Coal currently accounts for 26% of world energy consumption and is used to generate 40% of the world’s electricity. Domestically, coal is used to generate approximately half of the country’s electricity, accounting for 92% of U.S. coal consumption. According to the Energy Information Administration, coal production domestically reached a record level in 2006, ending the year at 1,161.4 million short tons; 29.9 million short tons higher than the previous year. The government also reports that coal prices have risen across the board for the third consecutive year. While, domestically, demand is projected to decrease slightly, worldwide future coal consumption is projected to rise by 74% from 2004 to 2030 likely due in part to coal continuing to remain the most affordable fuel for power generation in many developing and industrialized nations for years to come. Click here to view success stories.
AccuVal has extensive experience valuing ferrous and non-ferrous mining operations. In addition to coal, AccuVal has valued other mined resources used for energy generation, including uranium.
Coal is mined in over 70 countries, totaling nearly 1 trillion tons of bituminous and sub-bituminous coal. The U.S. based Energy Information Administration (EIA) estimates, at current consumption, world proven reserves should be sufficient for the next 235 years. The U.S. tops the list of proven reserves of coal worldwide with 246 billion tons, accounting for 27% of world reserves. Russia, China, India, and Australia follow. Together these five countries account for over 60% of the world’s proven coal reserves.
By a wide margin, Australia is the top exporter of coal, exporting over 230 million tons of coal in 2006. It is easy to be bullish on Australia’s export market given three key factors: proximity, population, and environmental issues. Geographically, Australia is the closest exporter to three of the largest coal markets: Japan, China, and India. Additionally, with its sparse population and low growth, home consumption is not likely to increase dramatically. Finally, with China and India having less environmental controls than Organization for Economic Cooperation and Development (OECD) nations, their reliance on coal as an inexpensive fuel will continue. Currently, the U.S. is a net coal exporter of 13.4 million short tons, exporting 49.6 tons.
Transporting coal is very expensive and can be more than the cost of mining it. In the U.S., approximately 68% is transported by rail. As a result of deregulation, there has been a consistent downward trend in coal transportation rates from 1979 to 2001 in the U.S. Overseas Australia is monitoring the shipping industry closely to ensure it can keep up with exports. Ports and ships will need to be built to support the increasing demand.
China turned net coal importer in the first quarter of 2007 importing 2.97 million tons of coal, importing primarily from Indonesia and Vietnam. At present, China is the largest consumer in the world of coal, outpacing the U.S., the E.U. and Japan combined. Because of geographical proximity, one would expect Australia will soon be a key exporter to China. China and India are expected to become the largest coal importing markets by 2030, eventually passing the current leader Japan, which sits at 187 million tons of coal. However, much of the expected price change of coal is attributed to increased U.S. demand. As China and India continue to increase demand over production, the result will likely be a large upward pressure on price.
With 65% percent of current coal consumption worldwide used in power generation, future power needs are paramount. Though much debate circles the matter, coal is still the cheapest and fastest path to energy generation needs as evidenced by the increasing demand in developing and industrialized countries. It is widely speculated that a coal-fired power plant is being built every seven days in China. Domestically, the U.S. is building more coal-fired power plants now than in the last seven years. With a stable commodity price and a lowest dollar per BTU of common fuels, continued growth is expected. Even with carbon restricting, Eurozone countries are expanding coal power generation growth, most notably Germany and Italy, which plan on investing 6.2 billion Euros and 3.8 billion Euros respectively.
Worldwide coal power generation has become cleaner and more efficient over time, but is still generally viewed as the dirtiest of common fuels, expelling twice as much carbon per kilowatt hour than natural gas. Currently, China and India have few restrictions on carbon emissions, though as median income rises there should be some calls for emission controls. The U.S. has generally used abatement technologies to restrict sulfur and mercury expulsion from coal power plants but has little control on carbon emissions. With the current state of carbon policy in deadlock, U.S. facilities are continuing to be built with minimum abatement technology. In the Eurozone, carbon permits still remain low enough to not offset the low price of coal power generation. The expected switching point is at 33 Euros, but with current markets trading at 22, this is not expected within the next two years.
Coal is a critical component of iron and steel production. It is reported that 66% of global steel production comes from iron made in blast furnaces fueled with coal. In 2006, the largest increase in consumer prices was in the coking coal sector. The price is affected by the limited availability and the tight quality specifications for coking coal. In 2006, the delivered price of coal to U.S. coke plants increased by 10.8% to reach an average price of $92.87 per short ton. As demand rises for steel worldwide, there will be upward pressure on coal pricing.