The world’s fifth largest coal producer has a government backed plan to grow and optimize production through 2030
By Vladislav Vorotnikov
Russia is one of the world’s leading coal producers. It’s estimated to have one-third of the world’s coal resources and one-fifth of explored reserves—in total, 193.3 billion metric tons (mt). This figure includes 101.2 billion mt of brown coal, 85.3 billion mt of bituminous coal (including 39.8 billion mt of metallurgical grade coal) and 6.8 billion mt of anthracite. The reserves held by Russian coal companies amount to nearly 19 billion mt, which includes 4 billion mt of coking coal. Russia is the fifth largest coal producer with more than 320 million mt/y. At current production rates, Russia could continue to supply coal for the next 550 years.
Russia has 228 coal producing companies (91 underground mines and 137 surface mines). Almost all coal mining in the country is conducted by privately-held enterprises. Coal processing is carried out by 49 preparation plants and two major sizing facilities. Coal is produced in seven federal districts, 25 regions, 16 coal basins and 85 municipalities of Russia, 58 of which are towns that were developed to support the mines. The industry employs about 200,000.
The coal industry plays a huge role in the energy balance of the country. Coal is widely used to generate electricity in Russia, accounting for more than 25% of the total capacity. And, the share of coal used in thermal power plants has been steadily increasing over the last years. According to the strategic development plans for the industry, this share will eventually reach 31%-38% by 2020. In addition, the demand for coking coal in recent years has increased significantly. Three major producers account for about 57% of the coking coal market, Evraz Group, Sibuglemet and Southern Kuzbass. They also produce up to 70%-80% of hard and semi-hard coal, which is considered the most valuable for the Russian energy industry.
In 2012, Russian President Vladimir Putin expressed a direct interest in developing the Russian coal industry. Putin believes coal mining has a strategic importance for the Russian economy. He also understands that in the next decade, the demand for coal both in Russia and in the world will dramatically increase. “Our coal industry, related industries, transport infrastructure must be ready to meet that demand. We must not only maintain, but expand our position, including prospective markets in the Asia-Pacific region. This means that today we need to clearly understand where and how we plan to mine coal, as well as how to manage the logistics and how to develop engineering capacities,” Putin said.
An Industry Set to Expand
Coal production in Russia in 2012 amounted to 353 million mt, an increase of 4.7% compared to 2011, according to a report from the Central Dispatch Unit Fuel and Energy Complex (CDU TEK).
In 2012, total volume of Russian coal supplies increased by 3.1%, up to 310 million mt, including supplies marked for export, which rose 19% to 127 million mt. At the same time, the shipments to abroad countries during that period increased by 19.2% to 117 million mt, while to CIS countries by 16.8% to 10 million mt.
In total, exports of coking coal amounted to 13 million mt (increase of 36.5% over the level of 2011), including in foreign countries, 8 million mt (32.3%) and in the CIS countries, 5 million mt (43.4%). In 2012, coal exports to the Asia-Pacific region increased to 15 million mt (29%), including coking coal—up to 2 million mt (0.9%).
| Table 1: The Main Producing Indicators of Coal Industry in Recent Years (million mt) | |||||||
| 1988 | 2000 | 2008 | 2009 | 2010 | 2011 | 2012 | |
| Total mining | 425.4 | 257.9 | 328.9 | 302.6 | 323.4 | 334.7 | 352.7 |
|
178.7 | 167.0 | 224.0 | 195.2 | 220.9 | 235.8 | 255.1 |
|
246.7 | 90.9 | 104.9 | 107.4 | 102.1 | 100.9 | 99.6 |
| Thermal coal | 352.2 | 196.9 | 260.3 | 241.6 | 253.1 | 269.7 | 278.5 |
| Coking coal | 73.2 | 61.0 | 68.6 | 61.0 | 70.3 | 67.0 | 72.1 |
| Coal export | 25.7 | 37.8 | 101.2 | 104.4 | 105.6 | 117.1 | 126.8 |
| Stocks | — | 190.4 | 191.4 | 176 | 190.6 | 188.3 | 194.2 |
| Import | — | — | 25.8 | 24.2 | 28.6 (+28.6) | 32.2 | 22.2 |
| Domestic power demand | — | 103.3 | 98.8 | 91.6 | 95.9 | 95.8 | 96.3 |
Top Coal Mining Companies
In 2012, almost all coal companies in Russia reported growth of mining volume. In particular, Siberian Coal Energy Co. (SUEK), Russia’s largest producer of coal, that is currently occupying more than 25% of the market in 2012, increased the level of mining by 6% compared to 2011—to 97.5 million mt, the company said. Sales volume last year increased by 3% to 91.8 million mt.
SUEK delivered 52 million mt to Russian consumers (down by 4% compared to 2011), to export 38.8 million mt (increae of 15%). In 2012, SUEK provided about 30% of coal supplies to the domestic market and more than 20% of Russian exports of thermal coal. The company has a number of branches and subsidiaries located in the Transbaikal, Krasnoyarsk, Primorsk, Khabarovsk Territories, Kemerovo region, Republic of Buryatia and Republic of Khakassia.
In 2011, SUEK set a record in terms of investments in the Russian coal industry, which amounted to RUB 18 billion ($600 million). However, in 2012, this record was broken by the second largest player of the Russian market—Kuzbassrazrezugol, which invested RUB 23 billion ($770 million) in developing coal mining operations, and at the same time appeared to be the only company in the list of Russia’s top 10 that reduced coal production by the end of 2012.
In total over the last 12 months, Kuzbassrazrezugol has reduced the level of coal mining by 3.3%—with the total output amounting to 45.5 million mt of coal including 5.7 million mt of coking coal. According to Igor Moskalenko, director of Kuzbassrazrezugol, the lower production volumes has been provided by the development program of the company. “The main strategic goal was to increase the amount of stripping, and this task is done,” Moskalenko said.
Moskalenko also noted that the total volume of overburden was almost 360 million m3, a 2.6% increase over the level of 2011. At the same time, the sales of coal to consumers in 2012 rose 4%, to 45.2 million mt of coal, of which 25 million mt was exported. The level of export grew by 10% compared to 2011. “In 2013, Kuzbassrazrezugol will keep the volume of coal and overburden on the same level as last year,” Moskalenko said.
However, it is worth noting that the volume of investment of Kuzbassrazrezugol in 2013 should fall dramatically—almost four times compared to 2012, to RUB 5.4 billion ($180 million), out of which RUB 3 billion ($100 million) will be spent on the acquisition of basic mining equipment. “The reduction of investments in 2013 will be observed due to the fact that the major investments in the development and modernization of the production capacities were made in 2012,” said Moskalenko. “In addition, all Russian miners now have to adjust their investment plans due to the sharp decline in prices on the world market.”
SDS-Coal, the third largest Russian producer, has shown an impressive 11.4% growth rate compared to 2011. For the first half of 2012, the growth parameters for mining reached record highs of 23% compared with the first half of 2011. However, in the second half of the year growth rates began to slow.
The incredible level of growth can be attributed to a major equipment modernization program. As an example, the Chernigovets mine was supplied with two BelAZ haul trucks with a capacity of 240 and 320 mt. The mine had been using large Hitachi and Komatsu hydraulic excavators with bucket capacities from 26 to 29 m3. In May, the mine started using a P&H 2800 electric shovel. A second P&H 2800 was commissioned in September. The other large Russian coal miners in 2012 reported mixed levels of growth.
| Table 2: The Main Russian Coal Basins | |||||||
| Coal Basin | Coal Types | Resources A+B+C1 |
(billion mt) C2 |
Mining in 2012 (million mt) | Coal Quality Content of Ash (%) |
Sulfer(%) | Heating capacity (Micro joule/kg) |
| Kansk-Achinsk (Krasnoyarsk Territory, Kemerovo region) | Brown and black | 79.4 | 38.8 | 41.1 | 6-15 | 0.3-1 | 12.6-17.7 |
| Kuznetsk or Kuzbass (Kemerovo area) | Black and brown | 51.5 | 1.,7 | 201.5 | 10-16 | 0.3-0.8 | 22.8-29.8 |
| Irkutsk (Irkutsk region) | Black and brown | 7.6 | 4.6 | 14.2 | 7-15 | 1.5-5 | 17.6–22.6 |
| Pechora (Komi Republic) | Black and brown | 7.2 | 0.48 | 13.6 | 8.5-25 | 0.5-1 | 18.1-26.7 |
| Donetsk (Rostov region) | Black and brown | 6.6 | 3.1 | 4.7 | 10.5-29 | 1.8-4.2 | 18.5-20.1 |
| South Yakutia (Republic of Sakha) | Black | 4.5 | 2.8 | 9.2 | 10-18 | 0.3-0.5 | 22-37.4 |
| MINUSA (Republic of Khakassia) | Black | 5.0 | 0.35 | 12.3 | 6.6-29.7 | 0.5-0.6 | 18-32 |
State Investment Program
In 2012, the Russian government approved a long-term program for the development of the coal industry through 2030 prepared by the Ministry of Energy. The document consists of eight sub-programs and activities including all existing federal programs, sector strategies and already taken orders of the government in respect to the coal industry. The main point of the program is the assessment of the prospects of demand for Russian coal, based on the predicted conditions of internal and external markets. The program provides the investment of RUB 3.7 trillion ($123 billion) in the coal industry during the next 17 years. The federal government will invest about 9% out of the total level—only RUB 251.8 billion ($8.3 billion). With this program the government is planning to reach a new level of public-private partnership in the coal industry.
It assumes that by 2030, coal production in the country will rise to 430 million mt and that there will be 82 surface mines and 64 underground mines, while the level of labor productivity (coal output per worker) will be five times higher than in 2010 (9,000 mt and 1,880 mt, respectively). Over the entire period of the program realization it will put into operation 505 million mt of new and upgraded facilities for the extraction of coal—375 million mt of unviable and unprofitable businesses will be retired, reducing the level of depreciation of the main assets of the industry from current 70%-75% to 20%.
The Russian coal demand for electric power is predicted to grow from 68 million to 90 million mt/y with an increase in the share of exports in the total structure of the supply of coal from 38.5% to 43%-44%. Also significant is a predicted increase in the capacity of Russian coal terminal ports, from 69 million to 190 million mt. It also assumes the implementation of this program will ensure the growth of the federal budget income from organizations of the coal industry to RUB 1.7 trillion ($570 billion).
Implementation of the program will reduce transportation costs and improve the efficiency of coal supplies. The average distance of transportation of coal production will decrease by 1.2 times, including in the domestic market—by 1.4 times. To reduce the impact of transportation it will also be developed in the local use of mined coal in the coal basins. In general, in accordance with the program, it will create new centers of coal production, mostly in the eastern part of the country. Thus, the share of Eastern Siberia in the total structure of coal production will increase from 25.8% to 32% while the share of the Far East will rise from 9.7% to 15.2%.
| Table 3: Coal Mining by Top 10 Russian Companies in Recent Years | ||||||
| Company | 2009 | 2010 | 2011 | 2012 | % 2012 to 2011 | Share of the market in 2012 (%) |
| 1. SUEK | 85,562 | 86,797 | 92,256 | 97,517 | +5.5% | 27.6 |
| 2. Kuzbassrazrezugol | 46,097 | 49,708 | 46,986 | 45,482 | -3.3% | 12.9 |
| 3. SDS-Coal | 15,814 | 15,656 | 22,379 | 25,237 | +11.4 | 7.2 |
| 4. Vostsibugol | 12,066 | 14,564 | 15,800 | 16,754 | +5.7 | 4.8 |
| 5. Southern Kuzbass | 9,562 | 13,985 | 14,074 | 14,146 | +0.1 | 4.1 |
| 6. Sibuglemet | 11,330 | 11,897 | 12,485 | 13,567 | +8.0 | 3.8 |
| 7. Vorkutaugol | 6,034 | 7,197 | 10,857 | 11,550 | +6.0 | 3.3 |
| 8. Uzhkuzbassugol | 14,079 | 11,339 | 9,268 | 10,793 | +10.8 | 3.0 |
| 9. Jacutugol | 5,617 | 9,185 | 8,045 | 9,961 | +23.8 | 2.8 |
| 10.Russian coal | 8,658 | 8,762 | 9,354 | 9,870 | +5.5 | 2.7 |
| Total for top 10 Russian miners | 214.8 | 229.0 | 241.5 | 254.4 | +5.3 | 72.1 |
| Total for Russia | 300.2 | 321.1 | 334.7 | 352.7 | +4.7 | 100 |
| Table 4: Positive Scenario of the Coal Industry Development in Russia Until 2030 (million mt) | |||||
| 2010 | 2015 | 2020 | 2025 | 2030 | |
| Total mining | 320.0 | 355.0 | 380.0 | 400.0 | 430.0 |
|
211.5 | 230.2 | 237.2 | 249.1 | 268.2 |
|
108.5 | 124.8 | 142.8 | 150.9 | 161.8 |
| Power generating coal | 242.2 | 252.0 | 262.2 | 267.0 | 294.2 |
| Coke-coal | 77.8 | 103.0 | 117.8 | 133.0 | 135.8 |
| Total enterprises capacity by the end of the year | 375.5 | 422.0 | 440.0 | 470.0 | 505.0 |
| Decommissioning of capacities | 51.5 | 58.0 | 97.0 | 126.0 | 95.0 |
| Commissioning of capacities | 95.9 | 105.0 | 115.0 | 156.0 | 130.0 |
High-priority Investment Projects
At the same time, the government determined the number of investment projects for large and medium mining companies that will have a high priority level for development in the coming years. In particular, in the Kuzbass, which holds more than 50% of the production capacity of the industry, it will continue the development of the Yerunakovsky coal area, where a number of the new enterprises will be built in Mencherepskom, Zhernovskaya, Uropsko Karakansky, Novokazanskom, Solonov-skom and other coal deposits with favorable geological conditions for development.
By 2030, 11 new underground mines and four surface mines will be developed in the Kuznetsk Basin, with a total capa- city of 40.5 million mt/y. The companies Sibuglemet (Siberian Business Union Holding), Kuzbassrazrezugol, Cox and UDC Mencherepsky have already announced plans to boost production capacities during that period.
Also, private companies plan to create a series of power technology systems in the Kuzbass, which will allow the producers to go to the integrated development of resources of coal deposits, and in particular to the mining and using of methane. By 2015, the Belovskaya mine plans to establish a cluster of energy technology that will consist of a surface mine with the capacity of 6 million mt/y, an underground mine with the capacity of 3 million mt/y, a prep plant that will process 6 million mt/y, and a complex that will produce 160,000 mt/y of semi-coke. The complex includes a 40-MW power station that will be fueled by coal-bed methane and byproducts from the coking process.
In coming years, industrial extraction of coal-bed methane is expected to become more important. A state program provides a significant development of productive capacities of coal mines in Eastern Siberia.
The new center of coal production will be the Ulugh Khem basin in the Republic of Tuva, where a number of high-productivity enterprises will be developed. By 2030, it is planned that coal production in the basin will reach 37 million mt.
Also, Evraz and Yenisei Industrial Company are planning to build two underground mines with the capacity of 12 million mt each. Severstal will also develop an underground mine with a total capacity of 11 million mt. Apsat will invest in coal production in the Trans-Baikal region, where it will build an underground mine and a surface mine with a combined capacity of 2.5 million mt.
As a result of the realization of all of these projects the share of European regions in the total structure of coal mining in Russia should decrease from 6.5% to 5.7% in 2030.
The government plans to reduce the inefficient production of low-quality coal in the Urals region and Moscow basin. The high production costs due to difficult geological and climate conditions will constrain the development of coal production in the Pechora basin.
Along with this, in the Rostov region extraction of anthracite will grow by 2.4 times to 12 million mt by 2030. The state program of industry development provides a complete upgrade of production capacity in the basin through the construction of seven modern underground mines in Gukovo-Zverev and Colin-Sadkinskom coal areas.
With the creation of new centers of coal mining, the concentration of the main coal production will shift to the east of the country, with the share of the Eastern Siberia region increasing from 23.6% to 35.7%, while the Far East from 9.7% to 17.1%. This will significantly reduce transportation costs of coal and increase the competitiveness of export supplies. As the result of the program implementation 2030 (compared with 2010) in the whole industry the average distance of coal production transportation will decrease by 1.4 times.
