The Two Faces of Coal
In 1980 the combined coal consumption of the US and the EU was 866 Mtoe. Today, the combined coal consumption of the two is 741 Mtoe. But the increase in Asia Pacific’s coal consumption since 1980 is 2196 Mtoe — nearly triple today’s combined coal consumption of the US and EU.
China is the world’s top consumer of coal, and was responsible for the largest share of Asia Pacific’s gains since 1980. Of the 2196 Mtoe increase in coal consumption, China was responsible for 1620 Mtoe — 73.8% of the total gain. This represents a more than six-fold increase in China’s coal consumption since 1980, which is of course partially explained by the outsourcing of manufacturing from developed countries.
No other country comes close to China’s coal consumption. In 2013, China consumed 1925 Mtoe, 50.3% of the global total. The US was a distant second at 456 Mtoe (11.9% of the global total), followed by India at 324 Mtoe (8.5%), Japan at 129 Mtoe (3.4%), and Russia at 93.5 Mtoe (2.4%).
China also produces the most coal. The 1840 Mtoe mined there in 2013 was 47.4% of the world’s total, but not enough to satisfy China’s coal demand. As with the consumption figures, the US was also a distant second in production at 500.5 Mtoe, which was more than the US consumed and 12.9% of global consumption. US coal exports are on the rise as a result. Following the US in coal production were Australia at 269 Mtoe, Indonesia at 259 Mtoe, and India at 229 Mtoe.
Australia and Indonesia both produce far more coal than they consume, and as a result they are major exporters to Asia. In fact Australia is the world’s top coal exporter, with nearly 90 percent of its exports destined for Japan, China or South Korea. US coal producers would love to expand into this market but are at a geographical disadvantage. Further, there aren’t many options for US producers wishing to export coal from the west coast. As a result, most US coal exports are destined for Europe.
Nevertheless, the US has 26.6% of global proved coal reserves — the most of any country and enough to produce at its 2013 rate for 266 years. At current market prices for coal, these reserves would be valued at some $ 15 trillion, so there will be tremendous incentive to mine this coal.
Following the US in coal reserves are Russia with 17.6% of global reserves, China with 12.8%, Australia with 8.6%, and India with 6.8% of global reserves. Each of these countries has enough proved reserves to produce coal for at least 100 years at 2013 rates except for China, which has only enough reserves for 31 years of production at its 2013 consumption rate. Russia, on the other hand, has enough proved coal reserves to produce at its 2013 rate for over 450 years.
The global coal markets are the story of skyrocketing consumption in the Asia Pacific region that far more than offsets the consumption declines in the West. The US has the world’s largest coal reserves, and because the US Environmental Protection Agency is attempting to phase coal out in the US, coal producers would like to grow their coal exports. However, these producers are constrained by geography and the availability of west coast coal export terminals in tapping into the growing Asia Pacific market.
The coal sector is one that I have not generally favored for several years. There are some opportunities, but pitfalls abound. More coal producers are likely to end up as the James River Coal Company (OTCMKTS: JRCCQ), which was forced to declare bankruptcy and is planning to auction off its assets as a result of falling coal demand. But even in sectors with such a bleak outlook, sometimes a true bargain may appear. When it does, we will bring that to your attention in The Energy Strategist.
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