In many circles, the debate on "peak oil" remains unsettled, despite mounting evidence that it’s here and now. At the same time, conventional wisdom holds that there are ample coal supplies to meet the world’s needs for decades, if not centuries, to come. This supposition, however, is usually taken on blind faith. Upon close examination, the world may be close to "peak coal" as well. That is not to say we’re running out of coal, but that we may be very near its peak in terms of its energy content.
Coal currently supplies about 30 percent of the world’s primary energy needs, behind oil (at around 35%) and ahead of natural gas (at 24%). The combined energy generated from wind and solar, incidentally, amounts to less than 0.005% of the world’s total energy consumption. Meanwhile, the U.S. Energy Information Agency, which historically has generated overly optimistic production forecasts, expects that annual coal production will climb 15% by 2035. That’s a tall order.
Coal production is in decline for most countries around the world. Nations such as Germany, the United Kingdom, Ukraine, and Poland, all once important coal miners, must now supplement their own production with imports.
Today, coal mining is dominated by just five countries: the United States, Russia, China, Australia, and India, which together possess nearly 80% of the world’s known reserves. Of these, only Australia, Russia, and the United States make a significant portion of their output available for export. They’re joined by a handful of others, including Indonesia, Colombia, Kazakhstan, and South Africa, as top actors on the export stage, though at its current pace Indonesia will essentially exhaust its reserves sometime in the next decade.
The United States is believed to contain nearly 29% of the world’s remaining reserves, or some 245 years’ worth at current production rates. So it would seem we’re immune from any disruption that might occur in the coal market. This reserve estimate, however, is grossly misleading in that the energy content of the coal we mine has been in decline for more than a decade.
Though the total volume of U.S. coal production may actually climb for another 20 to 30 years, we will have essentially passed the point of peak coal domestically before we reach that milestone. Thereafter, we will have to burn ever greater quantities of coal to generate the same level of BTUs, which will shorten considerably the life of our unused reserves. And of course, mining these remaining coal reserves will necessitate the use of ever more energy, presumably coal, reducing the life of those reserves further.
But the most disconcerting statistics have to do with China. That country’s coal consumption rose by a staggering 134% in the first decade of this century. In 1999, China consumed only about 20% more coal than the United States; a decade later its usage was three times that of the United States. Despite being home to the world’s third largest coal reserves, China has also recently been forced to become a net importer of coal in order to satisfy its voracious appetite.
China’s need is largely the reason U.S. coking coal prices rose from around $40 a ton in 2000 to $180 a ton in 2008--a four‑and‑a‑half‑fold rise--before the financial crisis prompted a retreat to around $120 a ton. And it’s why coal prices are destined to soar far higher in the years to come.
China is currently burning nearly half of the world’s annual coal production. At its current rate of growth, the country’s demand will soon soak up every available ton on the export market. Put another way, between the end of 2009 and 2015, China will likely need additional coal supplies equivalent to between three to four Australias--not just the equivalent of what Australia exports, but its entire coal output.
Even if China is successful in producing 15% to 20% of its primary power from renewable sources in 2020, the country’s consumption of coal will continue to grow at an alarming rate, as the Chinese economy is likely to continue to expand at an impressive tempo, as it has for the past 60‑plus years.
Despite its having the world’s third largest reserves, though, China’s coal deposits are expected to last only for another 38 years, based on 2009 production figures. Yet, as with the remaining life of U.S. coal reserves, this is an overly simplistic way of viewing those reserves, which understates the dire nature of what is already a critical state of affairs.
Reinforcing this view are several independent studies of the world’s troubled coal situation. For instance, a 2007 study by the Energy Watch Group, a Germany‑based organization of independent scientists and parliamentarians, saw coal peaking by 2020. It pointed out that reserve data worldwide is of poor quality--in some cases it has not been revised in decades. In the case of China, the country’s reserve estimates have not changed since 1992. As a result, many estimates greatly overstate the amount of coal yet to be mined. Based on a country‑by‑country analysis, the group concluded that global production would still increase by around 30% over the following ten to fifteen years. However, the production profile of the world’s largest producer, China, would determine the peak of global coal production. And after 2020 the Energy Watch Group study estimated that global coal production would decline sharply.
Two years later, in 2009, researchers at the China Center for Energy Economics Research published an article in the journal Energy Policy that came to a similar conclusion, that peak coal production in China would occur around 2030. This is not some fringe group reaching this conclusion but scientists from Xiamen University in Fujian, one of China’s top institutions.
The researchers saw that the gap between China’s internal supply and demand would continue to grow and the gap would have to be made up with increased imports. They estimated, "By 2015, the volume of net coal imports to China would account for 11–34% of the world coal trade and by 2030 that would be 41% to 54%, as predicted. That means that about 50% of the total world coal would be traded with China. If this is the case, a slight change in China’s coal market would have a great impact on international coal markets, especially on international coal prices."
It would appear by the country’s actions since this study was published that its conclusions did not escape the attention of the Chinese government. Given that coal accounts for 70% of Chinese energy use, it follows that the country would be somewhat frantic to develop alternative sources of energy. Concerned that it is drawing down its remaining coal reserves at an alarming rate, the government is now considering capping domestic coal production, according to reports from China’s state‑run media.
In the meantime, the impact on the world market of China importing increasing quantities of coal is already being felt, although we’ve experienced just a taste of what’s in store. In essence, this rise in coal prices is taking money out of the pockets of Americans and, indeed, consumers the world over, leaving us less to spend on other things.
What can we do? Clearly the first thing to ponder is what the Chinese have not only been thinking about for years but are now employing in overdrive. We mean the development of renewable energies, or any energy source that can substitute for oil and, increasingly, coal.