November 16, 2017 / 7:01 AM / a year ago

RPT-ANALYSIS-Poland turns to fossil fuel soulmate Trump as coal output flags

 (Repeats Wednesday item)
    * State coal trader awaits first U.S. import
    * State mining giant says supply shortfall is temporary
    * Government says there will be no winter problem
    * GRAPHIC - Poland's coal consumption

    By Agnieszka Barteczko and Barbara Lewis
    WARSAW/LONDON, Nov 15 (Reuters) - "Whenever you need energy,
just give us a call," U.S. President Donald Trump said on a
visit to Poland in the summer. Now, with winter setting in,
Warsaw is taking him up on the offer.
    Poland's state coal trader Weglokoks is to due receive its
first ever shipment of U.S. coal imminently and industry sources
expect state or private buyers to take at least three more
cargoes over the next seven months, even though Europe as a
whole is shifting away from the most carbon-intensive energy
    With both countries led by fossil fuel advocates, the
benefits are mutual. Poland has to meet a shortfall left by the
failure of national mining giant PGG to achieve its production
targets, while U.S. miners are relying on export growth as power
utilities at home switch to cheaper, cleaner alternatives.
    Poland's government, which like the Trump administration is
championing its national mining industry, came to power in 2015
promising energy self-sufficiency for the European Union's
biggest coal-burning nation.
    Energy Minister Krzysztof Tchorzewski rejects any 
suggestion of crisis due to the problems at PGG, even though
smaller traders have often queued for coal in recent weeks.
    "A psychosis related to coal shortages has appeared on the
market," he told reporters. "I can say that this winter no one
will be cold in their homes because of a lack of coal."
    Tchorzewski declined to comment on possible imports and PGG,
the EU's biggest coal miner which accounts for almost 60 percent
of Polish output, has yet to announce its 2017 production data.
    However, the pledges of national self-sufficiency made by
Prime Minister Beata Szydlo - a miner's daughter - are under
strain as PGG will miss its 2017 target of 32 million tonnes by
4 or 5 million tonnes, industry sources say. 
    Last year the companies that now form PGG mined 33.5 million
tonnes out of Poland's total output of 57.2 million. The
shortfall will be relatively small in 2017 but is likely to grow
in years to come.
    The Navios Helios, a vessel which has brought the 73,616
tonne shipment for Weglokoks from Baltimore, is waiting off the
Baltic port of Gdansk and will probably enter the harbour on
Thursday afternoon, a port spokeswoman said.
    Until now, only private importers have bought coal cargoes
from the United States, and the industry sources say the
Weglokoks purchase proves the trend is gathering momentum.
    "Everyone is trying to buy U.S. coal. If you have coal now,
you're the king," an executive at one Polish mine said.
    Europe is playing a leading role in United Nations action to
limit global warming. Talks on implementing the 2015 Paris
climate agreement are underway in Germany and scientists say
world carbon emissions are set to rise this year to a new
record, dashing hopes that they had already peaked.            
    Since Szydlo's nationalist Law and Justice Party came to
power, Warsaw has been at odds with the EU over several issues,
including environmental standards. Poland will host next year's
round of U.N. climate talks in the southern city of Katowice -
the centre of the coal-producing Silesia region and PGG's home.
    In promoting a national coal industry and trying to preserve
jobs in traditional heavy industries, Poland can appear to have
more in common with Trump than its western European partners.
    However, while Trump has decided to pull the United States
out of the Paris agreement, Warsaw is staying in. The government
of Silesian-born Szydlo has opposed EU policies to reduce carbon
emissions as they set binding targets, but backs the Paris deal
as it did not impose specific obligations on signatories.
    Warsaw does share at least one EU energy aim in seeking to
avoid dependency on Russia, which has in the past curbed gas
supplies piped via Ukraine to countries including Poland.
    The EU's answer is to reduce energy consumption but Poland,
which relies on coal to produce 80 percent of its electricity,
is simply seeking alternative sources to Russia.
    Trump is eager to oblige. "America stands ready to help
Poland and other European nations diversify their energy
supplies, so that you can never be held hostage to a single
supplier," he said on his visit in July.             
    Polish imports of U.S. coal have already leapt more than 500
percent in the first half of this year, figures from the U.S.
Energy Information Administration show.
    Warsaw is banking on coal even more than Washington. Despite
Trump's incentives, U.S. utilities are shutting coal-fired
plants and shifting to gas, wind and solar power.             
By contrast, Poland is building three new coal power stations.
    But Polish mines are suffering from years of
underinvestment. PGG has yet to prove it can meet the demand of
power generators and some district heating plants on which many
homes rely for winter warmth.
    Previously known as Kompania Weglowa, the company was saved
from bankruptcy when state-run utilities bailed it out in 2016.
It merged with another ailing coal firm, KHW, this year.
    Chief Executive Tomasz Rogala blames what he says are
temporary problems on cost-cutting, but it is unclear how much
investment will increase.               
    Analysts at the state-run ARP agency, which monitors the
Polish coal market, expect imports this year will definitely
exceed the 8 million tonnes reported in 2016. Some private
analysts believe the figure could be as high as 10 million.  
    This comes at a cost: European coal prices             are
around $85 a tonne, just below their highest level since June
2013 due largely to Chinese demand.    
    Until now, most imported coal has been from Russia but it
largely supplies households as the government does not allow
state-run power generators to burn it. 
    However, a source close to one utility said Russian imports
could be essential due to the risk that not enough U.S. coal
arrives in time, should the winter be severe. "Imports from
Russia would be more politically correct than cold heaters in
the winter," he told Reuters, asking not to be named. 
    Analysts say the price of U.S. coal is around $110 per
tonne, about $25 more than the European price due to transport
costs from North Sea ports to Poland. Private Polish importers
currently pay about $95 per tonne for Russian coal including
delivery costs, a Russian market source told Reuters. 
    The utilities pay far less for Polish coal, although costs
are climbing. In September, coal for power production rose 4.6
percent year-on-year to 206.17 zlotys ($57) per tonne, while
coal for heating plants rose 19 percent to 237.66 zlotys, ARP
data showed.
    Analysts say the mines' production difficulties due to
underinvestment and deep seams which are expensive to exploit
will last far beyond this winter.
    Andrzej Rubczynski of the Forum for Energy, a Warsaw-based
thinktank, predicts annual output will almost halve to 30
million tonnes by 2030. "The real problem is how to balance
declining hard coal and lignite supplies in Poland with demand
in the long term," he said. The Forum has found that by around
2050 Poland faces similar costs whether it sticks to coal or
switches to cleaner energy.
    Environmental campaigners say that while renewable sources
are becoming cheaper, the cost of using conventional fuels will
keep rising, especially under reforms to the EU emissions market
which places a price on carbon.             
    For them, the argument for Polish wind and solar power is
compelling. "Coal is no longer perceived as a secure fuel," said
Aleksander Sniegocki, an analyst at Wise Europa, another
Warsaw-based thinktank.
($1 = 3.6077 zlotys)

 (Additional reporting by Anna Koper in Warsaw, Wojciech
Zurawski in Katowice, Polina Devitt in  Moscow, Vera Eckert in
Frankfurt and Tim Gardner in Washington; editing by David Stamp)
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