China officially stopped importing Australian thermal coal in October last year in retaliation at Prime Minister Scott Morrison's call for an inquiry into the origins of Covid (Pictured is the MV Anastasia banned from docking at China's Jintang Port since August)

China officially stopped importing Australian thermal coal in October last year in retaliation at Prime Minister Scott Morrison’s call for an inquiry into the origins of Covid (Pictured is the MV Anastasia banned from docking at China’s Jintang Port since August)

India has also been hit with insufficient energy supplies, with half its coal-fired power stations having less than three days’ worth of fuel stocks, financial market data group Refinitiv said.

State-run Coal India is using its 40 million tonne stocks to replenish power stations, which together have 7.2 million tonnes of the stockpiled commodity, equivalent to four days’ requirement. 

‘Any fear of disruption in power supply is entirely misplaced,’ India’s coal ministry said in a statement.

The clarification came a day after Delhi Chief Minister Arvind Kejriwal warned of a looming power crisis in the megacity which is home to over 20 million people.

Several regions across India have been hit by supply shortages in recent months, with utility providers resorting to unscheduled power cuts. 

India has also been hit with insufficient energy supplies, with half its coal-fired power stations have less than three days' worth of fuel stocks, financial market data group Refinitiv said (pictured is an open cast coal field in the Dhanbad district in eastern India's Jharkhand state)

India has also been hit with insufficient energy supplies, with half its coal-fired power stations have less than three days’ worth of fuel stocks, financial market data group Refinitiv said (pictured is an open cast coal field in the Dhanbad district in eastern India’s Jharkhand state) 

Europe, which is heavily reliant on green energy, may also turn to coal to cope with winter demand. 

‘The energy crisis globally is really leading to more demand for coal,’ Mr Felsman said.

‘It’s a supply shock that’s going on, particularly in Europe and Asia at the moment so as the economy reopens, we’re seeing greater economic activity and we’ve seen lower inventories – that’s caught a lot of people off guard ahead of the northern hemisphere winter.’

Russia is already the second-largest supplier of gas to the EU behind Norway, and Nord Stream 2 will increase Europe’s energy dependence on Russia and Moscow’s geopolitical clout. 

Russian President Vladimir Putin has suggested continental Europe could solve the energy crisis by importing more Russian gas.

Tensions are also rising within the EU, with leaders at odds over how to respond to the power shortage.

For Australia, that could mean more demand for thermal coal, used to provide electricity if there is a stalemate over gas supplies.

Demand for iron ore, used to make steel, would be unlikely to surge again soon as China deals with the fallout of property developer giant Evergrande owing more than $400billion to creditors. 

Australia in August had a $15billion trade surplus in August, the 44th month in a row. 

Westpac senior currency strategist Sean Callow said surging coal prices had kept the Australian dollar above the US73 cent level and would ensure Australia continued to have trade and current account surpluses, where it exported more than it imported.

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