Every month it seems the Chinese are posting incredible coal production figures along with troubling safety statistics. This month, Dr. Syd Peng from West Virginia University wrote a report for Coal Age on the Chinese coal sector based on his experience (See Understanding the Chinese Coal Industry, p. 24). As best as one can describe a rather complicated coal chain in a five-page article, Dr. Peng sheds light on the fact that the U.S. is a distance second to China in terms of production volume. And the Chinese are not moving nearly half a billion tons of subbituminous coal. It’s almost all bituminous and mined exclusively by underground methods that range from mechanized to arcane. He also explains fatality rates have dropped consistently as production climbed.
The U.S. could learn a lot about energy independence from the Chinese. As Dr. Peng points out in his article, the Chinese made the decision early to be energy self-sufficient. Even today, a percentage of the petroleum they burn is derived from coal. They knew they had vast reserves of an inexpensive fuel and they decided wisely to rely on it rather than importing oil and natural gas. The U.S. is now starting to fall behind China in developing cleaner methods of utilization.
The roaring Chinese economy also has a secondary affect on global coal markets. As the country makes and consumes more steel, it requires more energy and more coke. At the moment, metallurgical coal could be considered a finite resource. Every time supplies are interrupted, no matter how brief, prices move higher. When prices move higher, the economics for existing met operations and abandoned brownfield operations improve. Case in point, Lee Buchsbaum filed a report on the restoration of the New Elk mine, near Trinidad, Colo. A Canadian mining firm along with Japanese steelmakers have secured an American source for met coal supplies amid a dwindling market.
At an event to commemorate the arrival of a new plow system from Germany (See Suppliers News, p. 40), Joe Carraba, CEO, Cliffs Natural Resources, took a few minutes to explain the market dynamics. Many steel manufacturers, Carraba said, are waking to the fact that met coal is the choke point in production. Demand for steel, grows 3% per year on about 1 billion tons steel per year. That requires about 600 million tons of coal, which equates to 18 million tons of new capacity annually, to keep pace with current growth or six fully-mechanized longwall mines. Globally, the steel industry is becoming more desperate in its search for met coal sources and Mozambique, Mongolia and Siberia are now viewed as emerging met coal basins.
Electricity and steel are the fundamental building blocks for society. Developing countries will require more power and most of the demand will be fulfilled by coal. For the developed world, the good news is that recessions end. The combined demand for coal from the developed and developing regions will propel the industry to new highs. At the end of 2009, U.S. coal operators described 2010 as a bridge year. It’s time to prepare for the potential that may lie at the end of the bridge.
Steve Fiscor, Coal Age Editor-In-Chief