COALspot.com - Coal Boom : Scenario, Now & later!

Coal has been the dominant fuel for power generating plants in developed countries since the nineteenth century and emerging economies such as China and India have in recent decades ramped up their coal use, which accounts for more than half of global demand.

The “Cool Boom” of the recent past appears to be getting over , as large coal fields discovered in the last two decades, such as in Indonesia or Colombia, were easy to develop. But, now the most economical reserves of the fossil fuel are fast getting depleted, leading to a noticeable drop in the quality of what remains to be tapped. High-quality and cheap coal supply is under serious threat .... (and) the ’Coal Boom’ appears to be over. The quality of coal from Indonesia, the world’s biggest exporter, is already low and is expected to deteriorate further.

This means that to get new supplies out of the ground could become increasingly uneconomical and many new projects may have to be shelved.

Global coal demand will soar in the short term as emerging markets rely on it to power economic expansion, but its’ declining quality and rising environmental awareness will dent demand in the longer term. Coal has been the clear winner of the past decade, with supply and demand growing constantly, but the boom of the last decade might not last long into the future.

Though coal has a bright future in the short term, but that will not last long . Coal still has a stranglehold on power generation in developing countries" where tackling energy poverty is a prime concern, because of its comparatively low cost per energy unit produced. From the standpoint of energy security, coal-fired units remain a winner thanks to the widespread availability of the primary resource. The economic growth and coal markets remained closely linked. No one has been able to delink the growth of GDP from the growth of energy, and coal in particular.

India
India received global attention after the historic blackouts in recent past (2012) that put over 600 million people in the dark. Following the media aftershock thereafter, one thing was abundantly clear that coal is lifeblood for India in particular and developing economies in general.

The power outage in India has shed a bad light on India's ability to stay tuned to its charted economic course. The country's industrial growth is crucial for development and prosperity. Energy supply is vital for achieving that avowed purpose. Unfortunately, the out-dated infrastructure cannot cope with the economic expansion and population increase. The government needs to give impetus and invest in this crucial sector, monitor mining rights, improve the mining techniques, widen the supply chain system and cut down the huge handling loss/wastage associated thereto.

Combined with many other related factors, the present blackout is a matter of serious concern. India has added significant coal-fired generating capacity in the recent past but there is limitation of availability and accessibility of sufficient thermal coal. India needs to make huge investments in the energy sector and bring reforms in mining sector otherwise it would see many more power failures and blackouts and there would be total social unrest. Besides, India just cannot switch over to gas or nuclear or wind or solar energy as an alternative source of energy generation. Energy supply to the nation is as vital as blood in veins of the human body. Coal is the “lifeblood” for Indian economy. It is a wake-up call.

India is heavily dependent on thermal coal for power generation. In India, for instance, 60% of electricity capacity is dependent on coal-fired generators. India is characterized as drivers of the global thermal coal market and the demand is indeed robust.

The Indian government must woke up and take initiatives to remove the malaise , specially :

-  Transparency in coal block allocation process through competitive bidding for private sector
-  New terms for fuel supply agreements to improve supply to power plants
-  Shift in pricing mechanism to GCV based grading of coal to align domestic prices with international levels
-  Setting up of Independent coal regulator to bring in an order in price fixation , e-auction
-  Faster clearances to mining projects of CIL to increase production

India has theoretically significant reserves but it will take a long time to get into actual production, There is a urgent need for Govt of India to re-examine the regulations and policies associated with exploration, exploitation and production. India is still not fully encouraging commercial coal mining by the private sector.

India's coal reserves are concentrated in the eastern states of Orissa, Jharkhand, Chhattisgarh, West Bengal and Madhya Pradesh, where basic logistics infrastructure (such as ports and railways) is lacking. Various government regulation concerning forestry and environmental restrictions are also hindering mine development. Unless such bottlenecks are addressed, growth in domestic coal production could be difficult.Due to government regulatory delays, infrastructure bottlenecks and security risks are encouraging Indian firms to look overseas to secure coal supply especially in Indonesia, South Africa, Mozambique, Australia etc. for their ambitious power projects in India.

The extant and speed of implementation of these initiatives remain to be seen and would decide the fate of Indian coal sector.

Indonesia
Indonesia’s abundant Coal resources and China's demand for Coal have formed the backbone of a strong partnership. But bonds may be about to break, as Chinese growth slows .For a quite some time, Indonesia has depended on China's hunger for Coal to feed its power plants, but after it cut its annual growth target to below 8% first time in a decade,it is expected to lose its appetite.China's demand for Coal helped Indonesia cling on to a stable economy while other nations slipped into recession, but as growth slows in the East Asian state, the country may be about to lose its grip.

At present Indonesia’s coal-mining industry is feeling the impact of China's slowing growth, raising questions about whether the Southeast Asian country's consumer-spending boom will be enough to offset the lower demand for coal, palm oil and other commodity exports and prolong Indonesia's own economic gains.

Indonesia is the world's largest exporter of low grade thermal coal used to fuel power plants. Global coal prices have fallen around 20 percent –25 percent this year, producing stress cracks in what is already a low-margin business.

Indonesia's coal industry has been hit hard by a slow down in demand from China in recent months. There are also doubt that the Indonesia’s new mining regulations significantly reduce the Indonesian mining sector's attractiveness to foreign investors. So far mining contributes 15-17 per cent to Indonesia's GDP and constitutes a similar share of FDI . If Indonesia wants to increase its economic growth, then it will need to continue to attract more foreign investment, specially in the mining sector. But Indonesia’s heavy reliance on natural resources to boost its economic growth may mislead the interpretation of ‘true’ increases in its social welfare. GDP growth based on the exploitation of natural capital can disguise an unsustainable decline in resources. The government and companies who exploit natural resources often fail to reinvest the resource rents generated. When rents are not effectively invested and the natural resources are not replaced with human-made capital to form the basis for future development, growth is unsustainable.

The China boom triggered a prolonged growth spurt in commodities exports that has helped keep Indonesia's GDP growing at annual rates of 6.5%. But economists are ringing warning bells. The falling value of commodity exports is widening an already-troublesome current-account deficit, that could add to downward pressure on Indonesia's currency, the rupiah, and stoke up inflation.

"Indonesia is too dependent on the global commodity cycle and on Chinese growth," After mesmerizing the investors for a couple of years, Indonesia is facing hard time.The Global bearish commodity market condition has also effected Coal Mining in Indonesia and steep fall in prices have forced many miners to stop operation due to economic consideration.

Prices of Coal have been falling globally because of a supply glut in the United States and a slowdown in use from China, where the economy has been slowing down. Declining orders from nations such as those in Europe has caused Chinese factories to curb production, curtailing use of power from coal-fueled electricity plants.

Due to possible slowing down in the global economy including China and India, two of the biggest buyers of the country’s coal, has aggravated the pains of many small coal producers in Indonesia , not to mention the possible influx of coal from Africa and the United States that is entering the Asian market.

Although experts remain undeterred by China growth fears, Indonesia must look to potential & emerging ASEAN member counties economies for export of Coal to , Malaysia , Thailand , Vietnam and Philippines. India will be one of the biggest buyer of Indonesian Coal . A slowing in China's economic growth is one of the main result of lower prices of Coal .China's growth may be slowing, but it is still expected to continue its major buyer of Coal.

The truth is China is leading the world's transition to an abundant and ultra-cheap fuel source (Natural Gas)

Looking ahead
Coal is helping meet the world's electricity demands for a simple reason that coal is cheap, deposits are abundant & widely dispersed, can be easily mined, not controlled by any OPEC-like cartels and secure source for power generation.

There's no denying that coal has earned its reputation as a relatively most polluting fossil fuel. Mining coal is notoriously dangerous, the remnants of those mines disfigure the Earth, and the by-products of coal’s combustion fill the air not simply with soot, smoke, and carbon dioxide but also with toxic heavy metals like mercury and lead, plus corrosive oxides of nitrogen and sulfur, among other pollutants.

The future of coal as an energy source may not remain as strong as it was in the past but slowly may begin to decrease with the development of alternative sources of energy and imposition of strict environmental regulations.

It is almost definite that coal will have a future as a potential alternative energy source. The world reserves of coal are large enough to last 200 years, but only at their current rate of consumption. However, coal reserves are spread more equitably around the world than oil reserves. It also has a promising future because it is not as expensive as other possible energy sources. With rising oil prices, it can be predicted that coal may become a cheaper source of energy. The need for an energy alternative has most nations looking in all directions, and one of those is coal as an energy source. Many experts see coal as a viable alternative source of energy; though not known to be the cleanest means of producing energy, but for sure a cheaper alternative.

An increase in coal production is the opposite of what the global climate change forums have wanted to see because coal without any doubt is one of the dirtiest and filthiest fossil fuel in terms of CO2, when it comes to harmful emissions that most environmentalists and energy economists agree, causes global warming.

Coal consumption is going in a direction that policy makers would prefer it not to go. The critical question is whether there is a willingness amongst coal producers and power generating plants to make their technology cleaner, so as to emit less greenhouse gases (GHG) which leads to global warming. Energy scientists have long been voicing concern on the rise in the level of greenhouse gases, which leads to global warming and climatic changes that are detrimental to economies worldwide. The disastrous consequences for global climatic change is one topic that has now taken very serious dimension but hardly been realized in a serious enough way by the nations across the world.

The new thermal plants being built are certainly more efficient than older ones. There exist technology to have emission-free power plants - the only constraint is the cost. The cost of clean coal technology is very high, yet when we look at the alternatives to coal, they are even higher than that - for example, nuclear, solar, wind. The real costs of all these alternatives are still to be determined, but there is no doubt that clean coal technologies can double the cost of coal in generating energy.

None of the alternatives appear to be commercially viable right now for required generation of energy without considering subsidies and tax incentives . If any country accepts sustainable growth and development as the way forward, it subsumes the climatic change issues. At the same time, no country can ignore the inherent contradiction in the expression ‘sustainable growth’. Growth essentially involves exploiting natural resources for human benefit and countries have to strike a delicate balance between environmental sustainability and economic growth. It is easier said than done.
By : Sunil K Kumbhat , Jodhpur( Rajasthan) India.

Views expressed herein are personal views of the author and not that of COALspot.com.

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