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Coal as cash: – The Supply-Side Big Picture.

June 8, 2010

Coal will continue to play an important role in the energy mix well into the future.  Few dispute this. 

Most of the demand growth for coal is occurring in Asia – in particular, China.   Some aspects of coal demand growth are discussed here.

The largest coal reserves lie within nations that are currently only exploiting and exporting a fraction of the physical potential. 

The production rates of main coal reserves nations could increase considerably to meet consumption growth.

The graphic below demonstrates production/consumption ratio by global region.

Within these regions, a small number of nations contribute a large share of global reserves.  The graphs below demonstrates the share of absolute coal reserves of the top 8 countries, and coal reserves at current production levels of those countries, in years.

It is clear that there is no immediate prospect of global physical coal shortages.  Any shortages will be economic. 

The US, Ukraine, and Russia would appear to have the potential to substantially increase their production rates to meet Asian demand growth.

Main constraints in their ability to do so are infrastructure limitations and shipping costs to meet ‘short’-term price competition from local, or regional coal supplies.   In short, technical and economic capacity to get the coal to market demand competitively will determine the those that will profit most.

In particular, internal coal market and infrastructure reform in China and Australia is critical in determining delivery competitiveness for Eurasian and North American prospective suppliers.

Chinese strategic interest in securing long-term energy supplies will facilitate the ability of other markets to deliver to their internal market.  China’s coal consumption/production characteristics are discussed here.

China is currently promoting transcontinental energy infrastructure (in particular gas pipelines – we might expect train coal freight supply from Russia, Kazakhstan and the Ukraine to be a focus – as well as continued investment in regional coal resources, including Australia.

What of the ‘Saudi Arabia of Coal’ – the US? 

Data Source: BP Statistical Review of World Energy 2009



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