The Expanding International Coal Market

Abstract

“Coal is the single largest source of primary energy in the world, and in absolute terms coal use has grown faster than use of any other fuel for most of this decade. As the developing world industrializes and struggles to meet seemingly insatiable demand for power, coal has become the fuel of choice. An expanding seaborne trade in coal has started to connect previously isolated regional markets......[and].....reflects the internationalization and commoditization of the coal market, in a transformation reminiscent of that of the oil market in the 1970s and 1980s,” (Stanford University, Program on Energy and Sustainable Development, 2009) Coal provides nearly 30% of the world’s primary energy and generates over 40% of global electricity (IEA, 2010a). Historically a domestically produced and consumed resource, the international coal market meets just 16% of total consumption (World Coal Association, 2011a). Global coal trade patterns can be parsed into two distinct regions, the Atlantic region and the Pacific region. The Americas and Europe are the primary demand centers in the Atlantic, while Asia, dominated by Japan, South Korea, India, and China, is the hub in the Pacific. Geography has been critical when deciding which producers serve which markets, with suppliers generally serving only one region. The United States, holding roughly 30% of the world’s coal endowment, is considered the “swing supplier,” balancing markets when supply is short (BP, 2010). There are also two parallel coal markets; thermal (steam) coal is used to generate electricity, and metallurgical (coking) coal is used to manufacture steel and iron. In the past 20 years:  The seaborne trade in thermal and coking coal has increased by 7% and 1.6% per year respectively (World Coal Association, 2011a).  Global coal consumption has increased by more than 50% – from 2,235 million tonnes of oil equivalent (Mtoe) to 3,430 Mtoe (IEA, 2010a).  Asia Pacific has extended its share of world coal consumption from 37% to 66% and will account for basically all of the incremental demand increase over the next 20 years (IEA, 2010a). Today, coal is the fuel of choice in the developing world, and a widening array of suppliers has the international coal market in the midst of a rapid and dramatic transformation. The relatively high cost supply source of the United States will give lower cost producers the edge in Asia, where the dependence on coal for incremental electricity is stunning. Looking forward, “Chindia” will play the central role in determining global trade flows and prices.