Worl Market for Hard Coal-RWE 2007

8/8/2019 Worl Market for Hard Coal-RWE 2007

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RWE Power

World Market for Hard Coal

2007 Edition


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2007 Edition

Dr. Wolfgang Ritschel

Dr. Hans-Wilhelm Schiffer


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Content

Coal-exporting countries

Australia

Indonesia

Russia

South Africa

China

Colombia

USA

Canada

Vietnam

Poland

Venezuela

Coal geology and mining techniques

Deposits

Mining techniquesPreparation

Transportation and handling of hard coal

Literature

World Market for Hard CoalOctober 2007

Dr. Wolfgang Ritschel

Dr. Hans-Wilhelm Schiffer

Summary

Markets for hard coal in the

world energy mix

Definition

Reserves/output

Quality requirements

Consumption, by use

Consumption, by region

Perspectives in consumption developments

Environmental aspects Clean coal

technology

Liquefaction of coal

World trade

DemandSupply

Developments in sea freights

Demand and supply cycles

Re-formation of markets

Representative costs in the coal chain

Price formation

Contract forms

Influence of electricity markets

Risk management

Perspectives

Upshot

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50

55

61

65

70

75

79

84

88

91

95

99

99

100101

102

106

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9

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12

13

15

17

21

24

2427

30

31

32

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37

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43

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49

Content


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use in power plants will increase, whereas volume

sales in the heat market will continue to decline.

Coking coal consumption will grow in step with

pig-iron production, and world trade in coking coal

should move forward again after years of stagna-

tion, because the centres of supply and demand are

shifting, whilst demand for high-quality coking coal

is rising.

The Asian region continues to show dynamic

growth in consumption and production, whereas

Europe will in future report falling trends inconsumption and production. The cutbacks in

uneconomic domestic production are being partly

replaced by coal imports. Gas and renewable ener-

gy will gain further market shares.

North, Central and South America are growth mar-

kets in both consumption and production terms.

In the USA, in particular, hard coal is growing in

significance for power generation in view of the

greater scarcity and declining availability of domes-

tic oil and gas reserves.

Thanks to the strong public focus on lowering CO2

emissions from the use of coal, power plant con-

structors and utilities have launched a technology

This study describes the still growing impor-

tance of hard coal in meeting the worlds ener-

gy needs. It deals in particular with the contri-

bution to the energy supply made by

international coal trading, which has been ris-

ing for some years now, and at an especially

strong rate in the last few years. It discusses the

structure and functioning of world trade in

hard coal and examines the chief hard coal

exporting countries with their export potential

in terms of output and infrastructure as well as

the major players.

At present, hard coal accounts for 4.3 billion

tonnes of coal equivalent (Btce) or 26 % of global

energy consumption. In the last few years, hard

coal has been able to steadily increase its share in

the world energy mix, this being due primarily to

the rapid expansion of coal production in China.

More than 70 % of worldwide hard coal output

goes into power generation, covering 36 % of the

worlds electricity requirements.

All key forecasts assume ongoing growth in coal

production and world trade, though with vary-

ing levels of consumption between sectors and

between world regions. In the case of steam coal,

Summary

World energy mix, 2006

Source: BP Statistical Review of World Energy, June 2007 (Primary energy consumption); estimate based on the figures presented by the International

Energy Agency in Electricity Information (2007 Edition)

Primary energy consumption 16 billion tce Power generation 19 trillion kWh

Nuclear energy 15 %

Hydro + other 19 %

6 % Oil

20 % Gas

4 % Lignite

Hard coal 36 %

Nuclear energy 6 %

Hydro + other 6 %

36 % Oil

24 % Gas

Lignite 2 %

Hard coal 26 %


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The strong growth in world coal markets during

recent years and, parallel to this, in the iron ore

market has led for the first time to strains in the

international transport chain, with substantial fluc-

tuations in freight rates. Harbour capacities, too,

have revealed bottlenecks in the shipping of coal

and ores. The bulk carrier fleet has been massively

enlarged, with the expansion of shipping capaci-

ties, and the planning of ship loading optimized in

order to avoid queuing at exporting ports. In this

respect, logistics are adapting flexibly to the new

market situation, and a return to an efficient, low-

cost and effective coal transportation chain can be

expected in the future.

Still, it cannot be denied that the present expan-

sion measures for pits and, above all, for the infra-

structure are lagging behind growing demand.

The restrained investment activity in the low-price

period through to 2003 is now making itself felt in

Australia and elsewhere in the guise of bottlenecks,

although these will be overcome in the foreseeable

future.

Besides the traditional Asian and European custom-

ers for imported coal, a growing need for imported

coal by coastal regions can be detected in the

worlds two biggest coal producers, China and the

US. These requirements reached a volume of over

60 Mt in 2006 and are expected to go on rising. In

offensive. CO2 emission levels are to be reduced

by retrofitting existing power plants, building new

coal-fired power stations in the short- and medium-

term with higher efficiency, and by developing a

zero-CO2 power plant. So far, however, it is mainly

the EU-27 countries and Japan that have set them-

selves CO2 reduction targets; it is now urgent for

the USA, emerging countries like China, India and

developing countries to be involved in the process

of restricting CO2 emissions.

In meeting the worlds growing demand, interna-

tional hard coal trading has been playing an ever

greater role in recent years. Since 1999, the traded

volume has been expanding by a healthy 7 % perannum or 357 Mt in all. In 2006, cross-border trade

in hard coal totalled 867 Mt. Of this, 782 Mt was

maritime trade, split between 595 Mt of steam coal

and 187 Mt of coking coal. 85 Mt was traded over-

land mainly between neighbouring countries.

In 2006, cross-border trade amounted to 16 % of

the 5.4 Bt worldwide hard coal output.

The background of this growth remains the price

advantage that world market coal has as against

domestic hard coal (e.g., in Europe) and alternative

energy sources, such as oil and gas, as well as the

growing energy requirements for power generation,

above all in Asian economies.

Summary

World hard coal output and maritime trade, 2006

World trade (maritime) 782 Mt = 15 %

of which:

595 Mt steam coal

187 Mt coking coal

5.4 Bt hard coal output

Source: German Coal Importers Federation (VDKI), Hamburg 2007


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ing contribution toward meeting the worlds energy

and raw material requirements.

In the long term, i.e. by 2030, a r ise in coal output

of just under 1 - 2 % p.a. or more is expected. The

world trade in coal is set to grow by 1.5 3.0 % p.a.

Central and South America, too, coal is increasingly

being used in power plants.

On the supply side for steam coal, the greatest

gains are being made in the Pacific area by Austra-

lia and Indonesia, and in the Atlantic area by Rus-

sia and Colombia. South Africas exports are cur-

rently stagnating. Indonesia in 2006 made a 30-Mt

contribution toward supplying the Atlantic market.

In the case of coking coal, Australia has extended

its position with a 66 % market share. The US and

Canada prompted by the high price level are

stepping up their exports. A number of new coun-

tries could help broaden the coking coal supply

somewhat in future.

In the international steam coal trade, the ongoing

trend is toward commoditization, and many con-

tracts are concluded on the basis of price indices.

Current procurements, by contrast, are largely a

function of electricity sales and are based on short-

term supply agreements. Increasingly, physical

purchasing is being secured by financial instru-

ments. The paper trade has expanded strongly and

exceeds the physical trading volume 2.5-fold.

Following the growth seen in recent years (1999

2006), a continued increase in world coal trade

volumes is expected over the next few years. With

the substantial price rises for oil, natural gas, coal

and coke, energy prices have increased with little

impact on their relative competitiveness. It remains

to be seen how CO2 trading in Europe will impact

the competitive situation for coal. In the first trad-

ing period, 2005 2007, the market was over-sup-

plied, which led to a price of zero at the end of thetrading period. For 2008 2012, CO2 prices are cur-

rently moving within a 15 - 25/t CO2 price band.

However, further expansion in world steam coal

trading, following decades of falling real coal

prices, now requires a price level that induces

companies to invest in replacement and additional

capacities. The future potential for new mines is

widely dispersed in geopolitical terms and the min-

ing industry is in a good position to make a grow-


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Markets for hard coal in the world energy mix

Markets for hard coal

in the world energy mix

Definition

Coal, a product of plant substances, is a fuel and

raw material available in abundant quantities

throughout the world. Its various evolutionary

stages date back up to 400 million years in places.

In earth's history, a wide range of coal types with

differing properties has emerged. Depending on

the degree of carbonization and, hence, on its

energy intensity, this energy source is classified asanthracite, bituminous coal, sub-bituminous coal,

and lignite. Anthracite coal is marked by a high

carbon content coupled with very low moisture

and volatile components. In the case of lignite

young in earth's history the converse is the case.

Bituminous and sub-bituminous coals are located

between the two, with blurred boundaries between

the classifications. In line with international prac-

tice, this study classifies anthracite, bituminous and

the majority of sub-bituminous coals as hard coal.

Depending on the use and quality of hard coal, ref-

erence is made to metallurgical or coking coal and

steam coal.

Reserves/output

The appraisal of coal deposits is subject to continu-

ous, though uneven and unsystematic updating.Whereas oil and gas are systematically updated

year after year, this has not been true of coal hith-

erto. The reason may be that, in the past, a foresee-

able end of the deposits of oil and gas was repeat-

edly forecast and then disproved by updated sector

estimates.

Reserves

Worldwide distribution of hard coal reserves (Bt)

20

119

219

41

11

95

111

167

Total: 736 Bt

Source: Federal Institute for Geosciences and Natural Resources (BGR) (2007), 31 December 2006

52

South America

North America

Africa

Europe

Middle East

CIS

India

PR China

Other Asia

Australia


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has improved considerably, compared with the pre-

vious estimate made in 2005 (5:1).

According to the Energy Information Administra-

tion (EIA) of the US Department of Energy (DOE),

the global coal reserves consist of 53 % anthracite

and bituminous coals, 30 % sub-bituminous coals

and 17 % lignite.

Unlike oil and natural gas deposits, hard coal

reserves are widely scattered geographically, with a

focus on the USA, Russia and China. Of the rest,

India, Australia, South Africa, Ukraine and Kazakh-

stan, in particular, have significant coal reserves.

Even the economically mineable hard coal reservesreferred to earlier, i.e. without proven resources of

some 8,817 Bt will last, at current consumption lev-

els, for approximately 140150 years.

Reserves and mining levels do not always match.

This is particularly true of the former Soviet Union,

where only limited use is made of mining oppor-

tunities owing to the great distances involved

between the deposits and the consumer centres

and to the ample availability of oil and gas. In Chi-

na, by contrast, coal dominates the energy market

owing to the still slow mobilization of competing

energy sources. The same is true of the "Far East"

region, where India likewise with high coal inten-

So far, coal has been largely left out of any discus-

sion on the remaining life of energy resources. To

that extent, there has been no need for regular,

annual updating. If such updates were made, how-

ever, it must be assumed that both resources and

reserves would go on rising, since far less effort has

so far gone into exploration for coal than for oil and

gas.

In raw material deposits, including coal, a dis-

tinction must be made between "resources" and

"reserves". Resources refer to the entire quantity

of coal in a deposit. Reserves are that part of the

resources that can be mined according to today's

technical and economic standards. As coal pricesrise, some deposits are reassigned from resources

to reserves, since higher extraction costs can now

be shouldered, and mining may become economic.

Current estimates on the basis of our present

knowledge of economically mineable reserves (see

Table) are 736 Bt, equivalent to approx. 640 Btce.

These most recent estimates have been made by

the Federal Institute for Geosciences and Natural

Resources (Bundesanstalt fr Geowissenschaft und

Rohstoffe, BGR).

The BGR puts hard coal resources at 8,817 Bt in

2007. The ratio of resources to reserves is 12:1 and

Hard coal reserves and output by region (status: 2007)

Europe

CIS

Africa

North America

South America

PR China

Other Asia

Australia/New Zealand

Other

Total

1) Source: Reserves: Federal Institute for Geosciences and Natural Resources (BGR), Hanover, 20072) Source: Output: VDKI/BP Statistical Review of World Energy 2007

Reserves1)

Position: 2006 Output2), 2006 Range in

years

19

111

53

219

20

167

106

41

0

736

2.6

15.1

7.2

29.8

2.7

22.7

14.4

5.5

0.0

100.0

162

483

247

1,087

72

2,326

595

302

77

5,351

3.0

9.0

4.6

20.3

1.3

43.5

11.1

5.6

1.6

100.0

117

230

215

201

278

72

178

136

0

138

Bt % Mt %Region



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for these of max. 8 % and 1 % respectively. Other

coking properties, too, are called for in the coal,

including both the content of volatile components

(27+ 7 %) and, in particular, its coking behaviour

as measured by the free swelling index of 4 - 7, as

well as the coke strength (CSR value), which has

continued to gain in importance owing to the fall in

specific coke consumption. As a general rule, blast

furnace coke is not made from one single type of

coking coal, but from a mixture of different origins

with an average volatile component content of

approximately 27 %.

But coking coal with a lower swelling index, i.e. 1 -

3, is also used in making coke, so-called soft cokingcoal. By itself, this produces coke of low, i.e. inad-

equate, strength. However, steam pre-treatment or

mechanical compaction when the coal is fed into

the coke oven along with hard coking coal ena-

bles this coal type, which is also less expensive on

the market, to be used on a considerable scale,

above all in Japan, to make high-quality blast fur-

nace coke.

Growing use is now also being made in the met-

allurgical sector of hard coal for pulverized coal

injection (PCI). Intended as substitute fuel in the

1980s for the by-then costly heavy oil, pulverized

coal or fine-grain coal, injected into the furnace as

PCI coal, is now largely ousting blast furnace coke,

which has become relatively expensive. Here, all

hard coals with a low sulphur and ash content are

suitable, with the quality spectrum ranging from

the increasingly preferred anthracite coal all the

way to highly volatile steam and semi-soft coking

coal. It is the latter in particular that is used inJapan as PCI coal. PCI coals share of just under

50 Mt/a in global energy consumption is modest.

Consumption, by use

Hard coal consumption worldwide grew by some

1.4 Btce (+ 48 %) from 2.9 Btce in 2001 to 4.3 Btce

in 2006. This makes hard coal no. 2 in the list of

important energy sources after oil, but ahead of

natural gas. Hard coals share in worldwide primary

energy consumption in 2006 was some 26 %. The

recorded increase is mainly accounted for by China,

sity is the major hard coal producer, followed by

Indonesia.

Quality requirements

Coal is a heterogeneous energy source. The quality

parameters, like calorific value as well as sulphur

and ash content, vary considerably between the

various deposits and even within single coal seams.

The various uses for hard coal require different

qualities and properties. On economic efficiency

grounds, for example, the key quality parameter of

imported steam coal for power plants is the highest

possible net calorific value (NCV > 6,000 kcal/kg),

which is ensured by having low moisture and ashcontent (total < 25 %). On top of this come a low

sulphur content (< 1 %) and specific requirements

for the chemical composition of the resulting ash

and its melting behaviour. A low share of volatile

components (< 20 %) is a drawback for combustion

in modern power plants. The imported coal used in

power generation is supplied as fine coal, i.e. with

a grain size of 0 - 50 mm.

Different quality requirements must be met by the

steam coal that goes into the industrial area mainly

to produce steam and process heat. The combus-

tion technology deployed there usually calls for

specific grain sizes (range: 6 - 80 mm) in graded,

i.e. sized, lump coal. Here, too, low moisture (3 - 6

%) and ash (3 - 5 %) contents are expected, along-

side low sulphur.

Private consumers and households, too, are sup-

plied with graded coal (smalls, cobbles) of varying

grain sizes between 8 - 80 mm and with low mois-ture, ash and sulphur contents. A significant share

here is accounted for by anthracite coal with vola-

tile matter of < 14 %.

Tighter quality parameters apply to the hard coking

coal used in coking plants. The resulting product,

coke, is mainly used in the steel industry, but also

in nonferrous metal working. Deployment as blast

furnace coke requires, first of all, a raw material

that is low in both ash and sulphur, i.e. the coal

mixture used in coking plants is subject to limits set


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in Russia and was largely satisfied from domestic

output in each case. The blast furnace process for

the production of pig iron is the method chieflyemployed in China, since alternative processes are

not feasible owing to a scarcity of scrap. In view of

the present high prices for coking coal and coke,

work is proceeding on optimizing the blast furnace

process, and the technology for injecting pulver-

ized coal has received a new boost in a bid to save

coke.

Consumption, by region

Most hard coal is used near the extraction site,

i.e. near the deposits. The reason is its low energy

content compared with oil and gas. Long and often

costly transportation by land can place an extra

burden on the cost-effectiveness of any remote

use. In recent years, ocean freight capacity, despite

although other mining regions, too, have pressed

ahead. However, the dynamic global trend of recent

years does not apply equally to all coal-using sec-

tors and world regions.

World hard coal output was some 5.4 Bt (equiva-

lent to 4.3 Btce) in 2006. This can be subdivided

between approx. 4.7 Bt (87 %) steam coal and 0.7

Bt (13 %) coking coal. Most of the steam coal goes

into power generation. The share is about 4.0 Bt or

74 % of world hard coal consumption. Some 36 %

of total power generation worldwide is based on

hard coal.

The heat market i.e. customers outside the elec-tricity sector and the steel industry comprises,

e.g., cement works, paper mills and other industr ial

consumers. Also, there is a domestic fuel segment,

which is still significant in Eastern Europe and Tur-

key, and in China and North Korea. This market is

put at 700 Mt worldwide, although its share con-

tracted from 43 % in 1980 to about 13 % of world

hard coal consumption in 2006, and further decline

is expected. In view of high oil and gas prices,

however, the pace of decline could slow down.

The metallurgical sector, with a share of 13 %

(some 700 Mt), has grown by some 120 - 130 Mt

since 2001. The increase in the consumption of cok-

ing coal was noted, above all, in China and, partly,

Lignite

Hard coal

Hard coals contribution to power generation, 2005

Source: IEA, Electricity Information 2007, Tables 1.2 and 1.3

0%

25%

50%

75%

100%

SouthAfrica

Poland

Australia

China

Israel

Kazakhstan

India

Serbiaand

Montenegro

CzechRep.

Greece

Taiwan

USA

Germany

World

93 92

79 78 7170 66 64

60 5953 50 48 39

93

54

79

78 71 70 66

7

5348

21

3538

212 2

53 59

27

4

World hard coal consumption, by sector,

1980 and 2006

1980

Bt %

Total

of which

Power plants

Steel industry

Heat market

Source: German Coal Importers Federation (VDKI), Hamburg

5.40

4.00

0.70

0.70

2.80

1.00

0.60

1.20

74

13

13

36

21

43

2006

Bt %



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The most important hard coal consumer after

China is India, where over two thirds of the coal

consumed is for power generation. Coal needs

are mostly covered by domestic output, though

increasingly by imports as well.

The situation in "mature" Asia-Pacific markets,

especially in Australia, Japan, South Korea and

Taiwan differs fundamentally from conditions in

China and India. Australian coal is mainly exported,

although some 25 % of domestic coal production

is used in Australia itself. More than three quarters

of power generation in the country is based on

domestic coal.

Along with China, the USA, India, Russia and South

Africa, Japan is one of the biggest hard coal con-

suming countries, covering practically its entire

coal needs with imports, mostly from Australia.

Some 44 % of the coal consumed in Japan is used

in the steel industry; Japan is the worlds second

largest steel producer (after China). Also, coal in

Japan makes a considerable contribution to power

generation, with more than one quarter of the

countrys power supply being based on imported

hard coal.

high growth rates, has become scarcer owing to the

strong growth in the maritime trade in iron ore and

coal, longer travel routes and bottlenecks at export-

ing and importing ports. In the last few years

(2003 2007), this has repeatedly led to hefty pr ice

hikes. With ongoing high fleet expansion rates,

however, normalization of freight rates can be

expected, so that, in future, hard coals from mines

with low extraction costs and logistically favourable

locations relative to seaports will definitely remain

competitive for overseas consumers.

In recent years, world maritime trade has grown

to 782 Mt and, in spite of high sea freight rates

at times in 2006, has increased by 56 Mt. This isequivalent to a 15 % share for maritime exports in

world hard coal output; adding overland trade of

80 Mt, we obtain a traded share of some 16 %.

The most important market for hard coals is the

Asia-Pacific economic area. Hard coal consump-

tion in this region in 2006 was some 2.7 Bt. This is

equivalent to more than 60 % of worldwide hard

coal consumption. Especially strong consumption

growth was noted in China, where the main dr iver

behind the growing demand for coal, as in other

Asian countries, is the striking rise in electricity

needs.

Developments in world energy consumption, by energy source [Btce]

Mineral oil

Natural gas

Nuclear energy

Hydro

Hard coal

Lignite

Totals

Share of hard coal (%)

Share of lignite (%)

Share of coal, total (%)

Share of mineral oil (%)

Share of natural gas (%)

Share of nuclear energy (%)

Share of hydro (%)

Totals (%)

4.35

1.86

0.24

0.64

2.50

0.42

10.01

25.0

4.2

29.2

43.5

18.6

2.4

6.3

100.0

4.05

2.15

0.50

0.67

2.85

0.42

10.64

26.8

3.9

30.7

38.1

20.2

4.7

6.3

100.0

4.48

2.52

0.74

0.73

2.82

0.38

11.67

24.2

3.3

27.4

38.4

21.6

6.3

6.3

100.0

4.71

2.81

0.76

0.82

2.90

0.34

12.34

23.5

2.8

26.2

38.2

22.8

6.2

6.6

100.0

5.13

3.18

0.85

0.39

2.79

0.33

13.17

21.2

2.5

23.7

39.0

24.1

6.5

6.7

100.0

5.79

3.77

0.94

1.00

4.11

0.33

15.94

25.8

2.1

27.9

36.3

23.7

5.9

6.2

100.0

5.83

3.86

0.95

1.03

4.31

0.33

16.31

26.4

2.0

28.4

35.7

23.7

5.8

6.4

100.0

1980 1985 1990 1995 2000 2005 2006

Source: BP Statistical Review of World Energy


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market conditions. Some of the fall in output is

offset by imports. The chief consumer countries in

this region are Germany, Poland, UK, Spain, Turkey,

Italy and France.

Perspectives in consumption developments

According to the International Energy Outlook

2007, which the Energy Information Administration

(EIA) of the US Department of Energy (DOE) pub-

lished in May 2007, the following perspectives are

indicated until 2030.

World coal consumption will grow until 2030 at an

average annual rate of 2.2 % compared with 2004.

This would be equivalent to an absolute increaseof more than 70 % in that period. Even relative to

the significantly higher level of 2006, there would

still be an arithmetic rise of nearly 50 %. In this

forecast, coal's share in world energy consumption

would remain largely unchanged.

For the strongly growing Asian economies, the

DOE/EIA reference case suggests a doubling of

coal consumption by 2030, with more than three

quarters of the expected increase in the world con-

sumption of hard coals being accounted for by new-

ly industrialized countries in Asia. The main driver

behind this development is to be found in the elec-

tricity markets of China and India, for which future

growth of 3.3 % p.a. (China) and 2.4 % p.a. (India)

is expected. Behind this is the assumption of aver-

age annual economic growth (real) of 6.5 % (China)

and 5.7 % (India).

China's required net growth in coal-fired power

plant capacities (balance of new-builds and age-related decommissioning of plants) is put at 497

GW in the period 2004 to 2030. This enormous rise

is regarded as being necessary to cover the demand

for electricity. By way of comparison: at year-end

2004, China's coal-based power plant capacity

stood at 307 GW, and of 2006 at 484 GW. Some

of the expected increase in China's demand is also

due to the development of a large-scale coal-to-

liquid (CTL) industry.

Other important hard coal consumers in the Asia-

Pacific economic area are South Korea, Taiwan,

Indonesia and Thailand. Whereas Indonesia is in

a situation comparable with that of Australia (net

exporter in the case of hard coal), the other coun-

tries named mainly depend on supplies from the

world market.

The second largest hard coal consumer region

after the Asia-Pacific economic area is North

America. Over 90 % of hard coal consumption in

North America totalling some 1 Bt is accounted for

by the USA.

In Central and South America, coal in the pastwas not counted among the central pillars of the

energy supply, and coals share in the regions total

energy consumption is a mere 4 %. More than 60 %

of coal consumption in Central and South America

is accounted for by Brazil, the country with the

worlds tenth largest steel industry. The other main

coal consumers, accounting for small amounts, are

Colombia, Chile, Argentina, Peru and Venezuela.

Africa has a 3 % share in coal consumption world-

wide. The major market there is South Africa, which

accounts for over 90 % of coal consumed by the

entire continent. Demand is covered by domestic

output. South Africa is also one of the worlds key

exporters of hard coal.

Consumption and mining in the former Soviet

Union are concentrated on Russia, Ukraine and

Kazakhstan. Coal needs in each case are covered

by domestic output. In all of these countries, coal

makes a significant contribution toward powergeneration. Rising consumption over the last ten

years after falls in consumption owing to eco-

nomic restructuring are accompanied by industry

consolidation.

In Western and Central Europe, the requirements of

environmental and, specifically, climate protection

are increasingly acting as a damper on the use of

coal in its chief deployment area, power genera-

tion. Also, wide sections of Europes hard coal

mining industry are unable to compete with world



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15


In India, nearly 70 % of the estimated rise in coal

consumption is accounted for by its electr icity sec-

tor. According to the DOE/EIA forecast, coal-based

power plant capacity in India will grow by 104 GW

from 82 GW in 2004 to 186 GW in 2030.

Future developments in energy consumption and

its coverage in China and India is the focus of

the 2007 World Energy Outlook drawn up by the

International Energy Agency. This analysis, which

likewise extends to 2030, will be published in

November 2007.

Significant growth in coal input for power genera-

tion is also expected for Taiwan, Vietnam, Indo-nesia and Malaysia. This is where new coal power

plant capacity is now being built or planned on a

major scale.

The world's biggest coal consumer after China

is the USA. In its reference case, the DOE/EIA

expects US coal consumption to grow by 50 % in

the period 2004 - 2030. In the USA, 50 % of power

generation is based on coal. While an expansion

of gas-based power generation is expected over

the period until 2015, the DOE/EIA are assuming

that in the period after 2015, with gas prices then

rising, the focus will again be on coal in electr icity

generation. The estimate for the new-build of coal

power plant capacity in the period 2015 to 2030 is

140 GW. However, this assumption comes with the

qualification that a change in the present legal situ-

ation and in underlying political conditions would

have serious implications for the projections.

In Western and Central Europe, a decline in coal

consumption by 0.5 % p.a. is forecast for the

period 2004 to 2030. All the same, OECD-Europe

remains an important coal market in the DOE/EIA's

view. The chief coal-consuming countries in thisregion are Germany, Poland, the UK, Spain, Turkey

and the Czech Republic. The most important fac-

tors dampening coal consumption in Europe are

said to be the relatively slow increase in electricity

demand, growing use of natural gas in the power

plant sector and in industry, as well as promotion

of renewable energies coupled with a dismantling

of remaining subsidies for hard coal.

Btce

World coal consumption, by region

Source: DOE/EIA, International Energy Outlook 2007, Washington 2007, Reference Scenario

0

2.5

5

7.5

2004 2010 2015 2020 2025 2030

North America

China

Othercou

ntries

OECD Europe

Russia

India

Africa

OECD Asia/Australia


15/102

16

Russia is the world's fourth-largest coal consumer

after China, the USA and India, with 20 % of the

country's power generation being coal-based. Rus-

sia's long-term energy strategy is geared to the

construction of new, and the replacement of old

power plant capacities, based specifically on nucle-

ar energy, gas and coal. The focus of new coal-fired

power plant capacity with advanced technology is

to be on the coal-rich Siberian region (central Rus-

sia). Efficient commercial-scale power plants are

to be built in the west and in the far east of the

country.

More than ninety per cent of coal consumption on

the African continent is accounted for by SouthAfrica. There, the strong rise in electricity demand

has led to a decision at Eskom, the state-run

power-supply company, to recommission three

large previously closed coal-fired power plants

(Camden, Grootvlei and Komati). The plants, with a

total capacity of 3.8 GW, are to go back on stream

as early as 2007. Moreover, the construction of new

coal power stations is planned, not only in South

Africa, but also in Mozambique, Zimbabwe, Tanza-

nia and Botswana.

In South America, future developments will be

marked in particular by the situation in Brazil. Chile,

Colombia, Puerto Rico, Peru and Argentina are the

next most important coal consumers. In view of the

expected capacity expansion in the steel sector and

the planned construction of new coal-fired power

plants, a disproportionately strong increase in coal

consumption is expected there. Hence, the DOE/

EIA puts the average annual increase for Brazil in

the period 2004 to 2030 at 3.3 % compared with aforecast mean value for Central and South America

of 2.8 %.

For Asia's OECD countries (Japan and South Korea)

and for Australia and New Zealand, average growth

in coal consumption in the period 2004 - 2030 is

quantified at 0.9 % p.a., although the estimates

vary quite significantly from country to country. For

Australia/New Zealand and, specifically, for South

Korea, growth in demand by more than 1 % p.a. is

still expected. By contrast, a slight fall in coal con-

sumption is expected in Japan (-0.1 % per year in

the period 2004 - 2030).

The results presented for the reference case of the

2007 International Energy Outlook of the DOE/EIA

apply to a scenario in which current laws and poli-

cies remain unchanged in the forecast horizon. To

that extent, they cannot be regarded as a forecast

proper. A more realistic forecast would assume

changes in the energy policy framework over the

next 25 years with corresponding implications for

the level and structure of energy consumption.

The World Energy Outlook of the International

Energy Agency (IEA), too, is assuming unchanged

government policies in its reference scenario. So,the IEA in this scenario, which is comparable with

the reference case at DOE/EIA, arrives at virtually

identical worldwide developments in coal consump-

tion marked by an average annual increase of

2 % or so until 2030. There are marked differences,

between DOE and IEA analyses, however, in the

assessment of trends in coal demand by continent

and by individual country.

In addition to the reference scenario, the IEA,

within the scope of an alternative policy scenario,

is investigating the implications of a bundle of

political measures by governments that are being

considered worldwide to improve security of supply

and, specifically, measures for stepping up the pre-

vention of climate change. In this alternative-policy

scenario, the increase in global energy consump-

tion is lower than in the reference scenario. This is

true above all of coal consumption. So this scenario

puts the growth rate for global coal consumption

at less than half the figure in the IEA's referencescenario.

Environmental aspects Clean coal technology

For years now, the environmental debate has cen-

tred on worldwide preventive climate protection.

It is assumed that emissions of greenhouse gases

(GHGs) are increasing the temperature of the

Earths atmosphere and, in this way, could give rise

to climate change. At the World Climate Summit

in Kyoto (the third conference of the treaty states



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17


on this subject) specific obligations for reducing

GHG emissions were defined for the first time. For

the initial commitment period from 2008 to 2012,

38 industrialized countries agreed to reduce such

emissions by 5.2 % compared with 1990 (EU: -8 %;

US: -7 %; Japan: -6 %). Developing countries have

not yet given any specific undertakings to reduce

emissions, but are integrated by way of the clean

development mechanism (CDM). The Kyoto Protocol

targets the following gases: carbon dioxide (CO2),

methane (CH4), nitrous oxide (N2O), hydrofluorocar-

bons (HFCs), perfluorocarbons (PFCs) and sulphur

hexafluoride (SF6).

The meeting in Japan was followed by further talkson the practical implementation of the various

commitments and measures resolved in Kyoto. With

the compromises obtained, the way was paved for

ratification of the Agreement by the treaty states.

Although the USA and Australia had declared that

they would not ratify the Kyoto Protocol, Russias

ratification has helped meet the requirements for

the Protocol to come into force, as it did on 16 Feb-

ruary 2005, when the Protocol became binding in

international law.

The coal industry advocates measures designed to

reduce environmental impact as part of preventive

climate protection, while heeding the principles

of proportionality and sustainability. It has been

actively pursuing such measures itself.

In coal mining, environmental aspects are increas-

ingly being heeded in developing countries as well;

this includes measures for recultivating depleted

mines. According to the definition of the Interna-

tional Maritime Organization, coal unlike oil and

gas is not among the environmentally hazardous

goods transported by sea. A further contribution

toward preventive climate protection is the use of

coal mine methane, which is drawn off continuously

from mines on safety grounds. This drainage gas,

which in the past was discharged unused into the

atmosphere or flared, is increasingly being usedtoday for power generation at small, mine-mouth

power plants.

On the coal-use side, the strategy for CO2 reduction

has three horizons. Horizon 1 concerns the world-

wide use of state-of-the-art technologies in replac-

ing old or building additional new power plants. In

horizon 2 the very latest in power plant technolo-

gies is further developed. Both horizons back CO2

reduction by enhancing efficiency. This primary

measure combines efficient use of resources and

preventive climate protection.

Strategy to limit CO2

emissions from coal-based power generation

Horizon 1 Horizon 2

2015 < 20202010

Horizon 3

Use of

state-of-the-art technologies

Further development of

latest power plant technologies

Efficiency increase

(primary measure for CO2

reduction)

Implementation of zero-CO2

power plant

CO

capture and

storge

(secondary measure)

Source: RWE Power AG


17/102

18

Virtually zero-CO2 power generation on the basis

of fossil energy sources, which is not obtainable

by increases in efficiency alone, is only possible

using the secondary measure of CO2 capture and

climate-neutral CO2 storage. The appeal lies, above

all, in the fact that, for coal, which has the largest

reserves by far and is of the greatest importance

for world power generation, horizon 3 paves the

way for virtual zero-CO2 power generation. The

technologies required for this largely build on exist-

ing developments. Long-term safe CO2 storage with

public acceptance will be the basic precondition foruse of this technology.

The successive renewal of the oldest coal-fired pow-

er plants, with average efficiencies of 29 % using

state-of-the-art technology with an efficiency of 44

to 45 % (horizon 1) yields a specific CO2 reduction

of more than one third.

The focus in the further development of steam

power plant technology on the basis of hard coal is

to further increase process parameters (i.e. temper-

atures and pressures). The developments under way

in this area suggest that, in commercial use, the

50 % efficiency limit for coal-fired power plants can

be exceeded (horizon 2) by 2020.

Although the integrated gasification combined

cycle (IGCC) power plant technology will not, in

the medium term, offer a commercial alternative to

steam power plants, this technology will be of inter-

est in the longer term, not only because of its effi-

ciency potential of 52 to 55 %, but also on account

of its suitability for CO2 capture, above all for powerplant concepts featuring CO2 capture using tech-

nologies that have been proven at scale (horizon 3).

In principle, there are three technical options for

CO2 capture:

Flue-gas scrubbing in conventional power

plants:

For conventional steam power plants, only CO2

capture downstream of combustion is feasible.

In this process, the dedusted and desulphurized

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

5550454035302520

Source: Central Association of German Hard Coal Producers

Efficiency in %

CO emissions in t per MWhelCoal input in tce per MWhel

CO emission reduction thanks to efficiency increases in hard coal-based power generation



18/102

19


flue gas has its CO2 separated in an additional

scrubbing stage at atmospheric pressure.

Although old plants can be refitted in principle

using this technology, the space requirements

set narrow limits to the implementation of this

concept at existing power plants. Also, the

enormous flue gas volumes and the low CO2

content make this process very costly. Finally,

the considerable energy needs translate into a

drastic lowering of power plant efficiency. In

order to limit the costs of any later retrofitting,

some power plant operators today already pro-

vide sufficient space for flue gas scrubbing innew-builds.

Oxyfuel process:

In the concept for the oxyfuel process, combus-

tion is with a mix of oxygen and recirculated

CO2. The flue gas, consisting mainly of CO2 and

steam, is cooled after scrubbing to remove SO2,

so that, following condensation of the steam

portion, CO2 is obtained without an additional

CO2 scrubbing stage.

Integrated gasification combined cycle

(IGCC) process:

Here, CO2 capture is possible upstream of com-

bustion. The fuel gas, which is as a rule under

pressure, has a 100-fold lower volume, and suit-

able capture technologies are widely employed

in the chemical industry. One new development

is the gas turbine with a combustion chamber

for H2-rich fuel gas. The "zero"-CO2 combined

cycle power plant technology can be imple-

mented both for coal (IGCC) and for natural gas

(IRCC, with a natural gas reformer).

One disadvantage of all the technologies described

is lower efficiency and, hence, higher fuel consump-

tion than in the case of technologies without CO2

capture. The technologies differ in this respect:

whereas conventional power plants with CO2 cap-

ture in the flue gas scrubbing system reach only

28 % efficiency, the figure is 37 % in the case of

oxyfuel and as much as 40 % in the case of the

IGCC process with CO2 capture, putting it close to

the efficiency level of todays power plants. CO2

capture using the IGCC process is also, relatively,

Most important technology options for CO2

capture at power plants

1 Post-combustion CO capture (steam power plant)

Conventional power plant incl. CO2

scrubbing

Coal

Air

3 Pre-combustion CO capture (IGCC power plant)

IGCC process

Coal

O

CO capture

1,000 m/s, 13 vol - % CO

CO

2 Oxyfuel process

Coal

O

Flue gas de-

sulphurization

Conv. steam

power plant

COCondensation

Flue gas

cleaningBoiler

CO / HO

CO

Gas proces-

sing CO shift

COcapture

GasificationCCGT

incl. H turbine

10 m/s, 45 vol - % CO

Three technologies

seem to be capable of

meeting the target by

2020

All are based mainly

on known technolo-

gies and components

All require optimiza-

tion, extension and

process integration

Enhancing generation

process efficiency is

always a supporting

activity



19/102

20

the lowest-cost method, even if specific investment

costs are still 80 % above those for a conventional

power plant. Hence, this process has the greatest

potential among the options for CO2 capture. Also,

it has already been widely explored in both techni-

cal and operational terms.

Industrial-scale CO2 storage today is found mainly

in the USA as a result of its use in enhanced oil

recovery. In Europe, in-depth work is underway to

implement CO2 capture and storage (CCS) on theenergy market.

With a time horizon from 2020 onwards, CO2 cap-

ture and storage can make substantial contribu-

tions toward obtaining a zero-CO2 energy supply.

The CO2 avoidance costs in such a concept are

some 35/t CO2, based on current assessments.

Further technical developments offer cost-cutting

potential, making ambitious climate-protection

goals economically achievable.

Liquefaction of coal

The liquefaction of coal is one option for improving

the security of energy supply and for dampening

the rise and volatility of crude oil prices.

Decades ago, two CTL processes were being devel-

oped and deployed in Germany. These were the

direct hydration of coal (patented by Fritz Bergius

in 1913) and indirect liquefaction by gasifying the

coal with subsequent (indirect) hydration of the

synthetic gas (filed for patenting by Fischer andTropsch in 1925).

Drastic price hikes, coupled with concerns about

security of supply in the case of oil and natural gas,

have revived the interest in CTL worldwide. In a

number of countries, projects are being planned

to implement CTL. This is particularly true of coun-

tries that have large economically mineable coal

deposits and are increasingly dependent on oil

imports. These include in addition to Germany

Depleted

oil and gas

fields

Deep saline aquifers

Oil platform

Power plant

ElectricityUnderground mine

Schematic diagram of a climate-friendly coal-fired power plant with CCS

Opencast mine


CO2

Coal

CO2

storage site



20/102

21


the USA and Australia, as well as, specifically, China

and South Africa.

On the basis of the Fischer-Tropsch process, an

industrial CTL plant has been in operation at Sasol-

burg in South Africa ever since 1955. In addition,

Sasol has been operating two more CTL plants in

Secunda since the early 1980s. In all, the company

produces about 7.5 Mt of fuel at these locations

from 28 Mt of coal. In terms of process efficiency, it

is reported that 1 t of hard coal can yield depend-

ing on the coal quality some 2 barrels of oil prod-

ucts (1 barrel is equivalent to 159 litres), divided

into 70 % diesel and 30 % naphtha.

China has been a net oil importer since 1993. Since

then, oil imports have risen strongly. The country

also has large coal reserves. Against this back-

ground, CTL is accorded high importance. The Chi-

nese energy group Shenhua is building an indus-

trial plant for direct coal hydration at Erdos to the

south of Inner Mongolia. Operations are scheduled

to commence in 2007 with an annual output of

1 Mt of oil products. After completion of a second

project phase, an annual 5 Mt of oil are due to be

produced from coal. Shenhua is planning to build

further systems, some of them as joint ventures

together with Sasol and Shell. The goal of the ener-

gy group Shenhua is to produce 10 Mt of oil from

coal by 2010 and 30 Mt by 2020. In this respect,

it can rely on coal that can be mined at costs of

between USD 8 to 10/t. Coupled with relatively low

labour costs (about USD 10,000 p.a. for an engi-

neer), CTL in China would still be an economically

efficient proposition even if the world market price

of oil were to fall below USD 40 per barrel. Besidesreducing the dependence on oil imports, CTL close

to the deposits offers the option of replacing trans-

portation by rail to demand centres with pipeline

transportation. At the same time, China views CTL

as an important path toward implementing a clean

coal strategy. Although China still does not regard

the limitation of CO2 emissions as a priority envi-

ronmental-policy concern, this, in the assessment of

a representative of the Chinese Shenhua group, will

be the case in six to seven years' time.

In Australia, Monash Energy has launched a

project with the aim of producing some 3 Mt diesel

and other liquid products from coal. A demonstra-

tion plant is to be commissioned by 2010. The plant

is to be built in the south-east of Australia based

on lignite from the Latrobe Valley. Participation by

Shell and support from the Australian government

are viewed as important factors for implementing

the project.

The USA, the world's biggest oil consumer and

importer, is currently producing feasibility studies

on a range of projects for coal liquefaction. These

include the Medicine Bow project in Wyoming, the

Waste Management and Processors Inc (WMPI)project in Pennsylvania and the Rentech project

in Illinois. Also proposed are projects in Ar izona,

Montana and North Dakota. The DKRW Energy

project in Medicine Bow is initially set to produce

an annual 0.75 Mt (15,000 barrels per day, bpd) of

various fuels, specifically diesel. In the long term,

capacity is to be expanded to some 2 Mt annu-

ally. This project includes the erection of an IGCC

plant which uses the synthetic gas and the steam

produced in the CTL system to generate electric-

ity. The capacity of the power-generation plant is

put at 45 MW in the first phase. Plans call for CO2

capture and its sub-surface injection to boost oil

extraction. The legal measures and financial incen-

tive mechanisms required for implementing the CTL

project are being considered. This is true of both

the local states and the national administration

in Washington. The chief considerations behind

promotion of the technology are a lowering of the

dependence on oil imports and the creation of

additional jobs at home associated with the con-struction of the CTL plants concerned. Besides this,

the US defence department is very interested in

these developments for military purposes. Accord-

ing to an estimate of the US Department of Energy,

America could expand the extraction of oil prod-

ucts from coal to 3 - 5 mill. barrels per day by 2030

(equivalent to 150 - 250 Mt/a).

In Germany, the most important project is the

commercial-scale IGCC system planned by RWE

Power with integrated CO2 capture and storage.


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22

The plant, including the envisaged CO2 transporta-

tion and storage, has an investment requirement

of significantly more than 1 bn and is to go on

stream with a gross capacity of 450 MW in 2014.

As an alternative or supplement to power genera-

tion, the IGCC technology deployed here offers the

flexibility of making the following products per ton

of lignite: 580 cbm hydrogen, 180 cbm synthetic

gas, 270 kg methanol or 140 l engine fuels. The full

costs of producing one ton of diesel on the basis of

Rhenish lignite are put at 430. This is equivalent

to a crude-oil price of about USD 65/barrel.

In Japan, comparative analyses are being made of

the development of two direct CTL technologies by

the New Energy and Industrial Technology Devel-

opment Organization (NEDO). In a pilot plant witha daily capacity of 150 t, eight tests with different

coal types have been run to date. NEDO has also

developed a plant in Funakawa to adapt the liquid

product made from coal to specifications under

Japanese standards. In further developments,

collaboration with other countries, like China and

Indonesia, are envisaged.

The outlined facts on coal-to-liquids were presented

within the scope of a workshop organized by the

Coal Industry Advisory Board of the International

Energy Agency in Paris on 2 November 2006 (www.

iea.org/ciab).

Coal can play a comprehensive role in the solution

of future energy problems through a combination

of technologies for upgrading coal (like liquefaction

and gasification) with CO2 capture and storage. For

this, the underlying regulatory conditions must be

created and market incentives created.

A workshop of the IEA Coal Industry Advisory

Board on all aspects of relevance for the subject of

CCS will be held in Paris on 7 November 2007.

Gas recovery

treatment

Coal

conversion

Hydrotreating

unitRefining

Fractionation

Solvent

deashingGasifier

Coal+

Catalyst

Make-up

H2

Recycled H2

H-donor

Slurry

Slurry

Deashed oil

Unconverted coal

H2S, NH

3, CO

2

Methane & ethane

LPG

Gasoline

Diesel fuel

Heavy vacuumgas oil

Ash reject

Direct coal conversion to liquid fuels

Source: CIAB, Coal to Liquids, Workshop Report, 2007



22/102

23

World trade

The beginnings of the world hard coal trade date

back to the middle of the 19th century, when with

the beginning of steamship navigation depots

had to be built in all world ports to store bunker

coal. Since supplies from a nearby mine were not

always possible, some coal had to be fetched

across oceans by sailing ship, e.g. from England to

Cape Town and Suez, or from Australia to Dhaka in

what is now Bangladesh. Coal gained world mar-

ket maturity for the supply of overseas consumerswhen the efficiency of ocean shipping grew after

the switchover to oil between the two world wars,

although sustained expansion of international hard

coal trade only came after the second oil crisis in

1979/80.

In the period 19761999, the world hard coal

market grew by some 300 Mt or 13 15 Mt/a on

average. After 1999, a stronger growth phase set

in which has led to growth in world trade by a fur-

ther 357 Mt to the present 867 Mt. So, taking an

average for the last 7 years, the world market has

expanded by 50 52 Mt/a. Growth mainly took

place in the seaborne trade of steam coal.

Demand

World trade currently comprises 867 Mt. The world

market can be broken down into

Maritime trade 782 Mt

Overland trade 85 Mt

Cross-border, overland trade is relatively stable

and is based mainly on traditional supply relations

between neighbouring countries. This brochure

deals primarily with maritime coal trading, because

this is where most of the growth in world trade

takes place.

Developments in total maritime world trade in hard coals

Overland trade

Maritime trade

Steam coals

Coking coals

0

200

100

400

300

600

500

800

700

900

1000

1980 1985 1990 2000 2004 2005 20061995

Mt

Source: VDKI, Hamburg 2007


23/102

24

Output and exports of hard coal, 2006 [Mt]

India 390

Ukraine 80

Vietnam 44 22

Canada 34

24

28

Colombia 64 61

Kazakhstan 94

Poland 8

3

Indonesia 205 171

South Africa 247 69

Australia 302

Russia 309 77

USA 1,053 28

China 2,326 63

Maritime exports

Output


94

237

Germany

19UK



24/102

25

The maritime hard coal world market is broken

down into the following submarkets, viz.

Steam coal market, total 595 Mt

Atlantic steam coal market 242 Mt

Pacific steam coal market 353 Mt

Coking coal market 187 Mt

Maritime world trade, total 782 Mt

The breakdown into two steam coal markets is

determined by the supply side in the markets. A

key determining factor is the level of freight rates,

which may enable Atlantic or Pacific producers

to supply more distant customers at competitive

prices.

The coking coal market, by contrast, is a unitary

world market. A few suppliers serve a dispersed cli-

entele worldwide.

The vigorous expansion of international trade has

two main causes

Covering the growing demand for raw mate-

rial and energy

Substitution of indigenous coal in countries

with uneconomic mines.

Most of the expansion is in steam coal, whereas the

coking coal market has fluctuated in recent years

in the range of 165 187 Mt, depending on cycli-

cal developments in the steel industry. However,

the increase in global steel and pig-iron production

could herald a new growth phase, and mean that

the 200-Mt threshold is exceeded as early as 2007.

As for the submarkets, the following applies. In

the Pacific market for steam coal imports (some

60 % of total steam coal trading), the chief growth

engine is the rising electr icity needs in nearly all

economies, above all in China. Growing populations

in South-East Asia and high rates of increase in the

gross national product mean that the Pacific steam

coal market will continue to prosper.

Overseas trade in steam coal, 2006 Supplier structure [in Mt]


Poland 7

Other 12

65 South Africa

31 Indonesia

Colombia 60

Russia 55

4 AustraliaVenezuela 8

Atlantic: 242 Mt

24 Vietnam

110 Australia

59 China

Indonesia 140

Other 8

Russia 12

Pacific: 353 Mt

World overland trade in hard coal, 2006

USA - Canada

USA - Mexico

Canada - USA

Mongolia - China

North Korea - China

Vietnam - China

Poland - EU countries

CR - EU countries

Russia - CIS countries (Ukraine)

Russia - outside CIS

Kazakhstan - Russia

Other (EU-internal)

Total


18.0

0.5

1.7

2.3

2.5

6.0

7.0

6.5

6.5

6.0

24.0

4.0

85.0

Mt

World trade


25/102

26

The Atlantic steam coal market (some 40 % of the

total steam coal market) deserves a disaggregated

examination to understand growth prospects.

In Western Europe, the growth in imported coal

mainly offsets falling domestic production, chiefly

in Germany and the UK. In the Mediterranean area,

by contrast, there are countries, like Italy, Turkey,

Morocco and Israel, where the market for coal is

growing.

In South and Central America, it is pr imarily rising

electricity needs that are boosting demand. The

USA, too, has in recent years evolved into an impor-

tant importer on the Atlantic market, primarily for

its coastal or near-coastal power plants. The USshare of the Atlantic market amounts to 12 %.

The world coking coal market is basically powered

by crude steel and pig-iron production. In 2006,

crude steel output reached some 1,220 Mt, and

pig-iron output, on which coke consumption largely

depends, 868 Mt. In this respect, it must be borne

in mind that, in China, due to a lack of scrap metal,

the growth of crude-steel production is under-

pinned mainly with blast-furnace pig iron. Until

2003, China was largely able to cover the growth

in its pig iron production with its own coking coals;

since 2004, however, China has had to import

smaller additional quantities and, at the same time,

reduce its own exports. This has led to tensions on

the market, since the pattern of supply has shifted

further in Australias favour. Overall, the grow-

ing steel production forecast for Asia and South

America will outpace stagnating demand in North

America and Europe, such that higher growth in the

world coking coal trade can be expected.

Supply

The strong growth in the world hard coal market

during recent years poses serious challenges for

export-oriented hard coal pits and their associated

infrastructure. So far, however, the world market

has been able to cover the extra demand in quan-

tity terms, although temporary bottlenecks in the

last few years have led to significant price swings

for coking and steam coal and for sea freights.

Following many years of excess supply with low

fob prices, mining capacity and infrastructure for

export coal have been expanded at only a moder-

ate pace. This is especially true in the supply of

steam coal. According to recent studies (Kopal,

2007), utilization of steam coal capacities rose from

84 % in 2000 to over 94 % in 2006.

In the Pacific import steam coal market, totalling

353 Mt in 2006, the situation continues to be domi-

nated by Australia and Indonesia. Indonesia now

plays the leading role there, achieving a 40 % mar-

ket share. China reduced its steam coal exports on

account of domestic demand from a peak of 81 Mt

in 2003 to 55 Mt in 2006. A further fall to 40 - 45

Mt appears likely in 2007. Greater volumes are nowbeing supplied by Russia and Vietnam, and small

tonnages by South Africa and Colombia.

Pacific export-oriented production in 2006 exceed-

ed demand in this region and so supplied the

Atlantic market with 35 Mt in the same year. Thanks

to a low sulphur content and favourable prices,

Indonesian coal in particular enjoyed increasing

acceptance, mainly in Europe, but also in smaller

amounts in North and South America 31 Mt in

total.

Shares in coking coal market

Overseas trade, 2002 - 2006

[in Mt]


0

20

40

60

80

100

120

140

160

180

200

China

Other

Russia

USA

Canada

Australia

2002 2003 2004 2005 2006



26/102

27

Australia has long-term expansion potential,

although it has a considerable backlog of domestic

transportation and port enlargement projects. At

present, however, efforts are being made in both

areas to increase exports by implementing expan-

sion measures and improved logistics management.

In recent years, Indonesia has always surpassed

export forecasts. It has increased its exports from

58 Mt in 2000 to over 171 Mt in 2006; growth in

the last year alone was 42 Mt. However, exports

increasingly consist of low calorific value coals. In

the long term (after 2012), growing domestic needs

must be anticipated. Nevertheless, Indonesia is

likely to be able to further expand its exports in the

coming years.

Russia is extending its Far Eastern ports and pro-

poses to exploit its market opportunities there. It

is likely to be an interesting partner thanks to the

short sea routes above all for Japan and Korea, but

also for China.

Vietnam, too, has strongly increased its exports in

very little time and mainly supplies south-west Chi-

na. The rapid expansion of production and exports

is based on opencast mines, however, whose capac-

ity and reserves are limited. Vietnam must switch

to more underground production in future to main-

tain extraction volumes, although there are signs of

further export increases in 2007. In view of growing

Hard coal maritime trade by export and import country/region, 2006 (in Mt)

Export country

Australia

Indonesia

PR China

South Africa

Russia

Colombia

USA

Canada

Poland

Venezuela

Other

Exports

Import country/region

Europe

EU-25

Asia

Japan

South Korea

Taiwan

Hongkong

India

Latin America

Other

Imports


123

0

4

1

9

0

22

25

1

0

2

187

56

47

117

63

13

9

0

25

11

3

187

247

224

470

177

74

63

12

53

22

43

782

191

177

353

114

61

54

12

28

11

40

595

114

171

59

68

68

61

6

3

7

8

30

595

237

171

63

69

77

61

28

28

8

8

32

782

Coking coal Steam coal Total

Coking coal Steam coal Total

World trade


27/102


28

domestic demand, the Vietnamese government is

concerned about export levels.

In the Atlantic steam coal market, totalling 242 Mt

in 2006, South Africa, Colombia and Russia play

leading roles and supply 78 % of the market.

Besides Pacific supplies of 35 Mt, Poland, Ven-

ezuela, the US and smaller suppliers like, e.g., Spits-

bergen serve the Atlantic market, too. The expan-

sion potential in Atlantic suppliers mainly lies with

Colombia, South Africa und Russia.

Colombia has been expanding its output year after

year and is now making further extensions to its

infrastructure. If domestic demand is low, Colom-bia could become the biggest steam coal provider

in the Atlantic region in the medium term.

South African exports are stagnating, although its

export terminal, Richards Bay, is being extended

from 72 Mt to 91 Mt capacity in the medium term.

At the moment, a restructuring process is under-

way in South Africa in which large mining compa-

nies are surrendering sub-areas of their hard coal

production within the scope of the Black Economic

Empowerment programme (BBE), and a number

of new firms with mining rights are being set up,

although they have yet to commence production.

To that extent, South Africa's export potential

should increase further in the medium term. How-

ever, it is notable that the big mining companies

Amcoal, BHP Billiton and Xstrata are currently more

focussed on expanding pits in Colombia.

Russia, too, raised its steam coal exports from10 Mt in 2000 to 58 Mt in 2006 and is planning fur-

ther expansion. Its infrastructure is being planned

accordingly.

Main trade flows in hard coal traffic by sea, 2006 [in Mt]

Maritime trade: 782 Mt

Incl. 595 Mt steam coal

187 Mt coking coal

* from Vietnam to China

** incl. 3 from Indonesia and 1 from South Africa

Global hard coal production: 5.4 Bt


Canada

28

South Africa

69

Poland

8

China

63

Australia

237

from Canada

37from US

20

4

179

32

64

1

towards

Far east

20

4

19

120

18

59

USA

28

Indonesia

171

8

6

25

69

Columbia/

Venezuela

27

Russia

77

2 62

20*

3

3

5

4**5

20


28/102

29

even higher shares have been observed due to

extreme upward swings in freight rates.

The freight costs for coal are determined by the

overall market for bulk goods, which grew by 30 %

from 2000 2006.

Developments in the bulk market from 2000 2006

Iron ore

Coal

Grain

Other

Total

Source: German Coal Importers Federation (VDKI), Hamburg

449

524

264

874

2,111

721

782

281

1,008

2,792

61

49

6

15

32

2000Mt

2006Mt

Increase%

Freight rates were at a low level for many years,

such that bulk carrier capacities expanded at only a

moderate pace. China's iron ore imports have shot

up since 2003, leading to a dramatic rise in freight

rates. Despite high new-build rates for bulk carriers

in recent years, no relief has been noted as yet on

the freight market. Extensions to the fleet are cur-

rently lagging behind bulk shipping demand.

Increase of bulk carrier fleet, in M dwt, 2006 - 2008

End- Additions End-

2006 2007 2008 2008

Capesize

Panamax

Handysize

Scrapped,

lump sum

Total 368 25 24 417

Source: Clarkson, Shipping Intelligence Weekly

121

102

145

10

8

10

-3

10

7

10

-3

141

117

165

-6

The main reasons for this are queues off coal and

iron-ore exporting and importing ports as well as

longer average sea routes per transported tonne,

which are making transport capacities scarcer.

Polands exports continue to fall, particularly sea-

borne exports, due to rising costs. Exports from

Spitsbergen are stable at 3 Mt, as are those from

Venezuela at around 8 Mt. The USA, with relatively

high costs for export coals and a strong domestic

market, is an Atlantic swing supplier to a small

extent only, and when the market situation is

favourable, sells spot tonnages.

Given today's high global demand, Russia's export

supply is indispensable. With an 11 % world market

share and nearly 25 % market share in the Atlantic

region, Russia has grown to be an important player.

The global market volume for coking coals currentlystands at 187 Mt, having stagnated in 2005/06.

Despite considerable growth in crude steel and

pig iron production, this has had little impact on

the world market for coking coals in 2005/06. The

reason is that China, on the one hand, the biggest

steel producer, is to a large extent self-sufficient

in coking coal, and that, on the other, consumers

had built up high stockpiles in the boom years

2003/04. In 2007, however, stronger growth of the

coking coal market can be expected again.

The main suppliers are Australia, Canada, the

USA and Russia. Incentivized by the higher world

market prices for coking coal, Mozambique, Indo-

nesia and Colombia are investigating coking coal

projects, with significant investment now being

made by the Brazilian company CVRD in Mozam-

bique.

Owing to the decline in China's coking coal

imports, capacity expansions have stalled in Can-ada. Without the bottlenecks in Australia's infra-

structure, there would be excess supply, and since

export capacity tends to grow faster than demand,

investors in new coking coal projects remain hesi-

tant.

Developments in sea freights

In addition to the supply of and demand for steam

and coking coal, sea freights, too, are an important

variable that can account for up to 40 50 % of

the total cif cost of imported coal. In recent times,

World trade


29/102


30

Demand and supply cycles

Supply prospects for world market production

depends crucially on the geological formation of

the deposits and on productivity in mining opera-

tions. In principle, it may be assumed that the

most favourably located deposits are used up first.

Once they are depleted, recourse must be made to

resources that are geologically less favourable or,

due to their geographical situation, more difficult

to develop. Here, the drawbacks of having to switch

to poorer deposits can be more than compensated

by productivity gains. This has been the case in

recent years, although it cannot be expected to the

same extent in the future.

0

10

15

20

5

25

30

35

40

45

50

Australia

USD/t

2002 2003 2004 2005 2006 2007

Freight rates for hard coal

Jan Jan Jan Jan Jan JanJul Jul Jul Jul Jul Jul

South Africa

Colombia

Source: Frachtcontor Junge & Co.

0

200

150

100

50

250

300

/tce

1973 20031978 2007*1983 1988 1993 1998

Price developments for imported energies

free German border

Natural gasHard coal(steam coal)

Crude oil

* Average 1Q 2007

Source: BAFA


30/102

31

Accordingly, in a buyers market, the long-term

marginal cost of mining is the key determinant for

the price trend in ex-mine hard coal. Prices fluctu-

ate in cycles around a trend defined by long-term

marginal costs. Here, price swings depend crucially,

inter alia, on the course of demand, which is, in

turn, determined by the utilization of existing

export capacities and to a lesser extent by price

movements in the crude oil market.

In a sellers market, on the other hand, the full

costs and margins of the most expensive supplier

required to cover the demand determine the world

market price.

Close interdependencies exist between these fac-

tors. The second oil crisis in 1979/80, for example,

led to an increase in the demand for hard coal and,

hence, to full utilization of supply capacities. The

result was a rise in hard coal prices, which, in turn,

triggered a mobilization of existing, and the devel-

opment of new, export capacities.

There then followed further market cycles with

prices first r ising and then falling again, between

1973 and 1987, 1988 and 1993, 1994 and 1999.

Prices peaked in 2000/2001 at USD 42/t cif ARA,

and dipped again to USD 28/t cif ARA in 2002.

With a simultaneous weaker dollar, these pr ices

were barely viable for steam coal mines in South

Africa. In 2003/2004, however, the special factors

identified triggered leaps in demand, which led to

peak prices of USD 78/t cif ARA. Prices then fell

again to USD 52 55/t. Since the start of 2006,they have tended to rebound. In this respect, fob

prices for South Africa's coal held steady for a long

time within a USD 48 58/t price band, although

on a cif basis they were driven up by rising freight

state-run

57 % Lehmann Merchant

Banking Partners**

listed

listed

listed

listed

state-run

listed

listed

listed

Exports

Mt

Output

Mt


Coal India

Peabody Energy Corp.*

USA

Shenhua

Rio Tinto Plc.

Australia, Indonesia, USA

Arch Coal, Inc.

USA

Anglo Coal

South Africa, Australia,

Venezuela, Colombia

China Coal

SUEK

Russia

BHP - Billiton Plc.

South Africa, Australia, Indone-

sia, USA, Colombia

Xstrata Plc.

Australia, South Africa,

Colombia

343

232

203

154

127

98

91

90

86

77

0

22

26

35

-

40

27

15

81

59

World's largest hard coal producers, 2006

ShareholderCompanies in:

World trade


31/102


32

rates. In mid-2007, fob prices then began to rise

further, thanks to higher demand from the Pacific

region, so that in September 2007 we have cif ARA

prices of over USD 100/t. At this level, extremely

high freight rates have combined with high fob

prices. Todays prices reflect unusually high capac-

ity utilization, both at export steam coal mines and

among bulk carriers.

Re-formation of markets

The international hard coal market has seen pro-

found structural change in recent years, marked,

first, by ongoing supplier consolidation in Western

exporting countries and, second, by a rise in the

importance of the former centrally-planned econo-mies and transition economies as world market

suppliers. With their structural adjustments and the

modernization of their coal industries, the latter are

increasingly assuming the role of traditional export-

ers in balancing markets.

At the same time, in line with the trend toward glo-

balization, cross-country mergers and acquisitions

among coal companies have accelerated, whilst

oil firms like Exxon Mobil and Shell have retreated

from coal business.

The only oil company operating coal mines in South

Africa has been Total. The big four - BHP Billiton,

Anglo, Rio Tinto, Glencore/Xstrata have opened

new mines or bought interests, e.g., Anglos inter-

est in Paso Diablo, or Glencore/Xstratas further

mining rights in Colombia. In Russia, four large, pri-

vate sector companies have formed and now largely

control the Russian coal sector. A similar pattern is

emerging in China where the government is aimingto create 8 10 large companies with 50 100 Mt

or more production volume, and whilst these com-

panies are likely to be privatized in the long run,

they behave increasingly as private concerns. Chi-

nas WTO accession in 2001 will tend to make the

country more attractive to foreign companies and

investors. India and China are increasingly showing

an interest in coal and iron ore interests overseas

in order to secure their raw material needs. CVRD

the biggest Brazilian iron ore producer is plan-

ning the development of a coking coal mine for an

eventual 6 Mt in Mozambique and has bought its

way into Australia.

The world hard coal market is now served by an

estimated 400 export mines, with some 120 pro-

ducers operating in this sector in 2006. The ten

biggest hard coal companies accounted for a 28 %

share of global output in 2006. Seven of these

operators even have a 35 % share in the maritime

hard coal trade.

Where only a few years ago the activities of produc-

ers were largely focussed on their home countries,

they now extend from Australia via South Africa

and Indonesia all the way to North and SouthAmerica and, recently, to China as well.

What has also changed are the contractual relations

in international coal business. To a growing extent,

hard coal trading is being handled between produc-

ers and consumers directly. The big producers, like

BHP Billiton, Anglo and Glencore/Xstrata have set

up their own sales companies and are distributing

steam coal and coking coal partly from different

countries on a one-stop-shop basis. This example

is also being followed by the biggest privatized

Russian producers, meaning that dealers are los-

ing their once-important position as contractually

involved intermediaries between producers and

consumers. In view of this trend, their remit is

changing and is increasingly focussing on more

opaque niche markets and on handling/distribu-

tion. Also, more dealers are acting as agents for big

producers, providing assistance in arranging con-

tracts and customer care. In Europe, a number of

trading houses are increasingly performing agencyfunctions. Specific mention must be made of the

following companies:

RAG Trading

RWE Trading

Constellation

EDF-Trading

Coeclerici

A strong position in the Far-Eastern coal trade is

occupied by more than ten Japanese trading com-


32/102

33

panies that mainly handle the supply contracts

concluded between the steel industry or the power

sector and the exporters. Some have consider-

able stakes in a number of export mines. The most

important here are:

Mitsubishi

Mitsui

Itochu

Nichimen

Nobel

In China, coal exports are mainly handled by the

state-run company Chinese National Coal Import

and Export Corp. (CNCIEC) and by three furtherfirms. In Poland, WEGLOKOKS, which is likewise

state-run, deals with exports. In Russia, SUEK and

K

Documents

Worl Market for Hard Coal-RWE 2007