Tuesday, January 26, 2010

Conventional Coal Production is rising

Gregor MacDonald had a couple of interesting charts on coal demand that should get greater attention. The first was the relative pace at which coal demand is growing relative to oil.

While the second shows how much of the increased demand is coming from Asia, and Africa, rather than from the OECD. As he puts it, you could almost define the OECD as the oil users, and the non-OECD as the coal users.

Note that the great growth in demand has been since mid-2001.

The difference between the two (OECD and non) is likely to grow greater in the years ahead., since the EIA is projecting virtually stagnant demand in the OECD nations.

(Note that 1 Quad is about 44 million tons of coal, so that 100 quads would be about 4.4 billion tons)

At the moment Peabody, for example – who provide about 250 million tons of coal a year to the market, is seeing an 18% decline in demand y-o-y (Note that the above curves only go through mid-2008. ) but expect to see some recovery and increase in price in the second quarter of this year. The railroads who ship the coal, much of it from the Powder River Basin in Wyoming to power stations around the country, have also seen a 12 – 21% drop in income, but their December figures are showing the signs of recovery (or a colder winter) with movement up 4% in a demand return that is expected to continue. The situation is such that coal stocks are no longer a popular item in the market. Although Powder River Basin coal is currently at $10.40 per ton, up from $8.40 just over a month ago, a rise not seen in other coal prices. Production numbers have yet to reflect this, though the final 2009 points in the graph below are just estimates).

Coal production figures for the United States (source EIA )

This on the day that the BBC announced that the British Recession was over. Not, of course that this helps those currently out of work, since the return to full recovery is still some time away. But it does provide some support for the idea that coal demand in Europe may begin to grow.

One argument against that is the relative availability of natural gas, and the lower environmental footprint that that brings with it. And it is going to be in the relatively longer-term assurance of availability that decisions may be made on whether or not to switch from one boiler to another (although many can handle both). But for countries in Asia coal may be the chosen alternative. And even in the United States natural gas and electricity costs seem to be rising in parallel, as Frank Clemente just pointed out.

Source Energy Facts February 18, 2010.

It is interesting to note how estimates for that increase in demand have changed. Back in 2005 Forbes was predicting that China’s demand would be 2.5 billion tons this year. By mid 2008, the Head of the Chinese Coal Industry Association was predicting demand at 3 billion tons.
Data show that China's coal production rose from 1.415 billion tons in 2002 to 2.536 billion tons in 2007, an average annual increase of 12.38 percent. At present, coal accounts for 76 percent of the country's total production of primary energy sources, and 69 percent of the whole society’s consumption.
Demand is continuing to increase, which is taken as an indication of the growth in the economy. It is antipated to grow by about 5% or more this year, and figures as high as 3.4 billion tons are being bruited. Unfortunately in the immediate short term since imports have to enter the country through harbors, prolonged cold can halt deliveries.

India is often not that readily recognized, but bear in mind the following statistics:
India ranks third in coal production
Coal is one of the primary sources of energy, accounting for about 67% of the total energy consumption in the country.
India has the fourth largest reserves of coal in the world (approx. 197 billion tonnes.).
Coal deposits in India occur mostly in thick seams and at shallow depths. Noncoking coal reserves aggregate 172.1 billion tonnes (85 per cent) while coking coal reserves are 29.8 billion tonnes (the remaining 15 per cent).
Yet even with those supplies not enough coal is being produced to meet the demands. With consumption at 604 million tons there is still a current shortfall estimate of some 70 million tons a year, that is met by imports. Imports also are not adequate and as a result there continue to be power shortages – in this case at 11 generating stations. However part of the problem may be that there is a difference between the cost of imported coal at $4 per million Btu and domestic coal at $1.76 per million Btu and domestic coal supplies cannot keep up.
The panel said that the country’s import requirement was 29 million tonne this fiscal, which would spiral to 50 million tonne in 2011-12 and is likely to be 120 million tonne by 2012-13. What is more, of the 203 captive coal blocks that have so far been allocated with combined reserves of 26 million tonne, only 92 blocks have commenced operations with a projected production of 49 million tonne by 2011-12/

And if you think India has problems, Pakistan’s are even worse, but then that is something that I have written about before.

The brief conclusion is that coal is going to around for a long time into the future, with demand continuing to outstrip supply for the non-OECD countries, and so one can expect the lines in the top charts above to continue rising.

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