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Home News Power Sector News Coal market to face dropping quality and rising costs

Coal market to face dropping quality and rising costs

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CoalThe quality of thermal coal for exports is dropping, prompting concern among utilities and mining companies that coal fired power plants will become more expensive to run and will fall foul of stricter environmental laws. Coal has been the dominant fuel for electricity generation in developed countries since the 19th century and emerging economies such as China and India have in recent decades ramped up coal use to account for more than half of global demand.

Some investment analysts said that this golden age of coal may be coming to an end, as large coal fields discovered in the last 2 decades, such as in Indonesia or Colombia, were easy to develop and the most economical reserves of the fossil fuel are fast being depleted, leading to a drop in the quality of what remains.

Axa Investment Managers said that "High quality and cheap coal supply is under serious threat and we believe the golden age of coal will end sooner than expected."

Energy research and consultancy Wood Mackenzie said the quality of coal from Indonesia, the world's biggest exporter, is already low and will deteriorate further.

This means that to get new supplies out of the ground could become increasingly uneconomical and many new projects may be shelved.

The drop in coal quality also clashes with tighter environmental regulation regarding coal mining and coal fired power generation in both developed and emerging economies, which could dim investment opportunities.

In developed economies, coal power stations that have already been built may require expensive upgrades to meet tightening regulation and cope with lower coal quality.

Axa said that "The high age of installed capacity in industrialized countries implies that retrofitting an aging fleet of plants will incur major costs."

Moreover, the typical size of these plants, which were built in a time of abundant, high quality coal, makes them particularly costly to retrofit but efficiency will not be enough to recoup investments when supplies decrease in quality.

In emerging markets, analysts think coal might not be king for as long as initially expected as the high degree of pollution from coal-fired electricity generation will result in public anger and lead to tighter regulation, making it increasingly difficult to justify use of the fuel.

Axa added that "For the next round of rapidly growing economies, coal will be shorter lived than expected."

Despite the pollution, analysts said that developing countries will push ahead with coal build because alternative forms of energy might not be readily available or affordable.

Mr Miswin Masweh a commodities analyst with Barclays said that in China, planners are locating new coal-fired power stations close to the country's coal reserves in northern provinces, where the impact of pollution and land issues are less of a challenge.

Mr Masweh said that "Locating power plants close to mines and transporting the electricity over vast distances using efficient power lines will mean they can burn dirtier types of coal and reduce congestion on China's road and rail network."

He said that new coal plants in Africa will be able to burn dirtier, less efficient forms of coal without much regard to the environmental consequences, as government policy was heavily skewed towards fast economic growth.

Meanwhile, current annual global coal burn is 3.6 billion tonnes of oil equivalent, compared with 2.7 billion tonnes of gas and 4 billion tonnes for oil, but the International Energy Agency (IEA) says that gas could catch up with coal by 2030.

Source – Reuters


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