Why Russian coal could hinder US coal exports to China

Russia holds the second biggest coal reserves in the world

As we discussed in Part 6, Russia holds the second largest coal reserves in the world. It has 157 billion tons. Russia is also the sixth largest coal producer in the world.

Coal accounts for less than a 20% share in electricity generation in Russia (RSX). Coal production is much higher than the domestic demand. As a result, most of Russia’s thermal coal is exported—mainly to Eurasia. In 2012, Russia produced 359 million tons of coal. It exported 123 million tons—or 34%.

Raspadskaya is the largest mine in Russia. It has reserves of 782 million tons. Raspadskaya is a part of the VanEck Vectors Coal ETF (KOL). U.S. coal producers like Consol Energy (CNX), Peabody Energy (BTU), and Alliance Resource Partners (ARLP) are also part of KOL.  

Why Russian coal could hinder US coal exports to China

Increasing investments in infrastructure

The Kuznetsk Basin—or Kuzbas—is the largest coal producing region in Russia. It’s located in southwestern Siberia. The region’s main weakness is the poor rail connectivity. It isn’t close to the export ports.

Russia is investing in infrastructure. It wants to increase its share in the pacific export market. It wants to increase it from the current 6% to 15% by 2030. Russia plans to increase production in the eastern reserves. The eastern reserves are closer to ports. Russia doesn’t rely on coal from domestic electricity. As a result, the growing exports wouldn’t conflict with domestic demand. Russia is closer to China than the U.S. Importing coal from Russia would be the natural choice for China—if it’s available.

Russia is a threat to U.S. producers who want to export steam coal to China. However, the bigger threat—even for Russian coal—is China’s changing energy mix. We’ll discuss this in the next part of the series.

Visit the Market Realist Coal page to learn more about the industry.