PROCEEDINGS JOINT CONVENTION SURABAYA 2005 – HAGI-IAGI-PERHAPI

The 30th HAGI, The 34th IAGI, and The 14th PERHAPI Annual Conference and Exhibition

JCS2005-R175

GLOBAL COAL INDUSTRY

Rudianto Ekawan and Aryo P. Wibowo

Department of Mining, Bandung Institute of Technology (ITB)

ABSTRACT

Over the past 30 years the world’s supply of primary energy has grown from 6 billion tonnes of oil
equivalent to 10 billion tones of oil equivalent. That represents a compound annual growth rate of over
1.8% per year. Although over the past 30 years, coal’s percentage share of primary energy has remained
about the same, coal production has more than doubled from some 2 billion tonnes per year to some 5
billion tonnes – a compound annual increase of 3%.

Around 40% of the world’s electricity is now produced using coal. In the developing world this rate is
higher – 77% of China’s electricity comes from coal-fired generation, in India 75%, South Africa over
90%5. Key countries in the developed world such as the USA, Australia and Germany also continue to
rely on coal for power generation, as do many of the transition economies that now form part of the
enlarged European Union. Coal is also a key raw material in the production of steel, with some 70% of
world steel production being reliant on coal and it is widely used as both a raw material and as a source of
energy in the cement industry. As none of fossil energy is perfect, coal has disadvantages. Burning coal
will emit CO2 – one of the main contributors of green house gases. Burning 1 ton of bituminous coal
produce 0.7-0.8 ton of CO2.

This paper will explain briefly the global coal industry. The paper will investigate current status of world
coal reserve (stock and distribution) and its comparison with other fossil energy, global coal supply-
demand and global coal market.
Keywords : coal, reserve, supply-demand, world market

1. What is coal ? With the development of electric power in the 19th

century, coal’s future became closely tied to
Coal is a fossil fuel. It is a combustible, electricity generation. With the huge rise in the
sedimentary, organic rock, which is composed transportation sector, oil finally overtook coal as
mainly of carbon, hydrogen and oxygen. It is the largest source of primary energy in the 1960s.
formed from vegetation, which has been Coal still plays a vital role in the world’s primary
consolidated between other rock strata and altered energy mix, providing 23.5% of global primary
by the combined effects of pressure and heat over energy needs in 2002 and 39% of the world’s
millions of years to form coal seams. Coal has electricity, more than double the next largest
many important uses worldwide. The most source. Coal currently supplies 39% of the
significant uses are in electricity generation, steel world’s electricity. In many countries this role is
production, cement manufacturing and other much higher. The availability of low-cost supplies
industrial processes, and as a liquid fuel. Coal has of coal in both developed and developing
a very long and varied history. One of the earliest countries has been vital to achieving high rates
known references to coal was made by the Greek
philosopher and scientist Aristotle, who referred 2. Reserve
to a charcoal like rock. It was during the Industrial
Revolution in the 18th and 19th centuries that It has been estimated that there are over 984
demand for coal surged. billion tonnes of proven coal reserves worldwide.
This means that there is enough coal to last us

759
 PROCEEDINGS JOINT CONVENTION SURABAYA 2005 – HAGI-IAGI-PERHAPI
The 30th HAGI, The 34th IAGI, and The 14th PERHAPI Annual Conference and Exhibition

over 190 years, which is in contras with oil (45 next 30 years. Consumption of steam coal is
years) and Gas (65 years). Coal is located projected to grow by 1.5% per year over the
worldwide and no particular concentration– it can period 2002-2030. Lignite, also used in power
be found on every continent in over 70 countries, generation, will grow by 1% per year. Demand for
with the biggest reserves in the USA, Russia, coking coal in iron and steel production is set to
China and India. The worldwide location of coal increase by 0.9% per year over this period. Coal is
is in contras with oil (63% are located in Middle a global industry, with coal mined commercially
East region) and gas (31% and 42% are located in in over 50 countries and coal used in over 70. The
Europe and Middle East consecutively). The world currently consumes over 4,795 Mt of coal
distribution of reserve in the world is shown in (2002). Coal is used by a variety of sectors –
Figure 1. including power generation, iron and steel
production, cement manufacturing and as a liquid
With regard to Indonesia, it is known that coal fuel. The majority of coal is either utilised in
resources potential is around 38.9 billion tons. Of power generation – steam coal or lignite – or iron
which 5 billions can be categorized as mineable and steel production – coking coal.
reserves. The coal resources especially cover
Sumatra (67%) and Kalimantan (32%). The rest of Trade for balancing supply and demand
them (1%) spread over Java, Sulawesi and Irian
Jaya islands. The lignite coal is estimated around The biggest market for coal is Asia, which
58% of the total coal resources, followed by sub- currently accounts for 54% of global coal
bituminous 25%, bituminous 15% and anthracite consumption – although China is responsible for a
at small number. significant proportion of this. Many countries do
not have natural energy resources sufficient to
3. Balance between supply and demand cover their energy needs, and therefore need to
import energy to help meet their requirements.
Supply Japan, Chinese Taipei and Korea, for example,
import significant quantities of steam coal for
Over 4,820 Mt of coal is currently (2002) electricity generation and coking coal for steel
produced – a 38% increase over the past 20 years. production.
Coal production has grown fastest in Asia, while
Europe has actually seen a decline in production. Coal is traded all over the world, with coal
The largest coal producing countries are not shipped huge distances by sea to reach markets.
confined to one region – the top five producers are Over the last twenty years, seaborne trade in
China (28%), the USA (20%), India (7%), steam coal has increased on average by about 8%
Australia (6,6%) and South Africa (4.4%). each year, while seaborne coking coal trade has
Indonesia produced 103 Mt of coal (2002). Much increased by 2% a year. Overall international
of global coal production is used in the country in trade in coal reached 718 Mt in 2003; while this is
which it was produced, only around 18% of hard a significant amount of coal it still only accounts
coal production is destined for the international for about 18% of total coal consumed. Map of
coal market. Global coal production is expected to coal trade is shown in Figure 2.
reach 7 billion tonnes in 2030 – with China
accounting for around half the increase over this Transportation costs account for a large share of
period. Steam coal production is projected to have the total delivered price of coal, therefore
reached around 5.2 billion tonnes; coking coal 624 international trade in steam coal is effectively
million tonnes; and brown coal 1.2 billion tonnes. divided into two regional markets – the Atlantic
and the Pacific. The Atlantic market is made up of
Demand importing countries in Western Europe, notably
the UK, Germany and Spain. The Pacific market
Coal plays a vital role in power generation and consists of developing and OECD Asian
this role is set to continue. Coal currently fuels importers, notably Japan, Korea and Chinese
39% of the world’s electricity and this proportion Taipei. The Pacific market currently accounts for
is expected to remain at similar levels over the about 60% of world steam coal trade. Markets
tend to overlap when coal prices are high and
760
 PROCEEDINGS JOINT CONVENTION SURABAYA 2005 – HAGI-IAGI-PERHAPI
The 30th HAGI, The 34th IAGI, and The 14th PERHAPI Annual Conference and Exhibition

supplies plentiful. South Africa is a natural point

of convergence between the two markets. On 11 December 1997, governments adopted a
Australia is the world’s largest coal exporter; protocol to The United Nations Framework
exporting over 207 Mt of hard coal in 2003, out of Convention on Climate Change (UNFCCC) in the
its total production of 274 Mt. Coal is one of Japanese town of Kyoto. Building on the
Australia’s most valuable export commodities. UNFCCC framework, the Kyoto Protocol sets
Although almost three-quarters of Australia’s legally binding limits on greenhouse gas
exports go to the Asian market, Australian coals emissions in industrialised countries and
are used all over the world, including Europe, the envisages innovative market-based
Americas and Africa. International coking coal implementation mechanisms aimed at keeping the
trade is limited. Australia is also the largest cost of curbing emissions low. Under the Kyoto
supplier of coking coal, accounting for 51% of Protocol, industrialised countries are required to
world exports. The USA and Canada are reduce the emissions of six greenhouse gases
significant exporters and China is emerging as an (CO2, which is the most important one, methane,
important supplier. Coking coal is more expensive nitrous oxide, hydrofluorocarbons,
than steam coal, which means that Australia is perfluorocarbons and sulphur hexafluoride) on
able to afford the high freight rates involved in average by 5.2 % below the 1990 levels during the
exporting coking coal worldwide. first “commitment period” from 2008 to 2012.
There are no emission targets for developing
Along history of coal trade, due to high stocks and countries.
widespread distribution of coal reserve, supply
always meets demand. Furthermore, the On 16 February this year the protocol will become
availability of spot market, particularly in the legally binding on its 128 Parties, 30 of whom are
Atlantic market has made the transaction bring industrialised countries with emissions targets.
into line to the current market situations and help However, there are some notable absences – both
the coal trade to become a perfect market: the USA and Australia have refused to ratify.
transparent and simply in operation. Due to these Without the USA – the world’s largest emitter –
circumstances, the fluctuation of coal prices is not and Australia, Kyoto’s emission targets only
so important comparing with those of oil and gas apply to countries accounting for 32% of global
prices. emissions. The refusal to ratify is largely based on
concerns over the economic impact of Kyoto and
4. Coal and Kyoto Protocol the absence of targets for developing countries.
The Protocol has certainly changed the way how
As none of fossil energy is perfect, coal has coal is used. As a result, the industry has been
disadvantages. The use of coal in combustion - researching and developing technological options
whether to generate electricity or heat, or for use to meet this new environmental challenge. The
in steel or cement manufacture - creates a number Protocol establishes three ‘mechanisms’ to help
of environmental challenges. A more recent Annex I Parties cut the cost of meeting their
challenge has been that of carbon dioxide emissions targets by taking advantage of
emissions (CO2). Burning coal will emit CO2 – opportunities to reduce emissions, or increase
one of the main contributors of green house gases. GHG removals, in countries where it costs less
Burning 1 ton of bituminous coal produce 0.7-0.8 than at home. These mechanisms are known as
ton of CO2. Joint Implementation, the Clean Development
Mechanism and Emissions Trading. Developing
The release of CO2 into the atmosphere from countries can participate to achieve Kyoto’s target
human activities – often referred to as through Clean Development Mechanism.
anthropogenic emissions – has been linked to
global warming. The combustion of fossil fuels is In Europe, combating climate change is one of the
a major source of anthropogenic emissions main commitments under the EU’s sustainable
worldwide. While the use of oil in the development strategy, which also reaffirmed the
transportation sector is the major source of EU's commitment to meeting its Kyoto target. On
energy-related CO2 emissions, coal is also a January 1st, 2005, Emissions Trading Scheme
significant source. (ETS) in the enlarged EU came into existence.
761
 PROCEEDINGS JOINT CONVENTION SURABAYA 2005 – HAGI-IAGI-PERHAPI
The 30th HAGI, The 34th IAGI, and The 14th PERHAPI Annual Conference and Exhibition

This ETS is the first emissions trading scheme in gas resources will bolster coal use in several
the world and is considered a forerunner of the countries, particularly India and China. These two
international ETS under the Kyoto Protocol. It is countries alone will account for close to two-
expected that this ETS would reduce the thirds of the increase in world coal use over the
emissions of GHG in the Community by period 2000 to 2030. Coal demand will increase
encouraging the industry to invest in clean slowly in OECD North America and the Pacific,
development projects, including in clean coal but will fall in OECD Europe as gas elbows coal
technology. Furthermore, the EU Commission out of all end-use sectors and, to a slightly lesser
was sinking EUR 68 million over 1998-2006 extent, power generation.
within the FP5 and FP6 into research on CO2
capture and storage. The target is to reduce the Supply
costs from € 50-60 to € 20-30 per tonne of CO2
captured, whilst aiming to achieve capture rates Coal production is likely to increase in China, the
above 90%. By sequestering the CO2 produced, United States, India, Australia, South Africa,
the use of coal is no longer inconsistent with India, Indonesia, Canada, Colombia and
environmental sustainability. Following Venezuela. Production will continue to decline in
successful lobbying, FP 7 is likely to have a larger OECD Europe. The Asia/Pacific market will
component devoted to energy research and coal probably be supplied mainly by Australia,
utilisation Indonesia and China. South Africa, the United
States, Colombia and Venezuela will be the
5. What future ? primary suppliers to the Europe-Atlantic market.
South Africa’s geographic location enables it to
Demand supply Europe, Asia and the Americas. Its role in
transmitting price signals between regional
Demand for coal is expected to grow more slowly markets will remain an important component of
than that for oil and gas. Global primary coal international coal trade.
consumption will rise at an average annual rate of
1.4% over the Outlook period (Table 1). Its share These projections imply a need for sustained
in total energy consumption will drop from 26% investment in both production and transportation
in 2000 to 24% in 2010, and then remains almost infrastructure. This is especially true in China and
stable through 2030. India, where coal remains an important
component of energy supply and the locomotive
Coal use becomes increasingly concentrated in of future economic development. Investment will
power generation, which will account for almost be accompanied by significant gains in labour
90% of the increase in demand between 2000 and productivity as the average size of mines will
2030. Coal demand in the power sector will be continue to increase, more advanced extraction,
lifted by the assumed fall in the price of coal preparation and transport technology will be
relative to that of gas and the gradual development adopted and working practices will be improved.
and deployment of advanced coal technologies These factors are expected to offset the negative
over the long term. But the anticipation of tougher impact of depletion of reserves in well-worked
environmental regulations and new measures to mines on the delivered unit cost of internationally
combat climate change may discourage traded coal. They will also compensate for the
investment in coal-fired capacity in industrialised growing cost of transportation, as more coal is
countries. Industrial coal consumption will shipped over longer distances to the main markets
increase by 1.2% per year in developing countries in Asia and Europe.
and by 1.3% in transition economies from 2000 to
2030. These gains will be underpinned by heavy Security of energy supply
manufacturing, especially iron and steel.
Industrial coal demand will decline in the OECD, Minimising the risk of disruptions to our energy
by 0.4% Coal demand is expected to be strongest supplies is ever more important – whether they are
in the developing world and the transition caused by accident, political intervention,
economies, where local supply is ample and terrorism or industrial disputes. Coal has an
production costs are low. The lack of indigenous
762
 PROCEEDINGS JOINT CONVENTION SURABAYA 2005 – HAGI-IAGI-PERHAPI
The 30th HAGI, The 34th IAGI, and The 14th PERHAPI Annual Conference and Exhibition

important role to play at a time when we are b. Along history of coal trade supply always
increasingly concerned with issues relating to meets demand. The availability of spot market
energy security. The global coal market is large has made the transaction bring into line to the
and diverse, with many different producers and current market situations and help the coal
consumers from every continent. Coal supplies do trade to become a perfect market: transparent
not come from one specific area, which would and simply in operation.
make consumers dependent on the security of c. Minimising the risk of disruptions to our
supplies and stability of only one region. They are energy supplies is ever more important –
spread out worldwide and coal is traded whether they are caused by accident, political
internationally. Many countries rely on domestic intervention, terrorism or industrial disputes.
supplies of coal for their energy needs – such as Coal therefore has an important role to play in
China, the USA, India, Australia and South maintaining the security of the global energy
Africa. Others import coal from a variety of mix.
countries: in 2003 the UK, for example, imported d. The use of coal in combustion creates a
coal from Australia, Colombia, Poland, Russia, number of environmental challenges. So that
South Africa, and the USA, as well as from a the challenge for coal is to further reduce its
number of other countries and its own domestic greenhouse gas and other emissions, while
supplies. Coal therefore has an important role to continuing to make a major contribution to
play in maintaining the security of the global economic and social development. Therefore,
energy mix. the future of the industry is holding its hopes
on the Clean Coal Technologies
Clean Coal Technology
6. References
The future of the industry is holding its hopes on
the Clean Coal Technologies, such as CO2-free Ekawan, R., Duchêne, M, (2005). The Evolution
emission and better efficiency coal power plants of hard coal trade in the Atlantic market.
The vision of CO2-free facilities is therefore Forthcoming edition in Energy Policy,
sustained by the necessities of climate policy. In Elseiver, UK.
principle, CO2 can be isolated before or after coal Ekawan, R., et. All., (2005). The Evolution of
combustion. Using Integrated Coal Gasification hard coal trade in the Pacific market.
Combined Cycle (IGCC) technology, hard coal is Forthcoming edition in Energy Policy,
converted into gas that is then burned in a gas Elseiver, UK.
turbine. Pollutants are separated prior to Ekawan, R., Duchêne, M, 2005. The nature of
combustion. Environmental efficiency, however, contract and price setting in the hard coal
is not for free. The regulatory framework for trade. Coal and Safety, JCOAL, Japan.
pollutant emission is critical to the economic Ekawan, R., Duchêne, M, 2005. The European
efficiency of coal-based IGCC power plants. Coal Industry : What Future ?.Sixth European
Meanwhile, policy makers are also supporting Coal Conference. Belgrade. Serbia and
initiatives geared to efficient coal power plant Montenegrro.
technology. The challenge for coal, as for other ………………, (2003). World Energy Outlook,
fossil fuels, is to further reduce its greenhouse gas Institute Energy Agency, IEA/OECD, Paris.
and other emissions, while continuing to make a ………………, (2005). BP Statistical Review of
major contribution to economic and social World Energy, Beyond Petroleum
development. http://www.bp.com/genericsection.do?categor
yId=92&contentId=7005893, accessed
5. Summary 15.09.2005.
…..…………., (2004). Survey of Energy
a. World reserves of coal are enormous. Resources. World Energy Council. WEC,
Compared with oil and natural gas, they are London
widely dispersed. Economically recoverable ….…………., (2005). What is Coal ?, World Coal
reserves are estimated at 984 billion tonnes, or Institute
about 200 years of production at current rate. http://www.worldcoal.org/what_is_coal.asp.
accessed 15.09.2005.
763
 PROCEEDINGS JOINT CONVENTION SURABAYA 2005 – HAGI-IAGI-PERHAPI
The 30th HAGI, The 34th IAGI, and The 14th PERHAPI Annual Conference and Exhibition

Figure 1. The distribution of reserve in the world

Source: BP Statistical Review of World Energy, 2005

Figure 2. World Coal Trade

Source: World Coal Institute, 2005
764
 PROCEEDINGS JOINT CONVENTION SURABAYA 2005 – HAGI-IAGI-PERHAPI
The 30th HAGI, The 34th IAGI, and The 14th PERHAPI Annual Conference and Exhibition

Table 1. Coal Demand Outlook (Source: World Energy Outlook, 2003, IEA)

765