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Bolt up the backyard

As Russia tightens its control of export flows out of the Baltic, there are questions over what the future holds for bulk terminals in its former Soviet-controlled neighbours.

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Brinkmanship and geopolitics are no no strangers to the shores of the Baltic. Unease over Russia is a given in the region, heightened by the annexation of Crimea and conflict in Ukraine. As the Russian Federation flexes its muscles around the Baltic, confusion is rife over President Vladimir Putin’s intentions in Russia’s backyard. Uncertainty is also rising over the direction of Russian energy policy and the future of export cargo through the region’s terminals. A quarter of a century on from the fall of the Soviet Union, ports in Estonia, Latvia, Lithuania and Poland remain shadowed by decisions in Moscow.

 

Kremlin policy has shifted towards a ‘Russian cargo for Russian ports’ footing this century, as part of what the Swedish Institute of International Affairs and others identify as a view of national resources as geostrategic, political tools. In 2012, the national energy strategy pledged to expand coal handling capacity at ports and increase mining by 2030 to Soviet era levels of 500 Mtpa (Russian mines this year are expected to produce 390 Mt, with 158 Mt destined for export). Yet, in the meantime, Russian interests have invested heavily in former Soviet ports of the Baltic States. Meanwhile, coal handling capacity is being developed at the Russian ports of Ust-Luga and Vysotsk.


But Russia is now reappraising its use of foreign Baltic ports. This autumn, the Kremlin discussed the withdrawal of transhipment cargo from non-Russian terminals. In September, Transneft, the state transhipment company, said it would switch all crude products via Latvia to Russian ports by 2018. Coal cargo is being redirected too. In 2014, the Ministry of Energy said Russian ports would handle three-quarters of Atlantic coal by 2020, and all of it by 2030, instead of the 45% then transhipped via the Baltic States and Ukraine. Russian Baltic ports increased their coal handling by 9% to 23 Mt last year. Russian coal handled in the Baltic States’ ports fell by a third to 7 Mt over the first half of 2016.

 

However, macroeconomic pressures might frustrate Moscow’s realpolitik manoeuvring. The IMF expects rising commodity prices can bring only a subdued Russian recovery. And Russia’s dependency on commodities will only deepen, says consultancy firm BMI Research. Meanwhile, the low rouble has made Russian coal attractive for international buyers. Moscow needs to maximise exports, so Russian coal production is rising. Westbound seaborne thermal exports
were up 16% to 128 Mt in 2015, according to the European Association for Coal and Lignite (Euracoal). But the prolonged recession has delayed investment in export capacity, which exists in the non-Russian Baltic ports.


Cold winds


But, against this backdrop, Ventspils in Latvia took a threefold reduction in coal volumes to 1 Mt over the first half of the year, while Riga’s fell by a fifth to 5.8 Mt over the period. Meanwhile, coal volumes have increased in Russian terminals. In 2015, Ust-Luga’s coal throughput was up 11% to 21.5 Mt. Although capacity at Ust-Luga is close to full, the US$100M development of a new 12 Mtpa coal terminal at the port of Vysotsk (Bulk Materials International, May/June 2016, p5), which is scheduled for completion in 2020, is a further blow for Latvia’s export ambitions.


Vysotsk’s growth is already a significant factor in the shifting trade patterns. Since 2012, the coal terminal at the port of Vysotsk has been able to handle Panamax bulkers, following dredging work and the installation of new loading and conveying equipment. The ongoing investment drive by Port Vysotsky, the port operator, has increased Vysotsk’s coal throughput from 3.3 Mt in 2012 to 5.7 Mt last year (with 4.5 Mt transhipped during the first nine months
of this year). Export destinations have expanded to the UK and Low Countries from Finland, Poland and Germany.

 

Ust-Luga, which opened in 2001, has seen its two coal terminals stretched to capacity as cargo shifts away from Russia’s former satellite states. Universal Cargo Logistics, the Russian group, last year invested US$2M in new handling equipment, including 1,000 tph conveyors, to meet demand at its MultiPurpose Reloading Complex (MRC). The larger Rosterminalugol terminal, which is owned by KuzbassRazrezUgol, the Russian miner, handled 17.5 Mt of coal last year, a 13% rise from 2014, and in excess of its declared 12 Mtpa capacity. MRC handled 4.2 Mt in 2015.


As well as Ust-Luga and Vysotsk on the Gulf of Finland, coal is exported in smaller volumes through Vyborg and Kaliningrad. Vyborg, which is a transhipment hub for Finland via the Saimaa Canal, only handled 185,300t of coal in H1
2016. The Russian enclave of Kaliningrad transhipped 323,500t of coal over H1, up 60% from the same period last year. Coal handling in Kaliningrad will be given a boost by Rosneftegaz’s decision this summer to build a new 195 MW coal-firing power plant by 2019.


Russian reroute


Russia’s rerouting of coal poses a risk for Latvia’s port of Riga. Dry bulk volumes have risen steadily from 20 Mt in 2011 to 23.2 Mt last year, down by 0.5 Mt from 2014. Coal from Russia and the former Soviet Union countries reached 14.5 Mt last year, up by 1 Mtpa from 2011. Presently, coal is transhipped at Riga Central Terminal (RCT), which is owned by operator Riga Commercial Ports (RCP), and Mir Trade, the export arm of Russian producer SDS-Ugol, and Strek Terminal, which handles cargoes from KuzbassRazrezUgol.

 

Wider regional threats,including uncertainty over coal power in Western Europe, have dented business at the port too. Dry bulk handled between January and October was down 6% from the 17.9 Mt over the same period in 2015. The port handled 1.5 Mt less coal than in the same period last year, which amounted to a 12% drop to 10.6 Mt. But the port maintains that the 1.5 Mt of coal handled in October was the highest monthly volume in its history, as Russia ups its exports amid a coal price recovery in Europe and rising demand as winter sets in.


For the time being, coal remains the main commodity handled by Riga, which has more than 20 bulk terminals, and accounted for 35% of throughput. Overall, dry bulk capacity is 38 Mtpa and represents three-fifths of the port’s cargo. However, Moscow’s policy to develop its own ports is a fact for the coal transhipment business. Leonids Loginovs, CEO the Freeport of Riga, acknowledges that this is a “reality”, although one that the port has been aware of for nearly 10 years. Diversification is crucial to reducing dependence on its larger neighbour, says Loginovs.


Wood pellets for Europe’s burgeoning biomass-burning power sector is an area of growth, with 10 of Riga’s terminals handling the commodity for export. So far this year, the port has handled 1 Mt of Latvian wood pellets, up 4.6% from the same period last year. Grain trade is also up, by almost a third to 1 Mt over the first 10 months, compared with the same period last year, with a record 202,000t in September following a bumper summer harvest. Other bulk
cargoes that have increased this year include fertilisers, up 7%, and ores, up 71%.


Animal spirits


However, the uncertainty has not curbed development at Latvia’s largest port. The Freeport authority has ploughed on with an ambitious €1.1B upgrade, including a new rail network and fairways deepened to 17m by 2018. New fertiliser and grain terminals are a part of a €460M development of Kundzinsala on the north bank. Opened in 2013, the €60M Riga Fertilizer Terminal, a joint venture between RCP and Russia’s UralChem, is billed as northern Europe’s most advanced transhipment facility of its kind, with capacity to handle 2 Mtpa.

 

In February, China Harbour Engineering Company signed a €100M contract with RCP to provide cargo handling equipment and infrastructure at the new 12 Mtpa Riga Coal Terminal on Krievu Sala Island. In 2015, BMGS, the Latvian construction group, finished work at Krievu Sala for the Freeport, which will allow a third of cargo activities to transfer out of the city centre. Four dry bulk cargo berths, with a total length of 1.2 km and 15.5m depth alongside, and road and rail access, can accommodate 120,00 dwt bulkers.


But Krievu Sala’s development, which began in 2012, has been marred by construction and contractual delays, according to a Latvian Finance Ministry audit this summer. The Freeport’s €152M development includes €77M from the
European Union’s Cohesion Fund and €46M from a loan provided by the banks Nordea and Pohjola. RCP and Strek are expected to move their coal handling activities to the complex in 2018. The new Riga Coal Terminal and
Strek facilities will together be able to handle around 20 Mtpa, up from around 17 Mtpa at the current sites.


Other Latvian ports have been hit by the Russian retreat. Ventspils’ Baltic Coal Terminal (BCT) handled 740,000t of coal over the first half of 2016, a 45% drop. In 2015, BCT’s throughput was 1.9 Mt, also down 45% from a year earlier. In 2012, it handled 4.8 Mt. Plans to expand the 2008-built terminal’s capacity from 6 Mtpa to 10.5 Mtpa are on hold.


In Estonia, Tallinn handled no coal this year. Tallinn’s Muuga coal terminal opened in 2005 to handle Siberian exports, reaching 7.5 Mt in 2006. Tallinn is now looking to find alternative uses for the state-of-the-art facility. Mothballed Muuga stands as a chill reminder of the pressure faced by ports on the Baltic.


East meets west


Russian energy policy also looms large for its neighbour Poland, although its bulk ports are focused on the needs of Polish coal-fired power plants, heavy industry and agriculture. Europe’s top coal producer, with 72 Mt of hard coal and 63 Mt of lignite mined in 2015, Poland relies on the fuel for 90% of its electricity. Poland’s main Baltic ports - Szczecin - Swinoujscie, Gdansk and Gdynia – handled 9 Mt of coal in 2015, down by 1 Mt from 2014. However, Gdynia reported 12% more coal cargo to 1.3 Mt over the first nine months this year, after a 35% slump to 1.4 Mt last year. Coal volumes at Gdansk rose 7% to 3.8 Mt to September.


Coal is still king at Poland’s largest port, Gdansk, although throughput over the decade is down to 4.5 Mt last year from the 6.9 Mt handled back in 2005. Belgian owner SEA-Invest opened the new Dry Bulk Terminal at the deepwater Rudowy Pier in 2013, offering a coal export facility able to load 1,600 tph of coal from railcars onto ships, as well as iron ore import facility. Both can cater for large Capesize bulkers. A universal deepwater terminal to the south of Rudowy, with dredging access and road and rail infrastructure, is due to be completed by 2018.


Gdansk has an ambitious €1.3B modernisation plan, including port infrastructure upgrade and dredging work. However, grain trades have been a growth area, up last year by 28% to 3.7 Mt, and are the focus of much of this upgrade
work. OT Logistics is investing €714M in a new 4 Mtpa deepwater grain terminal. Malteurop Poland and the Danish trading group Copenhagen Merchants opened the Gdansk Bulk Terminal in 2013 at Bytomskie Quay to handle grain
and pellets, with its 55,000t storage facilities and silos. Grain is also handled by Gdanskie Mlyny at Zbozowe Quay, and at Clariant Polska’s Wislane terminal.


Agribulk has boosted activity at the combined ports of Szczecin-Swinoujscie too. The Zbozowe Quay recently opened at Szczecin Bulk Terminal with fully automated 55,000t capacity silos. Copenhagen Merchants last year won a
30-year lease to modernise and operate the 55,000t EWA grain silo. In Swinoujscie, Bunge, the global trader, operates a modern terminal at the Portowców quay. Grain shipments at the joint ports were up 5% over the first nine months of the year to 1.43 Mt, following a 6% rise to 1.7 Mt over the year.


Pole coal


But coal remains the main commodity handled at Szczecin and Swinoujscie, although throughput fell 13% to 2 Mt over the first nine months of the year, and by a third to 3.1 Mt in 2015. Bulk business is handled by operators Bulk
Cargo-Port Szczecin and OT Port Swinoujscie at the respective ports. Poland’s iron ore imports are also handled mainly at the Hutników Quay in Swinoujscie, which has an open 70,000t-capacity storage area and floating cranes for loading river barges. Iron ore imports amounted to 1.9 Mt in 2015, down marginally from a year earlier.

 

The Szczecin-Swinoujscie’s authority has a major PLN2B modernisation plan underway between 2017 and 2020, including dredging fairways and creating deeper berths of 12.5m in Szczecin and 14.5m at Swinoujscie. The Port authority wants to ensure it can maintain its ability to compete for large ocean bulker trade. Dariusz Slaboszewski, CEO of the Szczecin and Swinoujscie Seaports Authority, is also developing the ports’ inland waterway links to Western Europe and the German market, and barge links to Berlin and Brandenburg via the Oder River.


Backbone


But coal provides the backbone of Poland’s bulk port activity. Hard coal exports from Poland increased to 9 Mt in 2015 from 8.2 Mt a year earlier, according Euracoal. However, hard coal imports decreased to 8.2 Mt in 2015, from 10.3 Mt in 2014, with Russian coal making up 4.9 Mt and Australia 1.6 Mt. In the first half of 2016, coal imports increased by 8% to 3.9 Mt. But Polish mines are struggling to compete with cheap seaborne imports and low global coal prices, as well as German and Russian coal that are largely railed across the border. German producers have turned to Poland as their domestic demand wanes and Russia’s coal exporters are benefitting from a weak rouble.

 

But Warsaw continues to champion coal and oppose the European Union’s climate change targets. Energy independence is key to the strategy, amid disputes with Germany over electricity dumping and concerns over Russian energy supplies. Polish governments have sunk large sums of public money into coal-using state utilities and mines, which still employ 100,000 Poles. Parliament has even tightened control on wind farms to favour coal. Energy minister Krzysztof Tchórzewski believes efficient coal power plants are more effective for cutting CO2 emissions. Coal handling in one corner of Europe has, for now, an immediate future.

 

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