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In spite of international efforts to phase out the use of coal power plants, global demand and prices for the resource are on the increase fueled largely by China’s growing energy needs.
In spite of some international efforts to phase out the use of coal power plants, global demand and prices for the resource are on the increase fueled largely by China’s growing energy needs. Coal is still one of the most important electricity producing fuels in the United States and around the world and is showing a surge in the market, but it is also one of the most controversial because of environmental concerns.
At the G-20 Summit in Seoul this month, leaders reaffirmed their commitment to phase out subsidies for fossil fuel consumption by 2020 with the goal of reducing global carbon dioxide emissions. Some countries have independently begun to make changes in this direction. The United Kingdom is planning to phase out their major coal power stations by 2016. Within the United States, California has had a moratorium on all new coal plants since 2006. In Canada, the province of Ontario committed to phase out all coal-generated power by 2014.
China has, however, shown no intention of curbing its coal power production. Coal supplies about 80 percent of China’s energy needs today, and that ratio is expected to be maintained in the future, even as overall power usage grows. And with a growth rate of 10 percent per year, China will soon account for half the world’s production and consumption of the resource.
Xinhua, the official Chinese government news agency, reported that the country plans to increase coal shipments to power plants, saying reserves at key stations are falling to dangerously low levels. Reserves at 349 key power plants were reported to have dropped to less than 35 million tons, down from 38 million tons in mid-November.
Earlier this month, an official with China’s coal association said the country’s demand for coal will continue to increase in the next five years and is expected to reach 3.8 billion tons in 2015. The surge in demand has sent coal prices up to two-year highs and brought a surge of Mergers and Acquisition (M&A) speculation. According to recent statements by Dealogic, leading deal tracking firm, in a recent article in The Economic Times, the global coal mining sector has seen M&A transactions worth over $47.1 billion through 968 deals so far this year, the highest number of deals on record. Dealogic reports that China, the most targeted nation globally in the coal mining sector, has a record high of $11.6 billion, with cross border volumes accounting for 47 percent or $5.5 billion of all Chinese coal mining M&A so far this year.
The latest wave of confidence in the coal industry can also be partially attributed to news that state-run Coal India, the world’s biggest coal producer, has expressed interest in buying coal assets from US producers Peabody Energy (NYSE:BTU) and Massey Energy (NYSE:MEE).
Even though regions of the United States are making efforts to reduce coal consumption, the coal production industry is expanding its export market. Officials in Washington State recently approved a plan to ship coal to Asia through a port on the Columbia River. Commissioners voted to allow a subsidiary of Australia-based Ambre Energy to redevelop a port to handle 5 million tons of coal annually. The project is about 40 miles north of Portland, Oregon and would be the first of several proposed new coal terminals on the West Coast. It would serve mines in Montana and Wyoming, where a region known as the Powder River Basin holds some of the largest coal reserves in the world. The United States is not the only country to supply coal to China. Canada, Australia, Indonesia, Colombia and South Africa are all major exporters, though local consumption is generally down from five years ago because of the recession, environmental laws and a greater reliance on natural gas and renewable energy.