Rise in European Demand Hits Coal Mining in Turkey

In an article for Middle East Eye, Naomi Cohen states that the ban on Russian oil coupled with remarkably cold winters across Europe, have forced the continent to turn towards traditional energy sources in an attempt to fight power shortages. In effect, this means that coal mining in Turkey is back on the agenda despite pledges to reduce reliance on the same.

Several European countries – including France, Germany, Austria, the Netherlands and Greece – are reactivating their coal-fired power plants. Poland is reviving its practically defunct coal production and even opening new coal mines. Concurrently, individual households which cannot afford more expensive heating options are turning towards coal furnaces.

With Russian coal no longer in the picture, there simply isn’t enough coal in Europe to meet this rapidly increasing demand. The continent is buying the mineral in bulk from non-European countries, thereby shaking up an entire industrial sector. In fact, sales by major coal producers – like Indonesia, South Africa and Australia – have broken records in 2022.

Coal exports by Turkey, the 11th-largest producer of coal in the world, increased nearly seven-fold in May 2022 after the European Union announced a ban on Russian coal. Even this figure pales in comparison to the nearly 12 times increase of Turkish coal exports in August 2022 when Russia cut natural gas exports to Europe through Nord Stream 1.

The effects of these unprecedented sales are sending shockwaves across a hitherto fading sector in the country, thereby triggering a potential supply and demand crisis. “All of our reserves are depleted,” claimed Erhan Altay of the sales department of the state-owned Turkish Coal Enterprises. The company mines the majority of Turkey’s lignite coal and has been scaling down its production over the past three years.

It is important to note that hard-coal production had been reducing for decades in Turkey. Much of the stock was kept in anticipation of a time when coal would be more scarce and valuable – like what it has become this winter.

Without any reserves to fall back on, Turkey is finding it difficult to meet rising demand. This is especially true because coal has been the country’s major energy source since 2018 despite lower production figures. The mineral accounts for more than a third of all electricity generation in the country – up from 23 per cent a decade ago.

Bridging the gap

Turkey has attempted to address this increase in demand by importing coal that is cleaner and of a higher calibre than local variants. However, rapidly rising European demand has caused coal prices to double, thereby pushing lower-income countries out of the market.

The Turkish Lira suffered a rapid fall in value this year. Thus, imported coal has become practically unthinkable as a cheaper energy alternative in Turkey. Even though local coal continues to remain available, it has become much more expensive.

This increase in demand, coupled with the energy crisis, has both coal mining companies and suppliers in Turkey scrambling for potential solutions. They have the onerous task of not only addressing the supply gap for their regular clients – including thermal power plants and the cement, iron, and steel industries – but also combating near-triple-digit inflation and soaring electricity bills. The latter especially has pushed more households towards coal.

In some cities, demand has increased by as much as 200 per cent, according to Mahmut Kayahan, assistant secretary of the Chamber of Commerce and Industry of Zonguldak – the province that holds all of Turkey’s hard-coal reserves. Since Turkish Coal Enterprises only serves the public sector, the country is increasingly being forced to turn towards private mining companies to meet the load.

Even though coal production figures have been down until this year, the Turkish energy ministry is trying to expand mining fields in an attempt to wean the electrical grid off coal imports. On this front, it is important to note that – due to high costs and shifting public opinion against coal-powered thermal power plants – only a handful of the 80 planned thermal power plants have been installed in the country.

Better days ahead?

The coal boom of 2022 might just make investment in the sector more attractive. Even though the cost of coal is increasing with inflation, revenues are increasing at an even faster rate. As an illustrative example, coal which previously sold at 2,000 Turkish liras ($107) per ton last year now sells between 4,000 and 7,000 liras depending on its quality, Kayahan told MEE.

Hard-coal mining needs heavy machinery and a significant number of personnel – costs that have multiplied this year. However, companies are still earning more than last year, he highlighted. Lignite mining, which is less costly, has been “extremely profitable” according to Kayahan. “Most will invest it,” he said. “Where they invest the profit is left up to the manager’s initiative.”

A few mining companies are planning ahead for the energy transition and exploring the possibility of branching out into cleaner alternatives, said Kayahan. While nothing currently binds their investments in Turkey, some private banks are still interested in keeping their money in the fossil fuel industry.

As a nation, Turkey wishes to be an active participant in the global transition to clean energies. However, it is still promoting domestic coal mining in Thurkey and seeking financing anywhere it can find it. “There was never a well-coordinated policy,” adds Tok.

Tok does not expect the current coal rush to last long term as financial and political pressure is likely to push private companies away from fossil fuels for good. However, as profits from fossil fuel rise and Ankara does not commit to distance itself from coal, short-term calculations might just win out.

“While there is a climate policy around the world that works against domestic coal mining and thermal power plants, Turkey is pushing in the opposite direction,” concluded Tok.