Poland is facing a coal shortage before the heating season, which will test the government's long-term strategy of domestic coal dependency for power generation.
Polish coal producers may have gone too far in their efforts to redress production oversupply in 2012-16. They have reduced output capacity to a point where the government is concerned that production will not be able to satisfy domestic coal demand in the coming months.
Polish thermal and coking coal output in January-July fell by 5pc on the year to 38mn t, data from national statistics office GUS show. Falling supplies pushed stocks of unsold thermal coal below 1.5mn t in June last year, which was the lowest level since 2011. Producer stockpiles have declined, despite them mainly comprising low-calorie supply, which is usually blended with higher-quality coal.
Polish coal-fired power plants also reported a drop in inventories, which were down by 13pc on the year at 3mn t at the end of July. The decline was an even sharper 20pc at combined heat and power plants, which had less than 1.6mn t of coal in stock at the end of July, according to Warsaw-based think-tank ARE.
Falling supplies have supported prices. Average prices of thermal coal sold by Polish firms rose by 12pc on the year to nearly 240 zlotys/t ($66/t) in July, the highest level since November 2015, according to data from government agency ARP, which gathers information from Polish mining firms.
But the upward trend has been capped by long-term supply contracts with power produces, which have limited the ability of mining firms to raise prices in the short term. And increasing domestic supplies to meet "unexpected" rises in coal demand in 2018 will be a challenge, Poland's largest coal producer, PGG, said this month.
Domestic producers have limited scope to increase output efficiently and the country may need to import 10mn t of thermal coal this year to meet rising demand, significantly more than 6.1mn t imported in 2016, Polish traders estimate.
Imports in the first seven months of this year were up 8pc on the year at more than 4.1mn t. Imports in January-June were equivalent to 523,000 t/month, but rose to 968,000t in July. This implies that receipts will touch 6mn t in the final five months of this year, equivalent to 1.2mn t/month, if traders' expectations are borne out.
Import options have diminished since August, as seaborne coal prices have hit new highs and Poland's main supplier — Russia — faces supply constraints. "There is demand for imported coal in Poland but there is no coal to import," one trader said.
Russia has reduced rail shipments to Poland since August because of a bottleneck on the Polish-Belarus border caused by maintenance on a rail bridge. A shortage of railcars in Russia has contributed to the constraints.
Coal shortages may worsen in the coming years as Poland commissions a number of large coal-fired power plants. Poland synchronised its largest coal-fired unit to the grid this month. The 1.1GW Kozienice plant, built by state-controlled Enea utility with a net efficiency rate of 45pc, was commissioned three months ahead of schedule.
Two more big plants, both built by state-controlled companies, are planned for completion over the next two years. PGE is planning to commission the 1.8GW Opole plant by 2019, with the first 800MW unit coming on line next year. Tauron expects to complete the 910MW Jaworzno plant in late 2019. The plants are expected to increase overall demand for coal despite the start-ups accelerating shutdowns of some older coal-fired units.
There are increasing signs that the government's long-term energy strategy is under pressure. The strategy envisages that coal-fired generation, supported by domestic coal output, will remain the largest source of electricity output by 2050.
A joint venture between state-run utilities Enea and Energa this month reiterated a plan to build another 1GW coal-fired plant in Ostroleka, with construction due to start next year.
But the government hints that this may be the country's last new coal-fired plant, at least for the foreseeable future. PGE this month pulled out of a plan to build a 500MW coal-fired plant in Dolna Odra, opting to invest in a gas-fired unit for commissioning in 2024. The decision came just two months after the company said it preferred a coal-fired unit at the site.
Government officials this month said that Poland will make a final decision on construction of the country's first nuclear reactor by early next year. The government is under pressure to speed up nuclear construction because of concerns over Polish coal output in the long term.