Tuesday, April 24, 2012

Coal: US, China take different position on coal, Israeli technology making waves in China

Thanks to increasingly hostile coal related US environmental regulation and an oversupply of coal in Asia as well as low natural gas prices, coal prices are near rock bottom. These factors have worked together to not only affect the price of coal but also demand from one of its main customers, utility plants; Traditionally over 45%, coal's share of power generation was at 39% in November 2011, the lowest level since March 1978. What's worrisome about that drop is this, the other main sources of popwer generation were all up (natural gas 22%-->26%, nuclear 20%-->22%, hydro 6%-->7%). What this also suggests is that the growth in renewables ARE NOT making any meaningful contribution to overall production (unsurprising given that their associated total costs of production exceed 20c per kWh, that compares to under 4c/kWh for coal) - not much incentive to shift over if you ask me.

Some are suggesting that it's the low price of natural gas that's causing companies to abandon coal but I say not so fast ! Even with the 49% drop in price (gas) between January and April 2012, per kWh gas there's still not much difference in cost when choosing it over coal. In Canada analysts expect natural gas prices to more than double over the next 1-2 years which would certainly take away any price incentive fueling the shift from coal to gas. (from $2.1/mmBTU April 22 --> $4.5 by 2014); Also keep in mind that while analysts almost unanimously agree that the price of natural gas will rise, the same can't be said of coal.
Natural gas averaged $4.00/mmBTU in 2011 but ended the year at only $2.75, it then fell further down to $1.40/mmBTU by April 19, 2012. Also to consider: The outlook for coal prices is not as good as it is for natural gas.

Greater access to cheap energy is something the United States should be striving for. Cheap energy has become the cornerstone to China's growth model. China's long term demand for coal is growing at around 5-8%/yr meaning that demand from that country will double within a decade (in 2010 China accounted for 48% of global thermal/metallurgical coal demand). Non-OECD Asian countries will account for 95% of the 55% global rise in coal demand by 2035. That trend is in stark contrast to the United States where demand for thermal coal is expected to drop by 5% to 884 million tons (lowest level in 17 years) and where 106 coal-fired plants have shut down in just the last two years directly translating into a 13% loss in terms of MW capacity). Thermal coal accounts for about 60% of US-China coal exports. The major drawback to China's reliance on cheap, nonrenwable energy sources? Well for starters, it is home to 16 of the world's 20 most polluted cities.
Though US coal exports were up +31.3% in 2011 to 107,258,561 tons total US coal production was up only +0.9% to 1,094,336,000 tons. Major contributors to that change were Latvia (142-->163 thousand tons), Japan (3164,098-->6911,539 tons) South Korea (5722,599-->10448,751 tons), India (2722,677-->4500,105 tons), Netherlands (7306,376-->10785,421 tons). Demand from Canada was down -40.0% to 6845,316 tons (in 2010 Canada lone demanded more than all of South America but because of changes in 2011, Brazil now demands about 1.8Mt more than Canada.

Israel and China

Although many renewable sources of energy require technology that's very expensive to build and with less desirable results, a new form of clean energy with relatively low operating costs (1c/kWh) is one that harnesses energy from naturally occurring sea waves. The production costs being only a quarter as much as it is for wind or solar, have attracted Chinese investors keen on bringing it to China. In 2010 the first of a number of Chinese sea wave plants was constructed in Guangzhou by Israeli company SDE. Though it has a capacity of only 1MW it ushers in the first of many such plants (Guangzhou alone will be home to 10000 MW capacity by the time the project is completed).


-Rock bottom shipping prices (freight) is making it easier for US coal producers to access Asian markets; In 2012 US coal exports to China are expected to double to 12M tonnes.
-Today, freight from the US Gulf of Mexico to China is around $50/tonnes, that compares to the bid price for coal of $102-104.