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

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

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The 30th HAGI, The 34th IAGI, and The 14th PERHAPI Annual Conference and Exhibition
over 190 years, which is in contras with oil (45
years) and Gas (65 years). Coal is located
worldwide and no particular concentration– it can
be found on every continent in over 70 countries,
with the biggest reserves in the USA, Russia,
China and India. The worldwide location of coal
is in contras with oil (63% are located in Middle
East region) and gas (31% and 42% are located in
Europe and Middle East consecutively). The
distribution of reserve in the world is shown in
Figure 1.
With regard to Indonesia, it is known that coal
resources potential is around 38.9 billion tons. Of
which 5 billions can be categorized as mineable
reserves. The coal resources especially cover
Sumatra (67%) and Kalimantan (32%). The rest of
them (1%) spread over Java, Sulawesi and Irian
Jaya islands. The lignite coal is estimated around
58% of the total coal resources, followed by sub-
bituminous 25%, bituminous 15% and anthracite
at small number.
3. Balance between supply and demand
Supply
Over 4,820 Mt of coal is currently (2002)
produced – a 38% increase over the past 20 years.
Coal production has grown fastest in Asia, while
Europe has actually seen a decline in production.
The largest coal producing countries are not
confined to one region – the top five producers are
China (28%), the USA (20%), India (7%),
Australia (6,6%) and South Africa (4.4%).
Indonesia produced 103 Mt of coal (2002). Much
of global coal production is used in the country in
which it was produced, only around 18% of hard
coal production is destined for the international
coal market. Global coal production is expected to
reach 7 billion tonnes in 2030 – with China
accounting for around half the increase over this
period. Steam coal production is projected to have
reached around 5.2 billion tonnes; coking coal 624
million tonnes; and brown coal 1.2 billion tonnes.
Demand
Coal plays a vital role in power generation and
this role is set to continue. Coal currently fuels
39% of the world’s electricity and this proportion
is expected to remain at similar levels over the
next 30 years. Consumption of steam coal is
projected to grow by 1.5% per year over the
period 2002-2030. Lignite, also used in power
generation, will grow by 1% per year. Demand for
coking coal in iron and steel production is set to
increase by 0.9% per year over this period. Coal is
a global industry, with coal mined commercially
in over 50 countries and coal used in over 70. The
world currently consumes over 4,795 Mt of coal
(2002). Coal is used by a variety of sectors –
including power generation, iron and steel
production, cement manufacturing and as a liquid
fuel. The majority of coal is either utilised in
power generation – steam coal or lignite – or iron
and steel production – coking coal.
Trade for balancing supply and demand
The biggest market for coal is Asia, which
currently accounts for 54% of global coal
consumption – although China is responsible for a
significant proportion of this. Many countries do
not have natural energy resources sufficient to
cover their energy needs, and therefore need to
import energy to help meet their requirements.
Japan, Chinese Taipei and Korea, for example,
import significant quantities of steam coal for
electricity generation and coking coal for steel
production.
Coal is traded all over the world, with coal
shipped huge distances by sea to reach markets.
Over the last twenty years, seaborne trade in
steam coal has increased on average by about 8%
each year, while seaborne coking coal trade has
increased by 2% a year. Overall international
trade in coal reached 718 Mt in 2003; while this is
a significant amount of coal it still only accounts
for about 18% of total coal consumed. Map of
coal trade is shown in Figure 2.
Transportation costs account for a large share of
the total delivered price of coal, therefore
international trade in steam coal is effectively
divided into two regional markets – the Atlantic
and the Pacific. The Atlantic market is made up of
importing countries in Western Europe, notably
the UK, Germany and Spain. The Pacific market
consists of developing and OECD Asian
importers, notably Japan, Korea and Chinese
Taipei. The Pacific market currently accounts for
about 60% of world steam coal trade. Markets
tend to overlap when coal prices are high and
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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.
Australia is the world’s largest coal exporter;
exporting over 207 Mt of hard coal in 2003, out of
its total production of 274 Mt. Coal is one of
Australia’s most valuable export commodities.
Although almost three-quarters of Australia’s
exports go to the Asian market, Australian coals
are used all over the world, including Europe, the
Americas and Africa. International coking coal
trade is limited. Australia is also the largest
supplier of coking coal, accounting for 51% of
world exports. The USA and Canada are
significant exporters and China is emerging as an
important supplier. Coking coal is more expensive
than steam coal, which means that Australia is
able to afford the high freight rates involved in
exporting coking coal worldwide.
Along history of coal trade, due to high stocks and
widespread distribution of coal reserve, supply
always meets demand. Furthermore, the
availability of spot market, particularly in the
Atlantic market has made the transaction bring
into line to the current market situations and help
the coal trade to become a perfect market:
transparent and simply in operation. Due to these
circumstances, the fluctuation of coal prices is not
so important comparing with those of oil and gas
prices.
4. Coal and Kyoto Protocol
As none of fossil energy is perfect, coal has
disadvantages. The use of coal in combustion -
whether to generate electricity or heat, or for use
in steel or cement manufacture - creates a number
of environmental challenges. A more recent
challenge has been that of carbon dioxide
emissions (CO2). 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.
The release of CO2 into the atmosphere from
human activities – often referred to as
anthropogenic emissions – has been linked to
global warming. The combustion of fossil fuels is
a major source of anthropogenic emissions
worldwide. While the use of oil in the
transportation sector is the major source of
energy-related CO2 emissions, coal is also a
significant source.
On 11 December 1997, governments adopted a
protocol to The United Nations Framework
Convention on Climate Change (UNFCCC) in the
Japanese town of Kyoto. Building on the
UNFCCC framework, the Kyoto Protocol sets
legally binding limits on greenhouse gas
emissions in industrialised countries and
envisages innovative market-based
implementation mechanisms aimed at keeping the
cost of curbing emissions low. Under the Kyoto
Protocol, industrialised countries are required to
reduce the emissions of six greenhouse gases
(CO2, which is the most important one, methane,
nitrous oxide, hydrofluorocarbons,
perfluorocarbons and sulphur hexafluoride) on
average by 5.2 % below the 1990 levels during the
first “commitment period” from 2008 to 2012.
There are no emission targets for developing
countries.
On 16 February this year the protocol will become
legally binding on its 128 Parties, 30 of whom are
industrialised countries with emissions targets.
However, there are some notable absences – both
the USA and Australia have refused to ratify.
Without the USA – the world’s largest emitter –
and Australia, Kyoto’s emission targets only
apply to countries accounting for 32% of global
emissions. The refusal to ratify is largely based on
concerns over the economic impact of Kyoto and
the absence of targets for developing countries.
The Protocol has certainly changed the way how
coal is used. As a result, the industry has been
researching and developing technological options
to meet this new environmental challenge. The
Protocol establishes three ‘mechanisms’ to help
Annex I Parties cut the cost of meeting their
emissions targets by taking advantage of
opportunities to reduce emissions, or increase
GHG removals, in countries where it costs less
than at home. These mechanisms are known as
Joint Implementation, the Clean Development
Mechanism and Emissions Trading. Developing
countries can participate to achieve Kyoto’s target
through Clean Development Mechanism.
In Europe, combating climate change is one of the
main commitments under the EU’s sustainable
development strategy, which also reaffirmed the
EU's commitment to meeting its Kyoto target. On
January 1st, 2005, Emissions Trading Scheme
(ETS) in the enlarged EU came into existence.
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The 30th HAGI, The 34th IAGI, and The 14th PERHAPI Annual Conference and Exhibition
This ETS is the first emissions trading scheme in
the world and is considered a forerunner of the
international ETS under the Kyoto Protocol. It is
expected that this ETS would reduce the
emissions of GHG in the Community by
encouraging the industry to invest in clean
development projects, including in clean coal
technology. Furthermore, the EU Commission
was sinking EUR 68 million over 1998-2006
within the FP5 and FP6 into research on CO2
capture and storage. The target is to reduce the
costs from € 50-60 to € 20-30 per tonne of CO2
captured, whilst aiming to achieve capture rates
above 90%. By sequestering the CO2 produced,
the use of coal is no longer inconsistent with
environmental sustainability. Following
successful lobbying, FP 7 is likely to have a larger
component devoted to energy research and coal
utilisation
5. What future ?
Demand
Demand for coal is expected to grow more slowly
than that for oil and gas. Global primary coal
consumption will rise at an average annual rate of
1.4% over the Outlook period (Table 1). Its share
in total energy consumption will drop from 26%
in 2000 to 24% in 2010, and then remains almost
stable through 2030.
Coal use becomes increasingly concentrated in
power generation, which will account for almost
90% of the increase in demand between 2000 and
2030. Coal demand in the power sector will be
lifted by the assumed fall in the price of coal
relative to that of gas and the gradual development
and deployment of advanced coal technologies
over the long term. But the anticipation of tougher
environmental regulations and new measures to
combat climate change may discourage
investment in coal-fired capacity in industrialised
countries. Industrial coal consumption will
increase by 1.2% per year in developing countries
and by 1.3% in transition economies from 2000 to
2030. These gains will be underpinned by heavy
manufacturing, especially iron and steel.
Industrial coal demand will decline in the OECD,
by 0.4% Coal demand is expected to be strongest
in the developing world and the transition
economies, where local supply is ample and
production costs are low. The lack of indigenous
gas resources will bolster coal use in several
countries, particularly India and China. These two
countries alone will account for close to two-
thirds of the increase in world coal use over the
period 2000 to 2030. Coal demand will increase
slowly in OECD North America and the Pacific,
but will fall in OECD Europe as gas elbows coal
out of all end-use sectors and, to a slightly lesser
extent, power generation.
Supply
Coal production is likely to increase in China, the
United States, India, Australia, South Africa,
India, Indonesia, Canada, Colombia and
Venezuela. Production will continue to decline in
OECD Europe. The Asia/Pacific market will
probably be supplied mainly by Australia,
Indonesia and China. South Africa, the United
States, Colombia and Venezuela will be the
primary suppliers to the Europe-Atlantic market.
South Africa’s geographic location enables it to
supply Europe, Asia and the Americas. Its role in
transmitting price signals between regional
markets will remain an important component of
international coal trade.
These projections imply a need for sustained
investment in both production and transportation
infrastructure. This is especially true in China and
India, where coal remains an important
component of energy supply and the locomotive
of future economic development. Investment will
be accompanied by significant gains in labour
productivity as the average size of mines will
continue to increase, more advanced extraction,
preparation and transport technology will be
adopted and working practices will be improved.
These factors are expected to offset the negative
impact of depletion of reserves in well-worked
mines on the delivered unit cost of internationally
traded coal. They will also compensate for the
growing cost of transportation, as more coal is
shipped over longer distances to the main markets
in Asia and Europe.
Security of energy supply
Minimising the risk of disruptions to our energy
supplies is ever more important – whether they are
caused by accident, political intervention,
terrorism or industrial disputes. Coal has an
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The 30th HAGI, The 34th IAGI, and The 14th PERHAPI Annual Conference and Exhibition
important role to play at a time when we are
increasingly concerned with issues relating to
energy security. The global coal market is large
and diverse, with many different producers and
consumers from every continent. Coal supplies do
not come from one specific area, which would
make consumers dependent on the security of
supplies and stability of only one region. They are
spread out worldwide and coal is traded
internationally. Many countries rely on domestic
supplies of coal for their energy needs – such as
China, the USA, India, Australia and South
Africa. Others import coal from a variety of
countries: in 2003 the UK, for example, imported
coal from Australia, Colombia, Poland, Russia,
South Africa, and the USA, as well as from a
number of other countries and its own domestic
supplies. Coal therefore has an important role to
play in maintaining the security of the global
energy mix.
Clean Coal Technology
The future of the industry is holding its hopes on
the Clean Coal Technologies, such as CO2-free
emission and better efficiency coal power plants
The vision of CO2-free facilities is therefore
sustained by the necessities of climate policy. In
principle, CO2 can be isolated before or after coal
combustion. Using Integrated Coal Gasification
Combined Cycle (IGCC) technology, hard coal is
converted into gas that is then burned in a gas
turbine. Pollutants are separated prior to
combustion. Environmental efficiency, however,
is not for free. The regulatory framework for
pollutant emission is critical to the economic
efficiency of coal-based IGCC power plants.
Meanwhile, policy makers are also supporting
initiatives geared to efficient coal power plant
technology. The challenge for coal, as for other
fossil fuels, is to further reduce its greenhouse gas
and other emissions, while continuing to make a
major contribution to economic and social
development.
5. Summary
a. World reserves of coal are enormous.
Compared with oil and natural gas, they are
widely dispersed. Economically recoverable
reserves are estimated at 984 billion tonnes, or
about 200 years of production at current rate.
b. Along history of coal trade supply always
meets demand. The availability of spot market
has made the transaction bring into line to the
current market situations and help the coal
trade to become a perfect market: transparent
and simply in operation.
c. Minimising the risk of disruptions to our
energy supplies is ever more important –
whether they are caused by accident, political
intervention, terrorism or industrial disputes.
Coal therefore has an important role to play in
maintaining the security of the global energy
mix.
d. The use of coal in combustion creates a
number of environmental challenges. So that
the challenge for coal is to further reduce its
greenhouse gas and other emissions, while
continuing to make a major contribution to
economic and social development. Therefore,
the future of the industry is holding its hopes
on the Clean Coal Technologies
6. References
Ekawan, R., Duchêne, M, (2005). The Evolution
of hard coal trade in the Atlantic market.
Forthcoming edition in Energy Policy,
Elseiver, UK.
Ekawan, R., et. All., (2005). The Evolution of
hard coal trade in the Pacific market.
Forthcoming edition in Energy Policy,
Elseiver, UK.
Ekawan, R., Duchêne, M, 2005. The nature of
contract and price setting in the hard coal
trade. Coal and Safety, JCOAL, Japan.
Ekawan, R., Duchêne, M, 2005. The European
Coal Industry : What Future ?.Sixth European
Coal Conference. Belgrade. Serbia and
Montenegrro.
………………, (2003). World Energy Outlook,
Institute Energy Agency, IEA/OECD, Paris.
………………, (2005). BP Statistical Review of
World Energy, Beyond Petroleum
http://www.bp.com/genericsection.do?categor
yId=92&contentId=7005893, accessed
15.09.2005.
…..…………., (2004). Survey of Energy
Resources. World Energy Council. WEC,
London
….…………., (2005). What is Coal ?, World Coal
Institute
http://www.worldcoal.org/what_is_coal.asp.
accessed 15.09.2005.
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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
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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)

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