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Russian Far East Mining Set to Power Asian Industry

Russian mining is a $10 billion industry, and projected to grow with increasing demand from China and Korea

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As it is currently well known, countries using coal in power engineering are trying to reduce consumption of this fuel source in order to minimize the damage that it causes to the environment. However, we should not ignore the fact that coal is much cheaper than other energy sources, and its instant abandonment is impossible. Despite a gradual sales slowdown, it will continue to be one of man’s most important mineral and energy sources for many years.

Russia is one of the major coal exporters in the world. Ranked third by sales volume, it supplies coal to dozens of countries and earns an average of $10 billion a year. In 2015, Russia exported 156 million tons of coal. Russia’s most interesting sales market is Asia-Pacific region. Russian mining business is currently putting a great deal of effort to enter this region’s markets.

The most intensive development of the industry is taking place in Asia-Pacific region, which means that its need for cheap energy sources is the highest. Russian coal is exported to such major industrial giants as India, China, the Republic of Korea, Japan and many others.

China and Japan are exciting particular interest. Both countries have highly developed economies and a constantly increasing need for energy sources. At the same time, China and Japan share borders with Russia, which considerably facilitates and reduces the price of delivery.

In addition, a series of events in the recent years have promoted a significant growth in demand for Russian coal.

At first sight, coal trade with the People’s Republic of China is currently facing a challenging period. In recent years, China has started to focus on environmental protection. Air pollution in China has become an actual threat to the citizens’ health. The country has therefore decided to reduce its coal consumption. In April 2016, The Chinese government took a decision to postpone the construction of about 200 new coal-fired power stations. Coal imports, including those from Russia, were reduced. China acquired about 25 million tons of Russian coal in 2014. In 2015, however, it only bought 15 million tons. The same procurement has been preserved at the same level in 2016.

However, this reduction is most likely temporary. Russian coal mining business has good prospects in China. Despite all the measures to reduce coal consumption, China still remains its largest consumer. At the WCA Technical Committee meeting (WCA – World Coal Association) in early 2016, the following data was presented: in total, 8 billion tons of coal were extracted worldwide in 2015. 47% of this amount was produced in China. China consumed 50% of the coal that was used in 2015 (China had to export more than 200 million tons). Although this is 30% less than in 2014, the indicators are still impressive. This fact implies that the Chinese economy will depend on coal consumption for many years, no matter how strong the desire to minimize its consumption. At the same time, if the use of coal in China will be reduced slowly, its extraction will decrease much faster. The matter is that one of the measures aimed at pollution decrease in China is the reduction of its own coal production. Thus, in February, the Chinese government announced its plans to shut down one thousand coalmines in 2016. At the beginning of the year, 20 thousand employees at Lunmey – China’s major coal mining company, lost their jobs.

As we have mentioned, an instant transfer of China’s power industry from coal to other types of fuel is hardly possible. In the nearest decade, China will remain a major consumer of coal. This means that a sharp reduction of coal production in China will result in a sharp increase in imports. Thus, the Chinese struggle for pollution reduction may be advantageous for the Russian mining companies.

Also worth mentioning is the Tongjiang – Nizhneleninskoyen railway bridge currently under construction. This bridge over the Amur River will connect Russia’s regions rich in coal with China’s northern districts that are characterized by a highly-developed heavy industry that consumes large quantities of coal. After its commissioning, the bridge will become a great advantage to Russia and other countries that wish to supply coal to China.

If China is striving to reduce coal consumption, Japan faces a different situation. After the disaster at the Fukushima-1 nuclear power plant in 2011, other Japanese nuclear power plants began to close rapidly. Many of them are still currently non-operational. Japan intends to compensate its power industry losses by constructing coal-fired power stations. According to Bloomberg, by 2019, coal should become the major energy source in Japan. However, the Land of the Rising Sun has no large coal reserves (as well as other hydrocarbons), and it will have to import. Traditionally, Australia has been supplying Japan with the major hydrocarbons. However, the Japanese have recently become concerned about supply diversification in order not to be dependent on one supplier. Moreover, the delivery from Russia is much faster and cheaper.

In recent years, the major Russian coal-mining region has shifted to the East. New coal deposits are being developed in Yakutia and Sakhalin, which are closer to Japan. It is no surprise therefore, that the Land of the Rising Sun is showing interest in Russian coal and in possible investment opportunities. In September 2016, the media reported the signing of an agreement between the Russian East Mining Company and the Japanese Sojitz Corporation. Sojitz intends to invest a substantial sum of money in the Russian mining industry and the Shakhtersk Seaport in Sakhalin through which the supply will be carried out both to Japan and the Republic of Korea.

South Korea is also reporting news that is pleasant for the Russian mining industry. In October 2016, the Korean company, Korea Midland Power Co., announced its intention to acquire Russian coal in the amount of 300 thousand tons a year for its thermal power plants under construction. Like Japan, South Korea is still importing most of its coal from Australia and Indonesia. However, according to the head of Korea Midland Power Co, sea deliveries from these countries is rather complicated. At the same time, he noted Russia’s favourable geographical position and its high quality coal.

In conclusion, we may say that, despite a recession in the global mining industry, Russia will not be directly affected any time soon. Owing to its eastern neighbours, coal export will become an important element of the Russian economy for a long time.

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