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China's hunger for coal means price increases and environmental issues
by Catherine Ngai
May 05, 2010


China’s demand for coal increased sharply in April, pushing world prices higher for the energy commodity. The world’s largest consumer and producer of coal posted record import volumes last month to feed its insatiable appetite for energy and growth.

Last week, the benchmark price for thermal coal at Australia’s Newcastle port – the coal most commonly used for burning in plants - hit a record of $108.87 per metric ton, the highest since October 2008. China imported 11.4 percent of the 8.4 million metric tons of coal that arrived at Newcastle’s Port Waratah Coal Services Ltd., in Australia last month. This compared to 9.3 percent and 8.7 percent in March and April last year.

While China’s growth in the midst of a financial recession is a positive note, the use of coal as a main energy source could lead to potential problems for the global environment, critics say. The burning of coal emits carbon dioxide, one of the greatest air pollutants, and a gas that is considered by some to be the leading cause of global warming.

“Global climate change is global. Acid rain is global,” said Judy Bramble, assistant professor of environmental science at DePaul University in Chicago. “Both of them affect biodiversity, and loss of biodiversity is something we worry about. We’re sympathetic for underdeveloped nations to have what we have, but it can’t [happen] in a way that endangers the planet."

Coal is an important industry in Illinois and it is mined in 12 counties. Its history spans a 250 years, and the Land of Lincoln has the largest bituminous coal resource, used to generate electricity, of any state. The industry is estimated to generate nearly $1 billion in revenue annually and accounts for about half of U.S. coal production. Considering how important the coal industry is to Illinois, high prices abroad may affect the state’s economy.

Coal is even a more important resource in China. The U.S. Energy Information Administration estimates that coal makes up 70 percent of China’s total primary energy consumption.

The attraction to coal is obvious: It’s a viable and cheap energy source because of its abundance and transportability. Bramble explains that coal is used to create energy through heating, while other fossil fuels like liquid natural gas that require a pipeline to transport are mainly for transportation.

According to China’s National Energy Administration statistics, China imported 44.4 million tons, or approximately 48.9 metric tons, of coal in the first quarter, more than a two-fold increase from last year. While Australia is China’s main supplier, the most recent data from the U.S. Energy Information Administration shows that coal exports from U.S. to China increased almost fourfold to 1.1 million tons of coal from 2008 to 2009.

“I think what we’ve seen in the increase in imports is a response to the global recession,” said Diane Kearney, operations research analyst at the U.S. Energy Information Administration. “[The Chinese] still have strong economic growth; they’ve restructured or have closed mines down in a province where they’ve historically had high production levels.”

While China is growing in consumption, the same cannot be said for the U.S. Coal production, exports and consumption all decreased in the last quarter of 2009, according to the U.S. energy administration. While consumption decreased by 11 percent and exports decreased by 28 percent, production only decreased by 8.5 percent, resulting in increased stockpiles.

Domestically, combating emissions has been a state-wide and federal initiative for years as part of the Clean Air Act. More recently, a joint public and private partnership called FutureGen Industrial Alliance Inc. was created to design, build and operate the world’s first coal-fueled, near-zero emissions power plant in Illinois.


“Generally, there will be environmental issues with the use of fossil fuels until technology is available such as FutureGen,” said Michael Murphy, manager of coal programs at the Illinois Office of Coal Development. “The question is what society is willing to pay extra to run their computers, televisions…to make the use of coal even cleaner.”

Although signs of a literally darker global environment are on the horizon, turning black to green may be a possibility. Peabody Energy Corp., the world’s largest private-sector coal company based in St. Louis, has a history of reducing emissions in coal production through advanced technology.

“If you look at coal’s track record, we’ve had a very successful record of reducing other transmissions,” said Vic Svec, senior vice president of Peabody. “We believe the same can be done through technology in reducing carbon and continue on a path toward green coal.”

Peabody is starting to ship coal in May from Newcastle at the NCIG terminal at a rate of 30 million tons per year. It owns 17 percent of the port, which equates to approximately 5 million to 6 million tons. While it only exported approximately 4 million to 5 million tons to China from Australia in the past few years, that number is estimated to increase.


Despite the positive growth, there are other factors to consider: speed and safety.

“Growing at such a rapid pace, it’s hard for them to keep up on the production side of coal. They’ve so much economic growth, so much growth in coal consumption. It’s hard to keep in balance,” Kearney said.

Although Kearney notes that most of what China produces in coal is consumed, there are many mines that are so dangerous that mining is not possible.

The Chinese coal industry has been clouded by a recent history of mining accidents. Flooding in a Chinese mine in early March left 32 dead, according to state news agency Xinhua. There are more than 30,000 coal mines in the country, and about two-thirds of the 6,000 coal mining fatalities per year occur in small coal mines, according to data from the World Bank.

“It’s not self-sustaining because there are a lot of inefficiencies in their coal mining,” Kearney said.

The possibility of demand surpassing supply is another issue. While China’s consumption of goal has skyrocketed in the past few years, some analysts are hesitant to predict if there will be enough coal for these growing economies.

“When you look back at last year…the fact that China sponged up much of the excess coal capacity that would’ve been in excess made for much tighter markets than what analysts expected,” Svec said. “The demand has been growing extremely rapidly in China. It has definitely been straining supply in recent years. We expect that may well continue.”

As Bramble explains, the worldwide supply of coal will eventually dwindle and nations will need better plans to deal with increasing energy needs.

“We’re going to run out of them [fossil fuels] eventually. If we’re going to find solutions, why not do them now to solve some of the problems of pollution and climate change,” Bramble said.



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