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Energy Hunger drives India Oil Giant Reliance to join the Coal Buying Spree

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India and China are largely dependent on Coal for fueling a majority of their energy needs despite the evident disadvantages of coal.China derives almost 80% of its electricity from coal while India uses Coal for 50% of its Energy Needs.Most of the new power plants being built in India have plans to use thermal power which means that the coal demand is going to skyrocket even as these 2 Asian giants are already suffering from coal shortages.India’s Coal Production is falling short as the Environment Ministry makes it tough for the coal miners to dig up virgin forest areas even as private Indian power companies keep on building gargantuan thermal power plants of  more than  4,000 MW capacity.Most Indian companies are now racing to acquire coal mines abroad joining the Chinese companies.Seeing the massive potential in coal,international resource giants such as Rio Tinto and others are trying to access coal assets as well.

Now India’s  largest company,the oil and gas giant Reliance is too throwing its hat in the ring.While other Indian private producers have already acquired coal mines abroad,Reliance has not been too aggressive except for acquiring shale gas assets in North America.Note the competition for the Australian Coal Producer Premier mines has increased with Lanco too joining the fray.Note Lanco had earlier bought coal miner Griffin Coal mines for A$750 million.Other major Indian business conglomerates Aditya Birla Group, JSW Steel and Jindal Steel & Power have been shortlisted bidders for another Australian coal explorer Bandanna Energy in a potential billion-dollar-plus sale.Note the Adani Group had recently bought a port to supplement its coal mine acquisition.

Coal Prices Increasing Globally

Coal Prices have started to increase in the international market along with other commodities like wheat,sugar,corn,gold,copper etc.But unlike other commodities,Coal has a disproportionate effect on Energy Prices.Note Coal is the principal supplier of top energy consumers like China,USA,India,Germany etc.The cheap price and abundance of coal has made it the fossil fuel of choice for generating electricity.The Technology for mining,processing and using coal to generate energy is well developed and cheap.Coal Prices have increased dramatically in China which is being forced to import millions of tons of coal despite having huge reserves.This is putting pressure on electricity rates which are one of the cheapest in the world.High Coal Prices are also making Thermal Plants in the UK to switch to Wood Pellets as Fuel which are considered more environment friendly.Note Coal generated electricity is cheap because the external effects on environment,health,pollution are not taken into account

Indian Companies competing with each other to Buy Global Coal Assets

The energy hunger is driving every major Indian business group to actively look for energy assets abroad as India’s billion plus population grows increasingly prosperous.While India has large coal reserves,state owned CIL has been unable to raise production due to convoluted price mechanism and policy.This has forced Indian power companies to look elsewhere to provide coal for their thermal plants.Australian,Indonesian,African Coal Mines Selling like Hot Cakes amongst Power Hungry Indian,Chinese Companies.40 GW of the 80 GW thermal power plants don’t have Coal Linkages and new power plants are already running at 40% utilization due to unavailability of coal.Coal Shortages have already driving electricity price increases in India and China with the Indian government even contemplating pooling the price of coal to even out the electricity costs for consumers.Investing in Coal remains a great idea despite the sharp run up in the prices of coal stocks.

Reliance Industries joins race for Australia’s Premier Coal; stock up

India’s largest company by market value, Reliance Industries, has submitted an expression of interest to buy Australia’s Premier Coal, a division of ASX-listed Wesfarmers Group, at least two people said on condition of anonymity because the talks are confidential.Reliance Industries is likely to initiate due diligence on the assets of Premier Coal according to one of the people quoted above and may submit a final bid at the end of June if it is satisfied with the results of the due diligence exercise.Premier Coal has proven coal reserves of 129 million tonnes and currently produces 4 million tonnes of coal.


Abhishek Shah

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