Friday, January 25, 2008

Coal Supply Squeeze

Recent cold weather around the world has put a squeeze on coal supplies, sending prices upward. The rare snowfall in Baghdad reflected a bitter cold snap across much of Asia and Europe. As a result, coal stocks in China have dwindled to emergency levels, possibly a foretaste of things to come. In spite of having massive coal reserves, China became a net importer of coal in 2007. China and India are expected to need 170 million metric tonnes of imports by 2030.

Power shortages in recently shut production at coal mines in South Africa, supplier of a quarter of Europe's energy coal, while rains disrupted mining in Australia, the world's biggest coal exporter, sending prices soaring. In addition, U.S. coal shipments were cut in the beginning of January when a pier in the Port of Baltimore partially collapsed.

These developments only highlight the limits of coal supply, which until recently had been expected to last for centuries. Estimates of global coal resources have been downgraded from 10 trillion tons in 1980 to around 4.5 trillion tons in 2005. In Germany and the U.K., estimates of coal reserves have been revised downward by 90%.

A paper by the Energy Watch Group earlier this year concluded that supply data was of poor quality, pointing to the regular downgrading of reserve estimates. In the United States, declining production of the highest quality coal has meant that, in terms of energy production, U.S. coal is already in decline. Production worldwide is expected to grow for another 10 to 15 years before going into permanent decline.