There is nothing quite like a massive coal rail line to demonstrate China’s loyalty to the dirtiest of fossil fuels.
Almost a decade in the making, the nearly US$30 billion Haoji Railway is to start operations at the end of this month and eventually haul as much as 200 million tonnes from key producing regions in the north to consumers in the south.
That is more than Japan uses in a year and could cut China’s domestic seaborne coal trade by 10 percent in the long run, Fenwei Energy Information Services Co (汾渭能源信息服務) forecast.
In a world where governments and businesses are under pressure to leave the fossil fuel in the ground, the new rail is decidedly old-fashioned.
China has pumped more money into renewable energy than any other country and is battling pollution by urging its population to burn natural gas instead. Yet, it continues to mine and burn half the world’s coal.
“Coal will remain a dominant source of power in the next 10 years, even though it’s being gradually replaced by new energy,” Beijing-based Everbright Sun Hung Kai Co (大新鴻基) analyst Tian Miao (田苗) said.
One of the main reasons for building the nearly 2,000km railway is to ease transportation bottlenecks in the domestic supply chain. China is rich in coal — with its resource concentrated in northern Inner Mongolia and the provinces of Shanxi and Shaanxi — but the distribution is uneven.
The country is mainly served by trains hauling supply from the west to the east, including on the Daqin Railway. Coal is delivered to ports such as Qinhuangdao and Caofeidian before getting dispatched on ships to users in the south.
To improve the efficiency of north-south transportation, China approved the construction of the Haoji Railway (previously named Menghua) in 2012, about the time its growth in renewable energy sources accelerated.
The country’s longest coal line is to pass through Inner Mongolia and Shanxi, Shaanxi, Henan, Hubei, Hunan and Jiangxi provinces, helping to save time and costs of moving supply over vast distances.
“The project was mulled at a time when coal was facing serious rail bottlenecks,” Fenwei analyst Zeng Hao (曾浩) said. “Demand for rail capacity has eased with the rise of renewable energy and environmental pressure. The rail line has more significance today as a strategic transportation channel.”
The effects on top exporters such as Indonesia and Australia might also be muted, as overseas supply tends to be cheaper, Zeng said.
Imports account for less than 10 percent of China’s coal consumption.
China has made great strides in encouraging alternative fuels, adding the most solar and wind power capacity in the world and mandating minimum levels of green energy use.
However, coal still provides about 60 percent of its energy and it will take years to change that dependence.
The nation has also made energy security a priority amid a trade war with the US.
Haoji beginning operations is not in conflict with China’s broader energy goals, Huaxi Securities Co (華西證券) chief analyst Ding Yihong (丁一洪) said.
Coal plays a major role in securing the nation’s energy supply, while direct rail transportation is less polluting than diesel trucks, Ding said.
It takes about 20 days to deliver coal from Shaanxi to Hunan, Hubei and Jiangxi via the main seaborne route.
The new line could cut shipment time to just three days, Ding said.
Power plants would have more flexibility in managing inventories and responding to abrupt shifts in weather conditions, which could affect electricity use.
Those three southern provinces, which have some of the highest coal prices, would soon receive supply directly from low-cost regions.
“Cheaper supply will hit the market. Competition between coal producers will rise,” Ding said.
Total investment in Haoji has been estimated at 193 billion yuan (US$27.2 billion). Its shareholders include China State Railway Group Co Ltd (中國國家鐵路集團) and some of the country’s largest miners, such as China Shenhua Energy Co (神華能源), Inner Mongolia Yitai Coal Co (內蒙古伊泰煤炭) and China Coal Energy Co (中煤能源).
China State Railway Group did not respond to a fax seeking comment. Calls to the operator Mengxi Huazhong Railway Co were unanswered.
The rail line is to begin operations at about the end of this month, according to state-run Xinhua news agency, while the China Coal Transport and Distribution Association said that it would be on Tuesday.
The share of coal in China’s energy mix is falling, but consumption of the fuel would continue to rise, said Teng Suizhou, marketing director of Hubei Jingzhou Coal and Port Co, which is building storage and port facilities to serve the new line.
“For that reason, issues of rail delivery will need to be addressed,” Teng said.
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