TRANSNATIONAL TRADE OF COALFUTURE OUTLOOK FOR ASIA

TRANSNATIONAL TRADE OF COAL FUTURE OUTLOOK FOR ASIA

Asok Dasgupta

President- Independent Power Producers Association of India (IPPAI)

Bangkok,Thailand: 1st March, 2013

3rd Asia Energy Security Summit

COST OF GENERATION OF ELECTRIC POWER THROUGH THERMAL(COAL)

GENERATION

UNIT COST OF ELECTRICITY=FIXED

COST+VARIABLE COST

CAPITAL COST COST OF MONEY

FIXED COST IS DEPENDENT ON

INSURANCE COST

O&M COST DEPRECIATION

3rd Asia Energy Security Summit, Bangkok, 1st March 2013

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These Costs Depend On:

Demand and Supply

Position Inflation

Financial Market

3 3rd Asia Energy Security Summit,

Bangkok, 1st March 2013

Variable Cost Varies as per

Cost of Coal Cost of Consumables and

Spares

THESE COSTS DEPEND ON DEMAND AND SUPPLY SITUATION OF COAL WHICH IN TURN

DEPEND ON DEMAND AND SUPPLY OF OTHER FUELS LIKE OIL,GAS AND NUCLEAR



Characteristics of Coal

Coking Coal

For Steel Making

Non Coking Coal

For Power Generation

Calorific Value

Thermal Properties

of Coal

Carbon

Ash

Sulfur

Moisture

Volatile Matter

Composition



Coal is a major source of primary energy

Ranked 2nd after Oil

with 28% share

Coal production

was 7.2 Billion tonnes (2010)

Coal use has grown the

highest than any other primary energy source


6

Trend of Coal use

OECD remain

unchanged

EU declined by 14% in last

decade

Non OECD

increase by 94%

China accounted for 84%

growth

India accounted for 12%

growth


7

DEPENDENCE ON COAL FOR POWER GENERATION

•

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South Africa 93 % Israel 65%

Poland 90% Czech Republic 56%

China 79% Morocco 55%

Australia 76% Greece 55%

Kazakhstan 70% USA 45%

India 69% Germany 44%


Proved Coal reserve at end 2011



* More than 500 years. ◆ Less than 0.05%. Notes: Proved reserves of coal – Generally taken to be those quantities that geological and engineering information indicates with reasonable certainty can be recovered in the future from known deposits under existing economic and operating conditions. Reserves-to-production (R/P) ratio – If the reserves remaining at the end of the year are divided by the production in that year, the result is the length of time that those remaining reserves would last if production were to continue at that rate.

Million tonnes

Anthracite

and

bituminous

Sub-

bituminous

and lignite

Total Share

of total R/P ratio

US 108501 128794 237295 27.6% 239

Canada 3474 3108 6582 0.8% 97

Mexico 860 351 1211 0.1% 77

Total North

America 112835 132253 245088 28.5% 228

Brazil - 4559 4559 0.5% *

Colombia 6366 380 6746 0.8% 79

Venezuela 479 - 479 0.1% 55

Other S. &

Cent. America 45 679 724 0.1% *

Total S. & Cent.

America 6890 5618 12508 1.5% 124




* More than 500 years. ◆ Less than 0.05%. Reserves-to-production (R/P) ratio – If the reserves remaining at the end of the year are divided by the production in that year, the result is the length of time that those remaining reserves would last if production were to continue at that rate.

Million tonnes

Anthracite

and

bituminous

Sub-

bituminous

and lignite

Total Share

of total R/P ratio

Bulgaria 2 2364 2366 0.3% 64

Czech Republic 192 908 1100 0.1% 19

Germany 99 40600 40699 4.7% 216

Greece - 3020 3020 0.4% 53

Hungary 13 1647 1660 0.2% 174

Kazakhstan 21500 12100 33600 3.9% 209

Poland 4338 1371 5709 0.7% 41

Romania 10 281 291 ◆ 8




* More than 500 years. ◆ Less than 0.05%. Reserves-to-production (R/P) ratio – If the reserves remaining at the end of the year are divided by the production in that year, the result is the length of time that those remaining reserves would last if production were to continue at that rate.

Million tonnes

Anthracite

and

bituminous

Sub-

bituminous

and lignite

Total Share

of total R/P ratio

Russian

Federation 49088 107922 157010 18.2% 471

Spain 200 330 530 0.1% 81

Turkey 529 1814 2343 0.3% 30

Ukraine 15351 18522 33873 3.9% 390

United

Kingdom 228 - 228 ◆ 12

Other Europe

& Eurasia 1440 20735 22175 2.6% 238

Total Europe &

Eurasia 92990 211614 304604 35.4% 242





Million tonnes

Anthracite

and

bituminous

Sub-

bituminous

and lignite

Total Share

of total R/P ratio

South Africa 30156 30156 3.5% 118

Zimbabwe 502 502 0.1% 202

Other Africa 860 174 1034 0.1% *

Middle East 1203 1203 0.1% *

Total Middle East

& Africa 32721 174 32895 3.8% 126





Million tonnes

Anthracite

and

bituminous

Sub-

bituminous

and lignite

Total Share

of total R/P ratio

Australia 37100 39300 76400 8.9% 184

China 62200 52300 114500 13.3% 33

India 56100 4500 60600 7.0% 103

Indonesia 1520 4009 5529 0.6% 17

Japan 340 10 350 ◆ 275

New Zealand 33 538 571 0.1% 115

North Korea 300 300 600 0.1% 19

Pakistan 2070 2070 0.2% *

South Korea 126 126 ◆ 60

Thailand 1239 1239 0.1% 58

Vietnam 150 150 ◆ 3

Other Asia Pacific 1583 2125 3708 0.4% 88

Total Asia Pacific 159326 106517 265843 30.9% 53

MAJOR COAL EXPORTING COUNTRIES


Indonesia

Australia

Russia

Colombia

South Africa

USA


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Country Percentage

Botswana 100

Mongolia 96

South Africa 93

Poland 88

China 78

Australia 77

Kazakhstan 75

India 68

Czech Republic 56

Morocco 50

Denmark 49

COAL IN ELECTRICITY GENERATION Source: IEA Electricity Information 2011


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Country Percentage

Zimbabwe 46

USA 45

Korea 43

Germany 42

UK 29

Turkey 28

Japan 23

Netherlands 21

Vietnam 18

Russia 16

Canada 15

COAL IN ELECTRICITY GENERATION Source: IEA Electricity Information 2011

MAJOR COAL IMPORTING COUNTRIES


China

India

Japan

Taiwan

Germany

Turkey

UK

Italy

COAL DEMAND IN ASIAN REGION




INDIA

MODES OF COAL FLOWS -


By Ship

By Road

Depended on Geography

Depended on Geo Political Reasons


GLOBAL COAL TRADE ACCOUNTED TO ONE BILLION TONNES IN 2010 WHICH IS 14.8% OF WORLD COAL PRODUCTION WHICH MEANS COAL IS SUPPLIED TO VICINITY

HOWEVER COAL WITH LOW PRODUCTION COSTS AND FAVOURABLE LOCATIONS NEAR TO SEAPORTS CAN BE DELIVERED COMPETITVELY TO OVERSEAS CONSUMERS


IMPORTED HARD COAL TO EUROPE CONTRIBUTES TO EU’S ENERGY SECURITY

SEABORNE STEAM COAL TRADE GREW TO 713 MILLION TONNES IN 2010 IN ADDITIN TO 90 MILLION TONNES THROUGH CROSS BORDER

MARKET FOR HARD COAL IN ASIA REGION IS DOMINATED BY AUSTRALIA AND INDONESIA



ENERGY USED TO GENERATE ELECTRICITY REMAINS THE FASTEST

GROWING SECTOR ACCOUNTING FOR 57% OF THE PROJECTED

GROWTH IN PRIMARY ENERGY CONSUMPTION IN 2030


• It was forecasted that Coal, Natural Gas and Nuclear power will continue to hold their importance as a primary energy sources for electricity generation till 2015.

• Total world power generation demand(P) – 24980 TWh (2015)

• A growth from 18,920 TWh in 2006.

• Coal-fired power stations increasing their share in total generation from 40% in 2006 to 44% in 2015.

• Gas-fired generation dropping marginally from 20% to 19% in 2015, as a result of higher prices.

• Oil use in power generation continuing to decline from 6% to 4%

• Nuclear power suffering a fall in market share from 15% to 13% in 2015.

• Conversely renewable generation (including hydro) is expected to rise from 18% in 2006 to 20% in 2015


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Reasons for Continuation of Coal Use Despite Existing and Future Policies to Mitigate Greenhouse Gas Emission

Coal is plentiful, widely distributed and likely to be available Coal has consistently outperformed oil and gas on an equivalent-

energy basis, and despite a potential cost of carbon, coal is likely to remain the most affordable fuel for power generation in many developing and industrialised countries for several decades.

Coal is considered relatively affordable and has less price volatility

compared to oil and gas. The use of indigenous reserves or the ability to access a well-

provided and affordable international market can enhance a country’s energy security and provide affordable reliable power to drive economies and development.

The greatest increase in the demand for coal will be in the

developing countries, especially in developing Asia, where reserves are large and low-cost. OECD coal use is likely to grow modestly.


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World Coal Consumption increases by 50 per cent

(2008- 139 Quadrillion Btu

2035 – 209 Quadrillion Btu)

As per International

Energy Outlook (IEO),


Bangkok, 1st March 2013 29

World Coal Consumption by Region (1980-2035)


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Coal accounted for 28 per cent of world energy consumption

World production of Coal in

2008

60% shipped to Electricity Producers

4% shipped to Residential & Commercial

Sector

36% shipped to Industrial consumers


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IEO projected that Electric Power Sector will witness a

decline in Coal’s share of total energy consumption for Power

Generation

From 43 per cent in 2008

To 37 per cent in 2010


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International Coal Trade Growth :

21.2 quadrillion Btu in 2009 to

35.2 quadrillion Btu in 2035.

The share of total world coal consumption accounted for by internationally traded coal has increased from 15 percent in 2009 to a steady rate of 17 percent as per IEO projection.

Stability on share of coal trade primarily reflects the ability of the world’s largest coal consumers, China and India, to meet substantial portions of their future coal demand with domestic production.


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COAL SHARE OF WORLD ENERGY CONSUMPTION BY SECTOR (%)


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OECD COAL CONSUMPTION BY REGION (Quadrillion Btu)


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NON-OECD COAL CONSUMPTION BY REGION (Quadrillion Btu)


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Coal Price



US dollar per

tonne

Northwest Europe

Market Price

US Central

Appalachian coal

shot price index

Japan coking coal

import cif price

Japan steam coal

import cif price

1991 42.80 29.01 60.45 50.30

1992 38.53 28.53 57.82 48.45

1993 33.68 29.85 55.26 45.71

1994 37.18 31.72 51.77 43.66

1995 44.50 27.01 54.47 47.58

1996 41.25 29.86 56.68 49.54

1997 38.92 29.76 55.51 45.53

1998 32.00 31.00 50.76 40.51

1999 28.79 31.29 42.83 35.74

2000 35.99 29.90 39.69 34.59

Coal Price



US dollar per

tonne

Northwest Europe

Market Price

US Central

Appalachian coal

shot price index

Japan coking coal

import cif price

Japan steam coal

import cif price

2001 39.03 50.15 41.33 37.96

2002 31.65 33.20 42.01 36.90

2003 43.60 38.52 41.57 34.74

2004 72.08 64.90 60.96 51.34

2005 60.54 70.12 89.33 62.91

2006 64.11 62.96 93.46 63.04

2007 88.79 51.16 88.24 69.86

2008 147.67 118.79 179.03 122.81

2009 70.66 68.08 167.82 110.11

2010 92.50 71.63 158.95 105.19

2011 121.54 87.38 229.12 136.21

Reserve-to-Production ratios

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Distribution of proved reserves in 1991, 2001 and 2011


Coal Production 2011

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Million tonnes oil equivalent Total

North America 600.00

South & Central America 64.8

Europe & Eurasia 457.1

Africa 146.6

Middle East 0.7

Asia Pacific 2686.3

Total World 3955.5


Coal Consumption 2011

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Million tonnes oil equivalent Total

North America 533.7

South & Central America 2.4

Europe & Eurasia 499.2

Africa 99.8

Middle East 8.7

Asia Pacific 2553.2

Total World 3724.3


Production & Consumption by region


World fuel consumption


IMPORT REQUIREMENT


Transnational trade between importing countries – China, India, South Korea, Japan, Taiwan, Germany, Turkey, United Kingdom, Italy, Malaysia and exporting countries - Australia, Indonesia, Russia, Colombia, South Africa, USA


INITIATIVES REQUIRED TO FORMULATE AN ACCEPTED NORM

FOR PRICING OF COAL FORMATION OF AN ASSOCIATION

SIMILAR TO EURACOAL


BENEFITS OF TRANSNATIONAL TRADE OF COAL


• Suggested steps for transnational trade of coal • Bilateral arrangements between regional countries • Formation of regional/countrywise coal import/export

agencies/bodies • Formation of association like euracoal • Exploring all modes of transport -sea - river-road • Creation of regional/countrywise coal regulator • Long tem coal contracts • Pooling of coal resources

BENEFITS OF TRANSNATIONAL TRADE OF COAL


• Win win situation for exporting and importing countries

• Coal based electricity tariff under control to some extent

• Improved relationship between countries in region


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Necessity of Coal Regulator

AFTER THAT THE RISE WILL DEPEND ON POPULATION GROWTH


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International Coal Prices- Past & Present

Coal Prices in USD Per Metric Ton (Approx) Countries

2009 2010 2011 2012

Imp Exp Imp Exp Imp Exp Imp Exp

Australia

-- $78.65

-- $78.8- $115

-- $117- $141

-- $115.14

China

$73 -- -- -- $130 -- $120 --

India

$38 -- $110 - $114

-- $98- $128.5

-- $79- $119

--

Indonesia

-- $66.46

-- $75

-- $ 119.03 -- $111.58

South Africa

-- -- -- $105.78

-- $106.3

-- $104.83

USA $63.91 $101.44 $71.77 $120.41 $86- $112

$139- $155.8

-- --


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AUSTRALIAN COAL INDEX

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AUSTRALIA Coal Price Change in 2011


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INDONESIAN COAL INDEX


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The Ministry of Energy & Mineral Resources of Indonesia sets the coal’s spot price for February 2013 at US$ 88.35 per ton, US$ 0.80 higher than January 2013 bench mark Price.

This coal benchmark price was calculated based on calorific value of 6,322 kcal/kg (GAR), stated to be using formula based on the December 2012 index average of ICI-1 (Indonesia Coal Index) 25%, Platts-5900 25%, NEX (Newcastle Export Index) 25%, and GC (globalCoal Index) 25%.



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According to the Energy & Mineral Resources department, Indonesian coal output would increase by 1.2 percent to 391 million tons from 386 million tons last year (2012).

The country’s average HBA last year only reached $95.5 per ton, far below the average price level of $118.4 per ton throughout 2011. The January 2013 Indonesia coal reference price (HBA) has jumped by US$ 5.80 per MT or 7.09% from December 2012 price and the February 2013 price has up only by 0.91 percent M-O-M. If HBA continues its journey on this trend then, it may reach government prediction within end 2nd quarter 2013.



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The Indonesian Government declared reference price for eight brands of Indonesia's coal, which are most commonly traded in the market. Those eight brands are acted as the benchmark and used to calculate other 62 coal types with a quality similar to the coal price markers.

The coal reference price, which has been established to fulfil the requirement of mining law 04/2009 and latest ministerial decree 17/2010 and also aims to increase government revenue from royalties from coal producers. According to industry, all existing coal supply agreements with Indonesian coal mining companies have been revised to comply with new coal pricing regulation, which was fully implemented on 23 September 2011.



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The government has recently introduced export duty for unprocessed minerals but coal was missing in the recent regulation. According to Mining law 04/2009, the coal producers of Indonesia were asked to add value for their product such as washing, crushing, blending and upgrading to have a higher-value product prior to eye on the export market and avoid proposed export ban. However the industry players are in opinion that, the government may not proceed further with LOW GCV coal export ban by early next year as planned

earlier.


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TRANSNATIONAL TRADE OF COALFUTURE OUTLOOK FOR ASIA

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