Demand growth and peak coal

BP’s new statistical review highlights that coal was the fastest-growing energy source for the sixth year in a row; racing up from 2405m tonnes of oil equivalent in 2002 to 3305m last year.

A WSJ story on Monday looked at ‘peak coal’ in the US, and suggests the ‘Saudi Arabia of coal’ may have been a mite over-confident. It also noted the US is rather dependent on coal. It is not alone in this; Japan, South Korea, Australia and South Africa use quite a bit, compared to natural gas, nuclear and hydroelectric – and that’s just among the wealthier countries. 

The story begins:

Every year, federal employee George Warholic calculates America’s vast coal reserves the same way his predecessors have for decades: He looks up the prior year’s coal-reserve estimate, subtracts the year’s nationwide production and arrives at a new official tally.

The punchline, of course, is that this baseline figure is probably all wrong. A USGS survey last year showed that only about 6 per cent of the Wyoming Gillette field, which produces about a third of the country’s coal, were recoverable at $10.50 a ton. Current prices are even lowr – about $8.50 a ton – but as much as 47 per cent could be recoverable at $60 a ton. The EIA (Mr Warholic’s employer) says it will look at reviewing its estimates. But more interestingly American Electric Power, the country’s biggest coal buyer is stepping up efforts to lock in supplies, even buying a coal mine; while one mining company says they are seeing seams becoming more difficult to mine.

So, what would it mean if coal was becoming more scarce? The time frames for US coal supply are fairly long range; few are talking about less than 100 years. But reducing coal demand has mostly been considered by policy makers in terms of carbon emissions rather than price. Even those countries that are not quite so reliant on coal are keen enough on its continued use to allocate large sums of money to expensive carbon capture and storage projects.

If it was widely believed that coal was becoming more scarce, and prices went up accordingly, it would make these CCS projects even more expensive. At the same time, it would likely make investment in renewables more attractive; Barclays Capital weights the coal price at 17.8 per cent in its ‘renewables health index’ – a close third behind GDP and policy, and well ahead of other fossil fuels.

Related links:

US foresees a thinner cushion of coal (WSJ, 08/06/09)
Coal, glorious(ly cheap) coal (FT Energy Source, 22/05/09)

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