King Coal: is its reign about to end?
Michael Schwartz takes a closer look at this controversial fuel.
'Coal provides around 30.1% of global primary energy needs, generates over 40% of the world's electricity and is used in the production of 70% of the world's steel.’ The words of the World Coal Association (WCA) mask a host of developments within world coal, some resulting in cooperation among coal producers but others creating conflict.
There is, for example, the question of opencast versus deep-mined coal – the former often threatens the competitiveness of the latter. But, on occasion, opencast coal is what enables deep-mined coal to be burnt when the two are blended to ensure the final product is pure enough or ‘sweetened’ to meet power-station requirements.
As if that were not enough, coal can be classified as good enough for steel-making (coking), high-quality energy generation (steaming) or, in the case of lignite (brown coal), good enough for power-station consumption although less pure than steaming coal.
WCA statistics are revealing. There are those countries where coal is dominant for electricity generation (95% for Mongolia, 93% for South Africa) and those where there is far less dependency. For the major economies, the percentages for coal are 81% in China, 71% in India, 44% in Germany, 39% in the UK and 38% the USA. Domestically produced coal helps power several of these countries and, while the UK depends on imported coal, most coal is consumed in the countries where it is extracted.
Where deficiencies in coal consumption do occur, there are countries – mainly in the developing world – that are ready to make good the shortfalls in leading economies. Examples of these developing countries include Indonesia and Kazakhstan (steaming coal) and Mongolia, Ukraine and Kazakhstan (coking coal).
US coal – an ageing market?
Coal is subject to regular forecasts and predictions from analysts. BMI Research in the USA, for example, describes America as ‘the ageing king’ although it still predicts second place for both production and consumption until 2020. BMI is, however, highly realistic – gas-fired electricity generation and ‘increasing regulatory headwinds’ in recent years have meant lower demand for domestic thermal coal. What is more, ‘deteriorating macroeconomic fundamentals’ in the Eurozone, Japan and China will reduce demand growth for electricity generation.
If all this were not enough, steel capacity is in decline due to current weak prices – coking coal output is consequently suffering and putting pressure on US coal producers. BMI Research is therefore forecasting annual dips in overall US production from 2015–2019, when total production is predicted to be 886Mt.
Figures from the US Energy Administration (EIA) provide basic and sobering facts. Electricity production may have risen by 6% in the decade to 2013, but coal’s share fell 17% and natural-gas energy rose 61%. Indeed, coal’s share of electricity generation will fall to around 33% in 2023. For that year, BMI forecasts that natural-gas produced capacity will overtake coal. In addition, older coal power stations will close down for environmental reasons – coal will not return to its previous high.
BMI Research also recently turned its attention to the country identified by the WCA as the world’s largest exporter of coal, Indonesia. In early 2014, this country’s government imposed a ban on the export of certain metallic raw materials, on the grounds that mining has a higher added value and that foreign investment will be attracted. In turn, BMI states that the ban will ‘significantly impact production growth and hamper investment for Indonesia’s mining industry.’
The export ban is unlikely, in BMI’s opinion, to be moderated for the rest of this year, although the company does believe some form of moderation will be possible for bauxite next year. In addition to a fall in coal production, the export ban may also lead to a fall in investment in coal.
Powder River Basin
Naturally, each different sector of the coal industry is keen to defend the quality of its product. For example, there is the Powder River Basin (PRB) Coal Users Group, which represents companies operating in the area of Montana and Wyoming commonly known as the PRB.
For many years, coal from this region was regarded as unacceptable until pollution regulations made its sulphur dioxide content sufficiently low to qualify for burning in power stations both elsewhere in the USA and globally (the PRB coal, with its low BTU/lb output, was classified as sub-bituminous, as this is what made it inferior).
Since then, PRB coal has gone to power plants originally burning Appalachian bituminous coal, as low sulphur dioxide and the installation of environmental controls, such as scrubbers, has meant a more competitive product than the previous one.
PRB Coal Users Group maintains links with two affiliates, the Asian Sub-Bituminous Coal Users’ Group and the Philippine Coal Plant Users’ Group. Together, they form the world’s largest coal users’ group, a non-profit organisation whose mission is the safe and efficient use of coal by those using it or considering its use.
Kim Arellano, PRB Coal Users Group Conference Director for Electric Power, sets the scene globally, ‘The world has grown its use of sub-bituminous coals (open surface-mined and with lower sulphur content). Most facilities have been or are being constructed to burn bituminous coals whereas they now burn sub-bituminous coals that generate the need for improved safe handling. Much has been and is being done to reduce impacts to the environment.
‘Coal use continues to grow in the Asia-Pacific region, primarily for the purpose of power generation. Countries with growing economies are also increasing their use of this abundant, lower-cost energy, sub-bituminous coal and using newer technologies to burn it with less environmental impact. Indonesia is among the largest growing producers.
PRB coal has soared from the first shipments in 1974 to 400Mt in 2014. In Indonesia’s case, first exports of coal took place in 1994 and reached 300Mt last year. What is more, if 1970 is taken as the base year, coal-based electricity generation rose by 125% to 2013 in line with a 116% rise in GDP. During the same period, regulated emissions from coal fell by 89%.
The EU view
One region that can make recommendations for the coal industry in the full knowledge that only a few deep coal mines remain within its borders is the European Union (EU). Individual countries within strut their stuff like beauty-contest competitors groveling for acceptance from their green judges.
France is about to end support for coal in developing countries. Then there is Norway, whose sovereign wealth fund informed us earlier this year that, since 2012, it had divested from 114 countries with a very strong interest in gold and coal mining. In the EU as a whole, the plan for 2030 is 40% fewer greenhouse gas emissions since 1990.
And yet there is Germany, where coal use is still growing - albeit due to its move away from nuclear power. Lignite is used in most German power plants, reflecting the country's position as the largest lignite producer in the EU. For all this, challenges remain in the form of fast-growing renewable energy production and hostility to fossil fuel energy. BMI estimates 0.4% annual coal growth to 2019.
Several other pan-EU plans are under review, for example, continuing to limit pollution emissions from medium-size combustion plants, which could affect coal consumption in the post-2004 raft of central and eastern EU members. The EU’s energy security policy will also continue. Whether the coal sector will promote such benefits of coal as security of supply or there will be more gas pipelines, renewables and energy efficiency remains to be seen.
Coal faces challenges. Because of its many geological forms it cannot be classified as a single entity. Sometimes, as with PRB coal, opportunities do arise, but they have to be argued and lobbied for. Sometimes, too, the coal is there, but it may be economically non-viable or too short in supply for export – most being mined for domestic markets. One wonders whether King Coal’s reign will one day be over.
And one final thought for those who think coal does not matter, or that it does not need to be promoted. In 1913, the UK produced over 287Mt of coal from around 3,000 mines, and exported 73Mt. According to the WCA statistics, these are totals that would even today leave the UK as seventh largest producer and sixth largest exporter. Next year, there will possibly be just one UK coal mine left. Makes you think.