A world apart from Europe…
As the Asian region is more diverse and less politically unified than the EU, common action is less possible. However, the growth rates of the emerging economies in the region, particularly China, are determining the regional and increasingly international trends in many sectors, especially those relating to energy.
Striking is the dominance of China whose production is nearly an order of magnitude larger than any other country. Then, there are three countries, Australia, India and Indonesia, who all produce around 200 Mtoe, which is greater than the production of all the EU member states combined. Australia and Indonesia are the big exporters, while Japan, and increasingly China, are the major importers.
International trade for coal and the impact of Asian demand
Global coal demand grew by more than 60 % from 2,370 Mt of oil equivalent in 2000 to 3,700 in 2011. This is the highest growth rate of any fossil fuel. As with other energy sources, the global growth rate masks regional trends with stagnation or decline of demand in OECD countries (14 % drop in the last decade) and rapid growth in emerging economies. China and India make up the majority of the increase in coal consumption (90 %).
While significant quantities of hard coal and virtually all soft coal or lignite is consumed locally, there is also an international market, although it is relatively small as major producers are also the large consumers. The major exporters of coal are Indonesia and Australia, although Russia is also a significant exporter within Europe, while the major importers are Japan and increasingly China. Therefore, most of the global trade can be found in the Asian region.
The volumes and sources of trade change considerably over time for a variety of reasons including the depletion or closure of existing mines, new technologies changing the economics of extraction of known resources, political and industrial changes and the discovery of new sources. As noted, there have been significant changes in the coal imports to specific countries. The most striking is China which has recently become a net importer of coal in volume terms, but as a percentage only 5 % of its coal is imported. Indonesia has grown to be the major supplier, having doubled its exports in the last 2 years. Australia is the next largest supplier with only relatively small quantities coming outside the region: from Columbia, Russia, South Africa and USA. In 2010, the Pacific suppliers (Australia, Indonesia, China, Russia, Vietnam and South Africa) provided 477 Mt within the region and only 15 Mt to the Atlantic market, with the Atlantic suppliers (Columbia, South Africa, Russia, Poland, Venezuela and USA) supplying 157 Mt within the region and only half of this to the Pacific market. This regionalisation of the global market has led to the development of distinct prices, which although following the same macro trends.
During 2011, coal prices in Europe were around $120 per ton, but dropped in 2012 to a range of $80–100 per ton. However, in Asia, in part due to the closure of the nuclear programme in Japan, the price was $115 (and had reached $130 per ton in March 2012) but subsequently dropped to around $100, partly as a result of falling demand in China and by early 2013 was around $90 per ton. These are both well above the approximately $60 per ton in the USA. As with other fossil fuels, the coal sector experienced a rise in prices in 2007 and 2008 and then a decline in 2009 due to the global recession. Prices started to rise again from the 2009 low, but then in early 2011 began to fall again, in part due to wider availability on the global market and the slowing down of demand in China.
However, the differences in the prices of the coal market are markedly less than those in the gas sector, which has seen unprecedented separation of the prices between the different markets. This is particularly due to the development of shale gas in North America which has led to a significant decline of the region’s price.
The key question for the coal market, both in Asia and globally, is the extent to which China will become dependent on imported coal. Chinese imports have risen significantly in recent years and are now on a par with the Australian exports. This is as a result of logistical, geographical, resources and technical issues limiting growth of production in China and economics driving imports, in particular in the coastal regions
The dominance of coal in the Chinese energy sector is uniquely high, providing nearly 70 % of the country’s energy compared to a global average of 27 %. China produced 3.86 billion tons of coal in 2012, 9.6 % more than the previous year and double the 2002 level (US2013). Coal generates 80 % of the electricity, accounts for 50 % of industrial fuel use, and 60 % of the chemical feed-stock (MIT2007). China accounts for 48 % of the world’s coal consumption, more than three times that of the next largest consumer, the USA. The following shows the extent to which the coal sector in China has grown over the last decade and also how in recent years it has become a net importer of coal.
In 2011, China imported about 5 % of its total consumption which is close to the volume of the world’s largest exporter, Australia. China’s becoming a net importer is due to a combination of logistic and economic reasons. Logistically, much of the coal production is located in the north and west of the country, significantly distant from the main power consumption areas on the east and southern coasts. Furthermore, China has tens of thousands of small local coal mines where insufficient investment, outdated equipment and poor safety records prevent the full utilisation of coal resources. In addition, the price of international coal was briefly cheaper for the country’s coastal regions than the price of domestically produced. China’s importance to the global coal industry should not be underestimated. China’s coal consumption is more than three times greater than total global coal trade. However, while China remains largely self-sufficient in coal, in recent years it has been importing coal
In India, coal is used to generate two thirds of the country’s electricity. India is the world’s third largest producer of hard coal. Biomass and oil each provide around a quarter of primary energy demand. The large biomass share reflects the use of traditional biomass for heating and cooking, which accounts for large shares of final energy needs in the residential (78 %) and service (46 %) sectors. Electricity accounted for only 12 % of India’s final energy needs in 2007, against 21 % in the OECD. Industry constituted 44 % of total electricity consumption. In 2006, the Government of India released its first Integrated Energy Policy and in 2008 its first National Action Plan on Climate Change. The action plan includes plans to increase the use of renewable energy, improve energy intensity and the use of fiscal measures, including a tax, on the use of coal.
Going forward there are many problems facing the coal sector in the country, relating to finance, technology, system efficiencies and environmental impacts. Many of these can be overcome with new technologies and management systems. However, one fundamental problem, that of geography, is potentially insurmountable: the country’s hard coal reserves are located in the east of the country, while the main centres of production are in the west—Delhi, Mumbai and Chennai—which is around 1,500 km away, with an average distance of 623 km. This is both affecting the price of coal, with transport costs around $30/ton, and placing strains on the railway transport system. About half of all freight transport by weight is coal.
Meeting growing energy and electricity demand remains a development and economic problem, to such an extent that the reduction in the economy’s growth rate, from 10 to 7 % in 2011, was said to be a result of blackouts and the higher economic cost of running backup diesel generators, which can be as much as three times more expensive. At the heart of this problem is coal production, which increased by only 1 % in 2011, compared to a growth in electricity capacity of 11 %. The power problems reached an unprecedented level in the summer of 2012 when more than 700 million people were left without power as a series of blackouts affected 20 of the 28 states with three of the five grid systems going down.
Japan has few fossil fuel resources and has to rely on imports for 84 % of its energy needs. As with other countries in a similar situation, such as France, Japan strongly supported the development of nuclear power as a means of diversification. Consequently, prior to 2011, its electricity came roughly from one third liquefied natural gas (LNG), one third coal and one third nuclear. Importing natural gas via pipelines through Korea or Russia was assessed, but not yet realised.
The earthquake and tsunami early 2011 lead to the destruction of four of the six units at the Fukushima Daiichi nuclear power plant. Since April 2011, there has been a gradual decline in the production of electricity from nuclear power plants. The last nuclear reactor in the country closed in May 2012. However, in July 2012 units 3 and 4 of the Oi power station were re-opened. In 2011, total electricity supply in Japan reached 860 TWh of which the nuclear contribution was 18 % or 156 TWh. This was down from the 292 TWh of nuclear production in 2010. Overall, energy consumption decreased by around 6 % in 2011. The reduction in nuclear production is requiring an increase in the use of fossil fuels. Coal consumption for example, presumably due to supply chain disruptions resulting from the tsunami, dropped in the second quarter of 2011, but overall consumption was up in 2011. LNG also increased in 2011. The largest increase was seen in the heavy oil and crude oil sectors, as the power plants using these fuels have increased their operational hours (as they are expensive to fuel and will previously have been used to meet peak demand, but are now operating as medium load units)
In Asia, coal is the fuel of choice for security of supply, local employment and often economic reasons. Given the large domestic and regional reserves, this is unlikely to change in the coming years, despite local and global environmental concerns over its use. Asian, and in particular Chinese and Japanese, increases in demand are and will continue to affect the regional, and to a lesser extent, international coal price. Uncertainty over future Chinese production and consumption is probably the most important question facing the sector. The trade in coal remains largely in regionalised markets, with only a few countries selling coal in any significant quantity in both Asia and Europe. However, price differentials between the markets will increase linkages and lead to a more globalised market. To aid Asian coal market stability and diversification of supply, different countries should consider introducing an absolute cap on coal consumption, as has been introduced in China.
- BP (2012) Statistical Review of World Energy
- Communication from the Commission to the European Parliament and the Council Renewable Energy: Progressing towards the 2020 target
- IEA (2012a) World energy outlook 2012. International Energy Agency
- The climate and energy security implications of coal demand and supply in Asia and Europe
- Coal industry across Europe 2011. European Association for Coal and Lignite
- Energy prices and taxes, quarterly statistics, 1st quarter 2012. International Energy Agency