CHAPTER 5

Coal in Australia, South Africa, Europe, South America, Indonesia, and Canada

Australia

Overview

AUSTRALIA IS THE WORLD’S LEADING COAL EXPORTER by a wide margin; in 2006 it exported 233 million tons out of its total production of 309 Mt.¹ The nation accounts for 29 percent of all world coal exports. Its people have the highest per-capita rate of greenhouse gas emissions (10.1 tons annually), due to high energy consumption and high coal consumption relative to other energy sources.

Of Australia’s coal exports, 80 percent are bound for Asia. Over half of Australia’s coal is exported to Japan; next in line are Korea and Taiwan — though the share going to China and India is expected to grow substantially in coming years. A small fraction (12 percent) currently goes to Europe, while the remainder is shipped mostly to South America.² The export of coal accounted for almost 20 percent of total Australian commodity income in 2006. In 2005-2006 the nation’s income from international coal sales increased by 43 percent compared to 2004-2005.³

Nearly 80 percent of Australia’s electricity comes from coal-fired power plants, and about 40 percent of its total energy. Coal production has more than doubled in the past 25 years, and has grown 36 percent over the last decade alone.

Coal was first discovered in Australia in 1791 by a convict, William Bryant, at the mouth of the Hunter River in New South Wales (NSW). The first coal mining settlement was established there in 1801.⁴ Coal was found on the Brisbane River and near Ipswich in the mid-1820s when the new settlement of Brisbane was in its infancy, and the first coal mine opened in Queensland in 1843. Smaller coal deposits were also discovered in other states.

In early colonial years, coal was used mostly for home heating and cooking. By the second half of the 19^th century, railroads and steamships were using the bulk of Australia’s coal. By 1888, annual coal production in NSW and Queensland had topped 2.5 million tons.

At the beginning of the 20^th century, coal was also used to produce gas to light and heat cities and towns. During and after World War II, demand for coal-fired electricity generation grew quickly, and in the 1950s and ’60s coking coal began to be exported to Japan for the burgeoning steel industry there. International sales of steam coal started in the late 1970s.

Australia’s coal deposits are plentiful and of high quality. They are suitable for surface mining, which ensures high recovery rates, high productivity per miner, and low production costs.

Most Australian coal deposits are located in the eastern part of the nation, with smaller coal-bearing areas in Western Australia and central Tasmania. Together, Queensland and NSW account for almost 97 percent of Australia’s annual coal production and all of the nation’s black coal exports. Thick, flat-lying seams are common. Many of the coal regions have coal with low ash and low sulfur content, while some even have good coking properties, making them useful for steel production.

The Tertiary basin in Victoria contains lignite seams that reach an enormous thickness of 230 meters.⁵ This coal is used exclusively for local power generation.

Nine coal terminals at seven ports handle the coal exports. The total capacity is approximately 237 Mt, but different expansions are needed and are being planned.

Most of the producing mines are located relatively close to the coast, and when they are depleted, new mines need to be opened further away, thus calling for more transport. This will lead to higher coal costs.

History of Reserves Estimates

Australia has managed to increase its reserves by a moderate amount over the last two decades. As of 2004, Australia contained 86.5 billion short tons (Bst) of recoverable coal reserves, the majority of which are concentrated along the country’s eastern seaboard.

Recent Studies

1

“Coal: Resources and Future Production” (Werner Zittel and Jörg Schindler, Energy Watch Group [EWG], March 2007).

This report contains relatively little detail concerning Australia, other than to note the upgrades of Australian hard coal reserves in recent years.⁶

2

“The Future of Coal” (B. Kavalov and S.D. Peteves, Institute for Energy, 2007).

Kavalov and Peteves offer a good overview of Australia’s coal prospects, noting that, while “The recent sharp increase in world coal demand and hence trade has cut the Australian R/P coal ratio by almost 40% — from 297 years at the end of 2000 to 213 years at the end of 2005,” nevertheless, even if these trends continue, “proven reserves should still be sufficient by 2020.” ⁷ According to the authors, the following are the main challenges on the horizon for Australia’s coal producers:

[T]he cost of developing new coalfields will certainly be higher, as the new deposits tend to be located further away from the major exporting facilities. Of more concern is the need to expand export facilities, mainly the seaport infrastructure. The recent troubles and delays in vessel handling in the major Australian coal exporting terminals have strengthened these fears.

Still, on balance, the report foresees “bright prospects for the Australian coal industry and exports.”

3

“Lignite and Hard Coal: Energy Suppliers for World Needs until the Year 2100 — An Outlook” (Thomas Thielemann, Sandro Schmidt, and J. Peter Gerling, German Federal Institute for Geosciences and Natural Resources [BGR], 2007).

The BGR authors note that Australia’s “very large reserves” will be considerably depleted by 2100, but no actual supply shortfalls are envisioned. ⁸ The report is written with European energy import requirements in mind, and therefore notes that “due to high transport costs” it makes little sense for Australia to sell its coal to Europe on a large scale. “Nevertheless, exchanges of traded quantities between the two markets did increase in the last two years, accounting for about 7% of the traded hard coals in 2005.”

4

“A Supply-Driven Forecast for the Future Global Coal Production” (Höök, Zittel, Schindler, and Aleklett; Uppsala Hydrocarbon Depletion Study Group).

Like Kavalov and Peteves, these authors see few near-term problems for the Australian coal industry other than transport issues:

Australia can expand its production but the bottleneck is the transportation systems that allow coal to be sent for export. Expensive new infrastructure is needed for a major expansion. In the future the coal producing regions will move towards central Australia, thus distancing the mines from the export terminals and the domestic consumption centres.⁹

In their global forecast, Höök et al. do not take into account potential impacts from transport bottlenecks on future Australian coal exports.

5

Hubbert linearization.

David Rutledge finds a trend for 50 Gt remaining, with 79 Gt official reserves.¹⁰ This should be regarded as a lower limit.

Implications

Australia clearly has abundant coal for domestic consumption for many decades to come. However, it is the future of the nation’s export capacity that will have enormous implications not only for its domestic economy, but for those of other key nations as well. Australia’s coal exports are of increasing importance for growing markets in China and India, as well as existing customers in Japan, South Korea, and Taiwan.

Fig. 28

Continuing to increase the scale of Australia’s total coal production and export capacity will pose a growing challenge. New mines will be located ever further away from coal ports, and the increased costs for land transport (exacerbated by skyrocketing diesel prices) will inevitably raise coal prices for offshore delivery. Australia will need to build new rail infrastructure to accommodate these increasingly lengthy overland shipments — at the same time it will be needing new rail and light rail passenger lines to facilitate travel and commerce in the wake of quickly rising prices for gasoline, diesel, and jet fuel. Therefore, competition for limited capital available for transport infrastructure development could pose a political as well as an economic problem in coming years.

The combination of growing competition for Australia’s coal (from China and India) and domestic transport limits could force up the price of internationally-traded coal very quickly — and to unprecedented levels — within only a few years.

South Africa

Overview

Any discussion of Africa’s coal must inevitably focus almost exclusively on one nation — South Africa — since nearly all of the continent’s reserves and current production are located there. The nation is currently a significant exporter, with 80 percent of exports going to Europe.¹¹ And it is the world’s leader in the use of coal-to-liquids (CTL) technology.

South Africa’s coal industry has a long history that goes back more than a century. Significant expansion came after World War II, and coal exports began in the late 1970s. Since then, the country has become a reliable supplier of high-quality steam coal.

Most of the country’s coal deposits are located in its north and eastern areas, in a series of basins with varying characteristics. About 60 percent of production comes from underground mines, with this share set to increase in the future. Many of the thickest seams of high-quality coal have been depleted; however, some prime coal blocks have been kept by large mining companies for future development. South Africa has around 5.5 percent of the world’s coal reserves, all consisting of hard coal. Production in 2006 was 244 million tons, making South Africa the world’s sixth largest coal producer.¹²

Over the years, South Africa’s coal production has been matched by the development of new deposits. Consequently, the country’s R/P ratio is still above 200.

Much of the expansion in domestic production since 1973 resulted from South Africa’s response to an apartheid-era oil embargo. Coal-to-liquids technology had previously been used by Germany during World War II; South Africa’s Sasol Corporation refined the process and built a complex at Secunda that still produces about 150,000 barrels of synthetic diesel fuel per day, providing about 30 percent of the nation’s liquid fuel.¹³ However, this single plant uses a significant share of South Africa’s coal production (45 million tons per year), and also produces a disproportionate amount of greenhouse gas emissions and other pollution.

South Africa exports about 30 percent of its annual coal production, which accounts for around 55 percent of the industry’s profits. This large dependence on exports (exceeded only by Australia) makes South Africa’s coal industry especially sensitive to fluctuations in international coal prices.

Export capacity is limited partly by harbor infrastructure, and the country is addressing this problem with a project in Richards Bay Coal Terminal with an aim to expand capacity from 73 million tons to 91 Mt per year.¹⁴

Much of the nation’s future coal production will be in the Waterberg region, near Botswana, where half of remaining reserves are located. All major coal companies are now prospecting there or applying for prospecting rights. However, many improvements in infrastructure (especially transportation) are needed if this area is to become a large coal producer.

History of Reserves Estimates

South Africa is one of the few countries with reserves continuously shrinking by quantities roughly in line with annual production. Current reserves stand at 48.75 billion tons (as of the end of 2006).¹⁵

Recent Studies

Neither the EWG report (“Coal Resources and Future Production”) nor the BGR report (“Lignite and Hard Coal: Energy Suppliers for World Needs until the Year 2100 — An Outlook”) contains any discussion specific to South Africa.

1

“The Future of Coal” (B. Kavalov and S.D. Peteves, Institute for Energy, 2007).

This report discusses South Africa’s current and future coal production in some detail, since it is written from a European perspective and the country is a major supplier of coal to Europe. Its conclusion is that “increasing and even maintaining production and export volumes in the future may pose challenges for several reasons,” which include the following, quoted from the report:¹⁶

• Most currently operated mines are approaching the end of their economic life. There is a common consensus that the development of new reserves will be much more costly than the development of the old deposits.

• In addition, the quality of the coal from these new reserves is considered to be less than the quality of coal from existing fields.

• Taken together, these factors may result in proven reserves lower than the current estimates.

• The majority of the new deposits tend to be located further away from the main export terminals. This implies the need to develop completely new logistics chains and costly infrastructure. The capacity of the railway network, operated by the state-owned company Spoornet, is of particular concern. Securing sufficient port handling capacity, along with the related investment funds, is another important challenge for South African coal exports.

• The wide spread of AIDS/HIV amongst mineworkers presents another very serious risk for the coal industry in South Africa.

2

“A Supply-Driven Forecast for the Future Global Coal Production” (Höök, Zittel, Schindler, and Aleklett; Uppsala Hydrocarbon Depletion Study Group).

This paper contains a fairly detailed country assessment of South Africa, which includes the following conclusions:¹⁷

• The majority of the remaining reserves are thus low-grade coals, difficult to mine, located in small blocks or such. It is still possible to mine coal for at least 40 to 50 years more, with current and new technology, but the low-cost mega-mines are something of the past.

• Since South Africa deals with an increasing amount of low grade, high ash coals, coal-washing processes have become important to improve the coal and make it more suitable for international trade. This leads to large “stockpiles” of discarded waste coals. Currently these stockpiles exceed the 1 billion [ton] mark. In 2003 the volume of waste coal, resulting from the washing processes, reached 63 million tons, almost as large as the export volume the same year.

• The South African coal production is becoming increasingly dependent on smaller fields and lower quality coals, which leads to higher production costs. The days of easy coal are nearing an end.

• South Africa has the potential to increase its export to some extent. The environmental problem caused by the large piles of waste coal might be problematic in the future, as there already are public complaints about the increased number of smaller coal mines and the transportation of coal by truck.

• Also the rising domestic demand for coal may cause impact on the export. There is a huge need of more electricity and new coal-fired plants are built to match the increasing demand.

The report’s forecast for future global coal supply does not include these mentioned problems as constraints.

3

Hubbert linearization.

David Rutledge finds a trend for 10 billion tons of reserves-yet-to-produce — only a little more than one-fifth of the reserves officially stated.¹⁸ This should be accepted as a lower limit to future production, as new regions near Botswana have yet to be tapped and do not contribute to the trend.

Implications

Over the past year South Africa has become mired in an electrical power crisis, with Eskom, the nation’s state-run energy company, struggling to keep the lights on as power demand has outstripped supply. Part of the problem is that it has been 20 years since the newest power plant was built; meanwhile, many of the nation’s poorer citizens who previously lived without power now want it. The utility has begun “load shedding” — regularly rotating ten percent of all consumers off the grid for two to four hours to keep the system operating.

Fig. 29

One likely solution will be the building of more power plants, and many of these will almost certainly be coal-fired. This means more domestic demand for coal, and this will probably eat into export capacity. Other strategies are being considered as well — such as power rationing, nuclear power generation, solar- and wind-generated electricity, and building millions of solar collectors for heating domestic water.

Meanwhile, it may be unrealistic to expect South Africa to remain a reliable exporter of coal. Further, problems mentioned in the reports quoted above — declining resource quality, the aging and depletion of existing mines, and increasing transport challenges — suggest that growth in the nation’s coal output may be difficult to achieve, and standard reserves figures may give an overly optimistic impression about the country’s future coal prospects. Once again — as with nearly every nation surveyed so far — future production hinges on the development of lower-quality reserves in more distant regions, requiring the construction of new transport infrastructure at a time when transport costs are rising quickly.

During 2008, as coal prices rose and Europe began to turn back to coal for a variety of reasons (discussed below), exports from South Africa tripled. This had the effect of increasing domestic coal prices, contributing to the electricity shortages just noted. Gold and platinum mines were shut in January to avert a national power blackout. Higher power prices and continuing shortages seem inevitable.

Europe

Overview

In some respects this region deserves lengthy discussion, as Europe led the world in coal production during the 19^th century and ushered in the Industrial Revolution — which transformed the economies and political fortunes not just of European nations but of the entire world. Modern history would have unfolded very differently if not for Europe’s adoption of the flammable black stone, whose mining led to the introduction of labor unions; whose molecular constituents fed the development of the chemicals industry; and whose inherent energy enabled the creation of railroads and steamships. Europe is also emblematic of the later chapters of coal’s history: throughout the region, depletion is the underlying reason for the closure of countless coal mines and their related industries, as well as the decline of miners’ unions. Yet a long and detailed history of Europe’s transformation by coal, however fascinating and educative (see Barbara Freese’s Coal: A Human History¹⁹), would be out of place here in a discussion of coal’s future, because today Europe as a whole — consisting of 27 countries, including the United Kingdom, Germany, and France — is a relatively minor producer and has small, quickly dwindling reserves to draw upon.

It would be impractical to discuss separately each of these 27 nations, but two, Britain and Germany, must inevitably receive special attention.

The former has seen a nearly complete production cycle. British use of coal for heating and cooking began in the 12^th century following the substantial deforestation of the countryside. By the 17^th century, problems with removing water from ever-deeper mineshafts led to the invention of the first steam engine; and in the 18^th century the need for better means of removing coal from mines led to the adoption of steel rails. It was inevitable that these two innovations would converge in the first coal-burning steam railway (the Manchester to Leeds line), which arrived in the early 19^th century. Britain’s coal miner unions led the establishment of the world-wide labor movement; Britain’s steamships, burning British coal, led the process of globalization; and British mills turned out manufactured products. In short, Britain was the first modern coal-powered economy.

Britain started out with more coal, in energy terms, than Saudi Arabia has oil. However, by the 1970s, mines were being closed in large numbers, leading to the wholesale loss of mining jobs. This provoked the greatest labor conflict in British history, as the National Union of Mineworkers fought to keep the mines open. The miner strikes were the defining issue of the Thatcher regime: the “Iron Lady” eventually succeeded in overcoming the union, and most of the mines were closed. With them went a way of life, and entire towns in coalfield regions fell into economic and social ruin. This pivotal episode in the nation’s social and political history coincided with the opening of oil and gas production from the North Sea: while Britain’s coalfields were largely depleted, its oil and gas fields would provide energy and income for the next two decades (the nation’s North Sea production peaked in 1999, and today the United Kingdom is an importer of oil and gas as well as coal). During the British coal decline from 1970 to the present, the number of jobs in the industry fell from 150,000 to fewer than 5,000²⁰; today, there are only six deep mines still operating, although a few controversial open-cast coal pits are in the process of starting up. While a third of Britain’s electricity still comes from burning coal, over half that coal is now purchased from South Africa, Australia, Colombia, and the United States.

German coal production also has a long tradition, and it played a pivotal role in the nation’s rise to industrial prominence. German chemists were largely responsible for laying the foundations of the modern chemicals industry, using carbon compounds derived from coal. Coal also fueled the commercial and industrial rivalry between Britain and Germany that led to two World Wars (John Maynard Keynes would write that the German empire “was built more truly on coal and iron than on blood and iron”²¹). Throughout most of the 20^th century, Germany was third in coal production behind the United States and Britain.

After World War II, coal yielded the energy for Germany’s economic revival. The nation’s coal produced both electricity and steel — the latter providing the basis for the German automobile industry. Hard coal production stood at about 40 million tons per year immediately following the war, but expanded quickly during the 1950s. Peak production was achieved in 1958 at 150 million tons, followed by a gradual decline. Hard coal production in 2005 was about 25 million tons.²² Jobs in the coal mining industry fell from 339,000 in 1980 to 75,000 by 2000, with that number still declining.

Most of Germany’s coal is soft lignite rather than hard anthracite or bituminous. The nation remains the world’s largest brown coal producer, although production even of lignite is falling.

Other European nations’ coal production deserves briefer mention. France, never favored with coal resources on the scale of Britain or Germany, and an importer of coal throughout the 20^th century, shut down its coal mining industry altogether in 2004. However, almost immediately plans were laid to start up an open-cast pit at Lucenay-les-Aix in the Burgundy region. Its coal, which is slated to become available starting in 2011, will fuel one of several new low-emissions power plants now on the drawing boards.²³

Poland is ranked seventh in the world in coal production, although its mining industry is in decline. Total reserves of bituminous and subbituminous coal are estimated at 60 billion tons, with lignite reserves estimated at 14 billion tons.²⁴ Production of all categories has fallen steadily since the late 1980s. The collapse of the Communist regime played some part in the decline (many mines were closed in an economic rationalization program in the 1990s), but depletion of the highest-quality and most accessible seams is decisive and ongoing. Coal currently provides around 70 percent of Poland’s total energy supply, including nearly all the nation’s electricity and district heating. Coal production and use have led to severe environmental damage in Poland.

After World War II, the high costs of hard coal production in Germany, Italy, France, and the Benelux countries provided the initial impetus for the formation of a protected market within Europe. The result was the European Coal and Steel Community (ECSC), founded in 1952, which in turn laid the groundwork for the later European Union.

History of Reserves Estimates

As mentioned in Chapter 1, Britain’s estimated coal R/P ratio started out at a healthy 900; the current figure currently stands at 9.²⁵

Other European coal reserves downgrades have been equally dramatic. Germany’s “proved recoverable coal reserves” were stated as being 23 billion tons for many years until 2004, at which time the WEC 2004 report reclassified 99 percent of these proved reserves as speculative, and downgraded the total to 183 million tons.²⁶ The BP “Statistical Review” for 2008 states proved reserves of 152 million tons.²⁷

Fig. 30

Recent Studies

1

“Coal: Resources and Future Production” (Werner Zittel and Jörg Schindler, Energy Watch Group [EWG], March 2007)

This report discusses Germany in some detail, which is understandable given that its authors and publisher are German. Zittel and Schindler note that, “The dramatic downgrading of German hard coal reserves has not been explained and there has been no public debate of this fact,” and suggest that, “The unexplained and far reaching downgradings of German hard coal reserves (and also resources) should be investigated and rediscussed in public because of their political implications.”²⁸

They note that, while Germany is the world’s largest producer of lignite, responsible for about a third of world production,

the extraction effort rises continuously. This can be seen best [by] looking at the waste production which has steadily increased from two cubic meters per ton of lignite in 1950 to 5.5 cubic meters per ton of lignite in 2005. A more detailed analysis reveals that this trend can be observed in almost all producing regions with the only exception of the Rhineland. Lignite reserves also have been downgraded in the last years from 55 billion tons in 1990 to 43 billion tons in 2002 and recently to 6.6 billion tons in WEC 2004.

Fig. 31

2

“The Future of Coal” (B. Kavalov and S.D. Peteves, Institute for Energy, 2007)

This report’s purpose is to examine future coal availability from a European perspective, so it is not surprising that the authors provide a good overview of Europe’s coal situation:

Hard coal production in the EU generally suffers from largely depleted deposits, declining coal quality and excessively high production costs. Although indigenous lignite production is still cost-competitive with hard coal imports, the reserves of the main EU lignite producers are not plentiful and are being continuously depleted. ...At present, the prospects for European coal production are quite clear. Indigenous hard coal production in the EU will continue to decline for several reasons. Hard coal has been intensively mined in Europe for more than a century and the easier accessible deposits of good quality have already been exploited. As hard coal in Europe can be recovered mainly from underground deposits, European coal miners are forced to go for deeper and more difficult to recover reserves of poorer quality, which increases costs. European indigenous hard coal production is two to three times more expensive than imported coal. Some EU countries have therefore ceased hard coal production. In the countries where hard coal production still exists (mainly for socio-economic reasons), it is heavily subsidised, but the subsidies are gradually being phased out.²⁹

Fig. 32

3

“Lignite and Hard Coal: Energy Suppliers for World Needs until the Year 2100 — An Outlook” (Thomas Thielemann, Sandro Schmidt, and J. Peter Gerling, German Federal Institute for Geosciences and Natural Resources [BGR], 2007). The BGR report offers no useful detail concerning future European coal production. The authors appear to assume that the EU will continue to import ever larger quantities, presumably from current sources (South Africa, and to a much lesser extent Australia, the United States, and South America).

4

“A Supply-Driven Forecast for the Future Global Coal Production” (Höök, Zittel, Schindler, and Aleklett; Uppsala Hydrocarbon Depletion Study Group).

No regional assessment is provided here, although Europe is mentioned in several places in the context of imports.

5

Hubbert linearization.

David Rutledge finds a Hubbert linearization trend for 21 billion tons of coal reserves remaining; reported reserves are 55 billion tons.³⁰

Implications

The passage quoted from Peteves and Kavalov (above) well summarizes Europe’s situation with regard to coal.

Coal consumption in Europe peaked in 1965, and it is now hard to foresee a situation in which consumption will grow to reach or surpass that level. Consumption within Europe declined at a rapid rate from the late 1980s to the mid ’90s, and the last eight to ten years has remained flat. Since EU coal production has continued to decline during recent years, the leveling off of consumption has resulted in increased reliance on coal imports.

Fig. 33

As natural gas and nuclear power displaced coal for electric power generation, many coal mines within the EU were closed. While there may be some short-term possibility of re-invigorating the coal industries of Britain, Germany, and France, these can only be small-scale efforts because the most easily accessible and highest quality reserves are already depleted. Moreover, reopening a closed coal mine is likely to take an average of ten years. Clearly, therefore, if the region is to maintain its current level of dependence on coal for electricity generation and steel production, most of that coal will have to come from elsewhere.

But, in light of the other country assessments, the question arises: From where will those coal imports come? Competitive international demand from Asia is rising quickly, which means that Australia’s export supplies may not be sufficient to meet demand for much longer; meanwhile other exporters face problems with transportation and the exhaustion of their own best sites. South America appears the most likely source for growth in exports to Europe. But if and when North America becomes a major importer, its demand may overwhelm what Colombia and Venezuela can offer, again leaving Europe bidding against other potential customers.

These problems may not become evident for several years. However, it would be prudent of European energy planners to assume much higher prices for coal in the future.

South America

Overview

South America’s coal reserves and production are concentrated in two nations — Colombia and Venezuela.

Of the two, Colombia is currently by far the larger producer, mining 72 million tons in 2007, with plans to expand that amount to over 100 million tons in 2010.³¹ Colombia’s coal reserves account for around three-quarters of the region’s total reserves and contain some of the highest-quality coals. Nearly all of production is exported. But substantial growth in exports will require port, road, and railway expansion, as well as an end to interference from militant groups (primarily FARC) that have a history of sabotaging coal operations.

Colombia’s coal deposits are widespread, with significant deposits found in eight regions. The nation’s geographic location is also of great significance, with easy access to markets in North America, Europe, and, via the Panama Canal, the Far East. About 95 percent of all Colombia’s coal is bituminous, eight percent of which is coking quality. The remaining five percent of reserves consist of subbituminous coal.³² No deposits of lignite have been identified. Colombian coal is generally of good quality, with low sulfur and ash content.

Venezuela produces 8.3 million tons of coal per year, while consuming only 100,000 tons per year domestically.³³ The Chavez government appears indecisive about whether to expand or eliminate coal mining, though currently environmental and indigenous concerns seem to be favored over export revenues. Venezuela has significant coal resources, with deposits located across the northern and northwestern parts of the country. Most of the recent mine developments have been concentrated within the Guasare Basin in the northwest of the country, close to the border with Colombia. As with Colombia, the quality of Venezuelan coal is good, with high energy content and few contaminants.

South America has only relatively recently become a significant producer and exporter of coal, and so its reserves are still largely intact, although the rapid expansion of Colombia’s production has resulted in a shrinkage in the country’s R/P ratio, from 177 at the end of 2000 to 112 at the end of 2005.³⁴ Exports from both nations are currently destined primarily for the United States and Europe. Venezuela seems to be the lowest-cost producer and exporter worldwide.

The primary impediments to further expansion of production and exports for both countries are the needs for sufficient foreign investment, and for the development of adequate export logistics and infrastructure (railways and ports). In the case of Venezuela, there are in addition governmental roadblocks to further exploiting production and export potentials.

Recent Studies

None of the recent studies finds substantial geological limits to increased production and exports from South America. The reports by Kavalov and Peteves³⁵ and Höök et al.³⁶ are the only ones to discuss the region in any detail. The latter report notes:

Coal does not play a major role in Colombia’s domestic energy production and its usage has been in decline since 1993. Only around 5.4% of the total coal production is consumed within the country, contributing by 8% to the total energy output of the country, and the rest of the coal is exported. Over 60% of the country’s energy is derived from oil and gas. With increasing oil and gas prices it is possible that the domestic usage of coal is increased to free more oil and gas for export, or simply to reduce the cost of energy production. …The production is estimated to increase to 70 Mt/year in 2020.

David Rutledge of Caltech finds no Hubbert linearization trend for the region and therefore adopts official reserves figures for the purposes of calculating global trends for future production.

Implications

South America may be the world’s final coal frontier. Colombia’s production is booming and government sources say the nation’s exports, which have doubled in just five years, will continue to grow at ten percent per year. The primary factor likely to prevent such continued expansion is transport problems arising from higher diesel and bunker oil prices.

Indonesia

Overview

Since the early 1990s Indonesia has grown to become the world’s second-largest coal exporter, with about 80 percent of produced coal being shipped abroad. Nearly all of this coal goes to Asia, with most currently being exported to Japan and Taiwan.

Coal mining for domestic consumption began here early in the 20^th century, with peak production of some two Mt/year occurring in the early 1940s. However, the success of Indonesia’s oil industry led to a reduction in coal output in the 1950s and ’60s. Coal production increased again in the mid-1970s, and soon large resources of high-quality, mainly subbituminous coal were identified in the Kalimantan province on Borneo, the exploitation of which led to the ongoing export boom. Only a small proportion of Kalimantan’s coal resource has been explored or assessed in detail.

A state-owned company, PT Batubara, produces most of the domestically-consumed coal from Sumatra, while foreign companies mine most of the Kalimantan coal for export.

Indonesian coal ranges from lignite to bituminous, with most of current production coming from low-cost, open-cast mines.

West Papua, the western half of New Guinea, has subbituminous and lignite deposits that have yet to be tapped, while Java’s subbituminous seams are thin and can yield little coal on a commercial scale. South Sulawesi also has thin subbituminous seams that provide coal for local power production.

Recent Studies

1

“The Future of Coal” (B. Kavalov and S.D. Peteves, Institute for Energy, 2007).

Their assessment is that “…maintaining the present high output rates and export volumes may quite soon pose challenges.” The authors point out that Indonesia’s reserves are smaller than those of other major exporters, and that the recent production growth has begun to deplete the deposits of easily-accessible, high-grade coal. The report notes:

As a result, the coal R/P ratio has almost halved over only six years — from 68 years at the end of 2000 to just 37 years at the end of 2005. With these trends and with no additional investment in the coal sector, Indonesia would run out of economically recoverable (at current economic and operating conditions) reserves of coal much earlier than widely anticipated. On the other hand, the investment needed, if made, will almost certainly raise coal production costs, with a corresponding negative impact on the country’s international competitiveness. Substantial improvements (and investments) are also urgently needed in the seaport infrastructure, which has recently become the main bottleneck for Indonesian coal exports. The availability of coal for export could come under further pressure from the widely expected significant increase in domestic consumption, along with economic growth.³⁷

2

“A Supply-Driven Forecast for the Future Global Coal Production” (Höök, Zittel, Schindler, and Aleklett; Uppsala Hydrocarbon Depletion Study Group).

This report essentially concurs, noting:³⁸

The increasing domestic demand for electricity will make less coal available for export. Coal is also a vital substitute for oil and that can be seen in increased coal consumption in cement plants, petrochemical industries, pulp and paper factories and many others. The government has expressed an interest in reducing the dependence on oil and that may lead to export restrictions according to market analysts. ...Last year the domestic coal consumption increased by almost 18% and there is a growing discontent about the huge coal export from many groups. There are even plans about creating a “national reserve” for future generations, which means that untapped coal and metal reserves will be taken back by the government.

Implications

Indonesia is in the process of leaving OPEC because its declining oil production and growing domestic demand mean the country can no longer export petroleum. The country is also facing increasingly frequent power blackouts, and domestic coal demand is growing quickly. Without sufficient electricity, the nation’s economic development will stall or go into reverse. Under such circumstances, it is unrealistic to assume that the currently growing coal export trend will continue for long.

But the imperative to use more coal domestically and to decrease exports runs counter to the interests of regional coal importers India and China. Indonesia faces a metaphoric tug-of-war for its coal as shortages within East Asian and South Asian economies worsen, leading inevitably to higher coal prices that will impact Indonesia’s economy as well as those of China and India.

Canada

Overview

Coal resources in Canada are concentrated in the provinces of British Columbia, Alberta, Saskatchewan, and, to a lesser extent, Nova Scotia. However, output from the last of these provinces is small and declining; the others show signs of increasing production.

The total production of Canadian coal was 66 Mt in 2004, and it has declined since then to 62.9 Mt in 2006.³⁹ Almost half of this production comes from Alberta, which produces slightly less than 30 Mt. Alberta contains 70 percent of Canada’s total coal reserves. Nearly all production (98 percent) comes from surface mines; underground mines are very rare.

The nation exports almost half of its produced coal (28 Mt in 2006), and almost all of this is coking coal (only 1 Mt of steam coal was exported in 2006). Asia is the largest export market for Canadian coal (16 Mt in 2006), with the rest going mostly to Europe and South America.⁴⁰

However, in 2006 Canada imported 21 Mt of coal — 17 Mt of steam coal for power plants in the eastern region and 4 Mt of coking coal for the steel industry. The United States supplied 18 Mt, and the rest came from Colombia, Venezuela, and Russia. The need for imported steam coal for power generation is due to geography: most production is in the west, where exports to Asia by ship are profitable; and most consumption is in the east, where imports by ship from South America are cheap.

A reserve assessment from 1925 estimated the “actual reserve,” i.e., with seam width one foot and over and depths under 4,000 feet, as being 413,816 million metric tons with probable reserves of almost 800,000 million metric tons. Newer and better assessments have reduced this number significantly, and today only two percent of those “actual reserves” remain as proved as of the last assessment. In 2006, the reported proven coal reserves stated in the BP “Statistical Review of World Energy” were 6,578 Mt, with roughly half bituminous and the other half consisting of subbituminous and lignite.⁴¹ However the last general assessment of Canada’s coal reserves was conducted in 1987. Given recent reserves downgrades in other nations, this leaves room for skepticism about even the BP reserves number.

Recent Studies

Only one of the recent reports surveyed, “A Supply-Driven Forecast for the Future Global Coal Production” (Höök, Zittel, Schindler, and Aleklett; Uppsala Hydrocarbon Depletion Study Group), contains much detail about Canada:

It is interesting to note that in terms of energy the production peaked in 1997 at 43 Mtoe [million tons oil equivalent] and has been in steady decline since then. Today it is 32.3 Mtoe. This can be explained by the large and rapid decrease in production of bituminous coal in Alberta. The production fell from 10,871 Mt in 1998 to 2,570 Mt in 2005. The production of subbituminous coal in Alberta increased until 1995 but has remained virtually constant since then. ...The collapse of the bituminous coal production from Alberta and the lack of expansion can be a sign of stagnation in the Canadian coal production.⁴²

Implications

Canada is a major resource exporter to its neighbor to the south. Currently, 60 percent of Canadian natural gas production is piped to the United States, while 70 percent of Canada’s homes are heated with gas. Under the terms of the NAFTA proportionality clause, Canada is obliged to continue exporting the same proportion of its gas in perpetuity. However, as Canada’s gas production continues to decline, this will create obvious problems. If that clause continues to be honored, more domestically produced coal might be needed for heat and power.

Canada will likely remain a minor coal exporter in the near future, especially with regard to coking coal. But on balance and in the longer term, the nation’s import requirements are likely to grow faster than its ability to export coal.