C T d i W ld C l M k dCurrent Trend in World Coal Market and Challenges to Japang p

Presented for International Symposium on Clean Coal Day 2012Presented for International Symposium on Clean Coal Day 2012“Towards Next Stage of Sustainable Growth with CCT---Beyond Rio+20”

HORII, NobuhiroAssociate ProfessorAssociate ProfessorKyushu University

horii@en kyushu-iu ac jp11

horii@en.kyushu-iu.ac.jp

Structural Change in World Coal Market:Seven Focus point

1) H i f l i f Chi d I di ’ d d

Seven Focus point

1) Huge impact of large increase of China and India’s demand and import for coal

2) Expansion of coal mining business overseas by China and2) Expansion of coal mining business overseas by China and India

3) Expansion of low-grade coal utilization) p g4) Diversification of world coal market---development of spot

and derivative market5) Rising resource nationalism in coal producing countries6) New opportunity for development of high quality coking coal7) Sh l l ti7) Shale gas revolution

2

Structural Change in World Coal Market:Seven Focus point

1) H i f l i f Chi d I di ’ d d

Seven Focus point

1) Huge impact of large increase of China and India’s demand and import for coal

Large impact of increasing import by both countries to world Large impact of increasing import by both countries to world coal market in recent years.

We should build continuing and stable system for monitoring g y gand analyzing trend of both countries’ demand and supply situation

W h ld b i t d l j t We should be more aggressive to develop projects on introducing Japanese CCT into China and India, not only for business but also stable world coal market.

(I will show my view about China and India’s coal industry, later)

3

Structural Change in World Coal Market:S F i t

【Chi ’ C l T d 】

Seven Focus point

【China’s Coal Trade】

16,000

18,000

ten thousand tons

8,000

10,000

12,000

14,000export import

【 】

0

2,000

4,000

6,000

0 2 4 6 7 9 0 2 4 6 7 9 0 2 4 6 7 9 0

45

50600

million tons （％）

【India’s Coal Production and Import】

1980

1981

198 2

1983

198 4

1985

198 6

1987

1988

198 9

1990

1991

199 2

1993

199 4

1995

199 6

1997

1998

199 9

2000

2001

200 2

2003

200 4

2005

200 6

2007

2008

200 9

2010

(source) China Customs data

25

30

35

40

300

400

500

coal production coal import dependence on import

5

10

15

20

100

200

400

(source) TEDDY2012

Structural Change in World Coal Market:Seven Focus point

2) E i f l i i b i b Chi d

Seven Focus point

2) Expansion of coal mining business overseas by China and India

China: aggressive expansion of coal mining business in China: aggressive expansion of coal mining business in Indonesia and Australia. And recently new activities in Russia and Mongolia.

India: Also developing projects in Indonesia and Australia. South Africa and Mozambique are also listed for her targets.

W h ld f l l ti hi l ti We should enforce close relationship coal exporting countries, especially Australia and Indonesia. And in addition, we also should build up new cooperation scheme p pwith China and India as same coal importing countries, including joint ventures for overseas projects.

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Structural Change in World Coal Market:Seven Focus point

3) E i f l d l ili i

Seven Focus point

3) Expansion of low-grade coal utilization Expanding of low-grade coal utilization, for example, in

power plants in South Korea contributing cost downpower plants in South Korea, contributing cost down. Indonesian sub-bituminous coal has advantages in low ash

and sulfur. US PRB is also a promising option.p g p Considering increased cost for power after 3.11, we should

also not hesitate to put utilization of low-grade coal into our tf lienergy portfolio.

Therefore, we should develop related technologies, such as pre-combustion treatment, co-firing and so on.pre combustion treatment, co firing and so on.

6

Structural Change in World Coal Market:Seven Focus point

4) Di ifi i f ld l k d l f

Seven Focus point

4) Diversification of world coal market---development of spot and derivative market

Spot market has been spread widely due to increased trading Spot market has been spread widely due to increased trading by China and India, which prefer spot to long-term contract.

Long-term contract price is getting more influenced by spot g p g g y pmarket, which is requiring to utilize trading options like derivatives for stable supply and price.

W h ld h iti ttit d t d h t di We should have positive attitude towards such trading options and try to increase consumption of “standardized coal” in such market.

7

Structural Change in World Coal Market:Seven Focus point

8

Structural Change in World Coal Market:Seven Focus point

5) Ri i i li i l d i i

Seven Focus point

5) Rising resource nationalism in coal producing countries The new Mineral and Coal Law passed on 16 December

2008 in Indonesia Also in Mongolia too2008 in Indonesia. Also in Mongolia, too. In China, import of coking coal is getting regulated.6) New opportunity for development of high quality coking coal6) New opportunity for development of high quality coking coal The flow of world coking coal trade is changing. Now is that

the flow to Japan is not dominant one, trade from Australia to China and India is much larger.

Needs for bringing back import of US coking coal and developing new projects in Mongolia Mozambique anddeveloping new projects in Mongolia, Mozambique and Russia.

We should keep collecting up-dated information of overseas

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p g pprojects’ seeds, maintaining close relationship with those countries by building win-win scheme.

Structural Change in World Coal Market:Seven Focus point

7) Shale gas revolution

Seven Focus point

7) Shale gas revolution Excessive expectations for shale gas. Price in future is

forecasted to increase (US EIA), very low price at present ( ), y p pseems not sustainable.

Also it should not be expected too much that shale gas LNG i J h hi h i ffi i bimport to Japan has very high economic efficiency, because some additional cost needs to be added, and there might be no incentive for US shale gas producer to sell by lower price to g p y pJapan without oversupply in domestic market.

Recent news in Japan put too much importance on gas as b i f l Wh d i bl ( l dsubstitute for nuclear. What we need is stable (supply and

price) fuel for base-load. Coal is superior in terms of this point (even though considering environmental cost, we have CCT!)

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(eve oug co s de g e v o e cos , we ve CC !) We should strengthen publicity on coal to shape public

opinion in the process of revising Basic Energy Plan.

Outlook for China’s coal supply and import

1) Steady increase of investment for enforcing production capacity, due to progress in marketizationp y, p g

coal production investment profitcoal price for

non-power users

coal price forpower

generationdiscounted

rateh d illi illiten thousands

tonnes100 million

yuan100 million

yuanyuan/tonnes yuan/tonnes %

1998 123,258 160 133 ▲ 16.91999 104,363 -17 144 121 ▲ 16.02000 99,917 188 0 140 121 ▲ 13.62001 110,559 218 42 151 124 ▲ 17.92002 141,530 286 86 168 137 ▲ 18.52003 172,787 414 138 174 139 ▲ 20.12004 199,735 702 307 206 163 ▲ 20.92005 215,132 1,144 540 270 213 ▲ 21.12006 232,526 1,479 677 338 218 ▲ 35.5

11

2006 232,526 1,479 677 338 218 ▲ 35.5

2007 252,341 1,805 950 331 246 ▲ 25.72008 274,857 2,411 2,100 357 n.a. n.a.

Outlook for China’s coal supply and import

【Ch f A P i f C l d P d ti C t I Chi (R C l)】

Outlook for China s coal supply and import

【Changes of Average Price of Coal and Production Cost In China (Raw Coal)】

400

Yuan/ton

300

350average price of raw coal production cost

200

250

100

150

0

50

19531960196519701975198019851990199119921993199419951996199719981999200020012002200320042005200620072008

12(Source) Compiled based upon China’s annual Coal Industry Statistics 12

Outlook for China’s coal supply and import

2) C l i f i d li i i i b

Outlook for China s coal supply and import

2) Completion of industry policy to raise concentration ratio by M&A of small mines by large coal companies.

e g in Shanxi above 4 000 mines were integrated into 1 053e.g. in Shanxi, above 4,000 mines were integrated into 1,053 mines from 2008 to now. Above 2,000 companies were merged into 130. Efficiency in production was also improved,

l d i i i 1 illi (b f 0 4annual production per one mine is 1 million ton (before 0.4 million), resource recovery rate is 74% (25%).

3) Transportation infrastructure from inner Mongolia to outside is3) Transportation infrastructure from inner Mongolia to outside is now strengthen extensively. Transportation fee by truck from inner Mongolia made some contribution to price hike in recent

R il d i ill i fyears. Railways now under construction will reinforce transportation capacity and cut down transportation cost.

13

Outlook for China’s coal supply and importOutlook for China s coal supply and import

【Coal production by major three provinces】【Coal production by major three provinces】

60350,000

ten thousands tons %

50

250,000

300,000

Others Shaanxi Inner Mongolia Shanxi Three provinces' portion

30

40

200,000

20

100,000

150,000

0

10

0

50,000

1414(Source) Statistical Yearbook of China Coal Industry

Outlook for China’s coal supply and import

4) T f d i d d l i h 12th FYP N

Outlook for China s coal supply and import

4) Targets for reducing dependence on coal in the 12th FYP. Not amount but percentage. And due to progress in marketizationin coal industry, coal price is now not very competitive. y, p y p

5) And economy slow down in this year.

Based on those factors, coal supply can be forecasted as robust, demand as stable, and therefore, import can be thought also as t bl lth h t d i ht b i i i id l tstable, although trend might be increasing in mid-long term.

(Import of natural gas by China in future should be paid more attention, maybe)attention, maybe)

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O tl k f Chi ’ l l d i t

11th Five Year Plan 12th Five Year Plan

Outlook for China’s coal supply and import

Category

Target (based on

2005 level)

ActualTarget

(based on2010 Category Target

11th Five-Year Plan 12th Five-Year Plan

level)

Reduction of energy use per unit of GDP 20% 19.1%

level)

16%

Percentage of non-fossil fuel from primary energy consumption

11.4%

Reduction of water use per unit of value-addedIndustrial output

30% 31.3%130%

Reduction of carbon emission per unit of GDP (based on 2010 level)

17%

GDP from Strategic 8%p

Reduction of chemical oxygen demand (COD) 10% 12.45% 8%

Emerging Industries (SEIs) 8%

Reduction of nitrogen from ammonia (based on 2010 level)

10%

Reduction of sulfur dioxide (SO2)

10% 14.29% 8%

Reduction of nitrogen oxides (based on 2010 level)

10%2

Annual energy 4 billion tons f lAnnual energy

consumption of coal equivalent

(Source) China Greentech Initiative 16

O tl k f Chi ’ l l d i t

【G T d j 20 t i i 2010 it Billi bi t 】

Outlook for China’s coal supply and import

【Gas Trade among major 20 countries in 2010, unit: Billion cubic metres】Pipeline LNG Total

imports imports imports

1 United States 93 25 12 23 105 481 United States 93.25 12.23 105.48 2 Japan - 93.48 93.48 3 Germany 92.82 - 92.82 4 Italy 66.26 9.08 75.34 5 United Kingdom 34.96 18.67 53.63

Although in 2010, China’s gas import didn’t rank in higher position, but in 2015 it would be forecasted to increase6 France 34.95 13.94 48.89

7 South Korea - 44.44 44.44 8 Turkey 28.76 7.92 36.68 9 Spain 8.86 27.54 36.40 10 Ukraine 33 03 33 03

2015, it would be forecasted to increase to 90 billion m3, which was same level with Japan and Germany, ranking 2nd

and 3rd in the global gas market.10 Ukraine 33.03 - 33.03 11 Russian Federation 32.67 - 32.67 12 Belgium 18.13 6.43 24.56 13 Canada 20.91 2.00 22.91 14 Belarus 19.52 - 19.52

and 3 in the global gas market.

15 United Arab Emirates 17.25 0.16 17.41 16 Netherlands 16.97 - 16.97 17 China 3.55 12.80 16.35 18 Mexico 9.43 5.72 15.15 19 Taiw an 14 90 14 90

17(source) BP Statistical Review of World Energy

19 Taiw an - 14.90 14.90 20 Brazil 9.82 2.78 12.60

Outlook for India’s coal supply and importOutlook for India s coal supply and import

【Coal production in India】【Coal production in India】

100600

million tons ％

85

90

95

500others

75

80

300

400SCCL

60

65

70

200

CIL

50

55

0

100CIL portion

18(Source) TEDDY 2012 18

Outlook for India’s coal supply and importOutlook for India s coal supply and import

【CIL financial statement, unit: 10 million Rupee】【CIL financial statement, unit: 10 million Rupee】2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

Profit before tax 2,040 3,133 4,679 4,894 8,788 8,602Sales 22,687 24,228 26,234 30,659 33,997 35,129Total cost 19,996 20,454 21,084 24,993 25,220 26,403Total cost 19,996 20,454 21,084 24,993 25,220 26,403　Labor cost 7,895 7,925 8,912 10,958 9,654 9,995　Welfare cost 1,160 1,185 1,280 1,345 1,380 1,492　Materials 2,946 3,106 3,247 3,373 3,940 4,182　Electiricty and Fuel 2,656 2,827 2,874 3,241 3,565 3,448

iOutsourcing cost　　（mainly transportation fee）

1,581 1,794 1,927 2,347 2,625 2,758

　Depreciation 1,451 1,393 1,398 1,355 1,357 1,358　Other cost 2,307 2,223 1,446 2,374 2,699 3,169

2007/08 2008/09 2009/10 2010/11 %Profit before tax 8,738 5,744 13,965 16,463Sales 38,866 46,131 52,188 60,245Total cost 29,878 40,313 38,627 42,203

(Source) CIL annual report

　Labor cost 12,561 19,701 16,619 18,175 43.1　Welfare cost 1,642 1,910 2,049 2,317 5.5　Materials 4,432 4,914 4,976 5,279 12.5　Electiricty and Fuel 3,545 3,587 3,712 4,096 9.7

Outsourcing cost

19

( ) p

19

Outsourcing cost　　（mainly transportation fee）

3,343 4,126 4,580 5,178 12.3

　Depreciation 1,561 1,691 1,329 1,673 4.0　Other cost 2,795 4,385 5,362 5,485 13.0

O tl k f I di ’ l l d i t

1) Coal industry in India is very different from that in China.

Outlook for India’s coal supply and import

) Co dus y d s ve y d e e o C .CIL, giant state company occupies dominant share.

2) CIL has good business condition, also very different from ) g ystate companies in China before 2000s.

3) However, CIL seems not willing to invest to expand her production capacity, although coal demand-supply balance has kept seriously tight.

4) C h h ld h bi i i i4) CIL, Maharatna status holder, has no big incentive to invest to expand her production capacity in domestic field, more incentives to be good for her own worker?incentives to be good for her own worker?

5) So institution (pricing, relationship with users, specially power plants) matters. Without reform, domestic production

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power plants) matters. Without reform, domestic production will grow at lower speed and overseas production and import will keep increasing.

Concluding Remarks

Ch ll J

Concluding Remarks

Challenges to Japan Horrible earthquake, nuclear incident, and after. We need to re b ild stable reliable energ s stem again We need to re-build stable, reliable energy system again

without depending on nuclear power in mid-longer term. Gas? Economic efficiency is now more important than Gas? Economic efficiency is now more important than

before. We need more economical energy to maintain Japanese companies’ competitiveness and finance the

f T h k i f t t hrecovery of Tohoku region from catastrophe. Then Coal! But the structure of world coal market has

changed drastically, as mentioned above. We also need to re-changed drastically, as mentioned above. We also need to rebuild new system for stable and reliable coal supply and usage, including new relationship with coal producing and

i t i i f l d l21

consuming countries, expansion of low-grade coal utilization, taking advantage of trading options.