The paper I’ve been working on with Dr Jorrit Gosens and Professor Frank Jotzo is out! The material is familiar territory for subscribers of this Substack: China will import less coal by sea as they:
Slow down emissions according to targets which requires
More renewable generation and less coal burn
While buying more coal inland from Mongolia and Russia
The response has been good so far aside from a few types of responses:
If coal is screwed why is the price so high?
You are a known climate activist (am I?) and invest in renewable energy therefore you are somehow hopelessly compromised.
I don’t believe you.
For category 1: there is a war on, you may have heard about it. One of the worlds largest thermal exporters has been sanctioned. If the third largest exporter goes dark that tends to push up prices.
We are looking to extend this model to cover Russia and logistics shocks. The model is a big graph with labelled edges so we could on the fly rerun a model with things like:
If Edge connected to Port in Russian_Port_list:
set Edge.status to Off
This is pretty handy stuff for looking at how commodities get moved around the world when a war or disaster impacts transport flows. Needless to say it may have applicability elsewhere. So watch this space hopefully we can generalize this without hitting compute limits or any other issues.
With regards to being a “climate activist”: yes I think climate change is real and we should do something about it. That has not stopped me from investing across the energy space for a long time across fuel types, generation technologies and the like. Yes I have owned renewable businesses - I have also owned coal stocks and debt at different times. I like owning stuff that goes up and shorting stuff that goes down so over time I have owned more renewable related businesses than coal related ones. I have no regrets on this point.
Thirdly - and this is the criticism that is entirely reasonable - “I don’t believe you”. Well, lets spell out what a reasonable test of this work might be. Our thesis has a few “legs” to it:
China will slow its rate of coal consumption but produce more domestically: you can get this from government data and it is still accurate. China is also going hard at increasing domestic output as Dr Gosens notes here:
China-Mongolia and China-Russia will build more rail over time: Already happening, and if you want to check how much rail freight comes from Mongolia and how much coal they carry you can go to the Mongolian Statistics Office here.
That rail will carry a lot of coal: See Mongolian stats office above.
That coal will displace coal imports by sea, which will go down: you can get this from China but also other data services like Kpler and various other AIS tracking and maritime data services. This I hasten to add already seems to be happening:
So that’s it - the thesis can be marked to market monthly. In investing it is good to be explicit about why you own things so that you don’t have “thesis drift”. For me this is key to keeping yourself honest. So consider this my thesis on what happens next and feel free to hold me accountable.
Seems like an analysis of Indian demand is at play in regards to Australian coal since that's the primary buyer of Aussie thermal.
China's energy intensity [level of primary energy (MJ/$2011 PPP GDP)] fell from 21.2 in 1990 to 6.7 in 2015 (World Bank).
GDP will grow $1.6 Tn PPP this year, more than almost any year since 1951, to almost $30 Tn.