It's coal out there!

It's coal out there!

18th May 2006

Was it only two years back that the Extractive Industries Review (EIR) called on the World Bank to cease all financing of coal projects? A lot of carbon has moved since then; even more CO2 has blasted into the atmosphere, and dirty coal-laden waters have gone down many rivers.

Indonesia is now the world's largest exporter of thermal coal (used for power stations) following a deal in March whereby Bumi Resources sold its stake in Kaltim Prima (formerly owned by Rio Tinto and BP) and Arutmin to a new consortium. Xstrata is the globe's biggest exporter of the black stuff, while Rio Tinto has risen to become one of the (if not the) major producers. And this is the company claiming to be at the forefront of "product stewardship" and to be reducing its carbon "footprint".

With international pressure building against UK-based Asia Energy's plans to open the huge Phulbari coal deposit in NW Bangladesh, USAID has proposed studying how to bring electricity to the country from India. But the most obvious fuel source in central-eastern India is coal - whose further exploitation would put even greater pressure on Indigenous communities.

Here's a foonote for those of our readers who like tracking the inner workings of the coal industry; last Thursday AIM-listed Cambrian Coal, the former owner of Asia Energy, announced a three-year US$20 million bond issue, to "unlock further value" in the company.

It's not just the majors that are moving in on the market - the piglets too have their snouts in the trough.

Oil price rises fuel the return of coal

By Rebecca Bream, Financial Times

27th April 2006

As anxiety mounts about the security of oil and gas supplies, countries around the world are falling back on a familiar energy source: coal.

At the same time the steel boom driven by demand from China has created a great need for the coking coal that fuels blast furnaces. These factors have injected a vitality into the global coal market not seen for years.

Although prices have come down slightly from the peak, coal for use in power stations - thermal coal - is still selling at about $50 a tonne, more than double the lows of 2002. While all coal can be burnt to generate power, only a small percentage per cent of world production has the right properties to make steel. Coking coal is harder than thermal coal and commands a higher price, currently about $125 a tonne.

For some time the main producers selling into the international sea-borne coal market have been the large, diversified mining groups such as BHP Billiton, Anglo American, Xstrata and Rio Tinto, all listed in London. These companies have been reaping significant profits from their coal divisions for the past two years, and are investing heavily in new projects around the world.

Rio Tinto produced 139m tonnes of thermal coal in 2005, from its mines in the US and Australia, and 7m tonnes of coking coal, from Australia.

Mahomed Seedat, head of BHP Billiton's thermal coal division, says that most of his production - 23m tonnes each year - is mined in South Africa, although "a couple of the mines are coming to the end of their lives in the next few years".

The group is looking for replacement reserves in South Africa, but also for new opportunities in Australia, including a possible new underground mine at Mt Arthur, New South Wales. "Mt Arthur has lots of potential," he says.

As well as the established sea-borne coal exporters, the large domestic coal markets around the world have their own industry leaders, such as Shenhua in China and Peabody in the US.

And increasingly, high prices are encouraging the appearance of a new group of coal companies, including several Indonesian groups, which are exporting more coal to power stations in Europe as well as in Asia.

"The barriers to entry in coal mining are not that high, it is easy to get out of the ground," says Mr Seedat at BHP Billiton. "In Indonesia we have seen a significant increase in production."

Indonesia last year exported 124m tonnes of coal and overtook Australia as the world's largest exporter of thermal coal. Australia remains the largest exporter of coking coal.

The value of Indonesian thermal coal assets has risen sharply, as reflected in a deal struck in March between Bumi Resources, Indonesia's biggest coal exporter, and a consortium led by investment bank Renaissance Capital Asia. Bumi agreed to sell two coal subsidiaries, Kaltim Prima and Arutmin, for $3.2bn, having bought the assets in 2002 and 2003 for a total of $675m.

Coal is cheap and plentiful compared with other forms of energy, but there is still a feeling in the industry that the new sources of coal will not be as easy to get at as the old ones.

"It is hard to find coal opportunities in established coal mining areas; companies will have to go into new territories," says Mr Seedat. This will bring complications and raise the cost of getting coal to market, he predicts. "There are massive coal reserves in the former Soviet Union, but some of them are located thousands of miles from the coast."

Coal mines in Siberia have to contend with difficult shipping conditions, such as frozen seas, he says. "It is a challenge how you make that work economically."

In Europe, thermal coal fell from favour for most of the past decade for environmental reasons, to be replaced by natural gas. Burning coal in power stations produces more carbon dioxide than burning gas, and also produces sulphur dioxide, a contributor to acid rain. But the rising cost of gas has spurred European countries to look at how to burn coal while minimising the atmospheric impact.

RWE of Germany has plans to build "clean coal" power stations in Germany and the UK, and Eon and Vattenfall are pursuing similar projects, where carbon dioxide will be turned into a liquid and stored.

The seaborne coal market, dominated by the international mining houses, is already highly concentrated in the hands of a few companies. But coal market observers do see some merger and acquisition activity spurred on by high coal prices.

John Byrne, chief executive of Cambrian Mining, a London-listed investment house that owns stakes in several North American coal producers, predicts high coal prices will lead to steelmakers buying up coking coal assets, to avoid shortages and price spikes. "I think steel companies will have to get back into the resource business."

He adds that British Columbia in Canada, Siberia, Australia and Mozambique offer the best prospects globally for new mines.

Feasibility study likely on bringing

Indian electricity to Bangladesh
USAID willing to conduct the study
Aminul Islam

NewAge, 19th May 2006
Dhaka, Bangladesh

A feasibility study on inter-connecting Bangladesh power grid with India's North Eastern grid for brining power from India is likely to be conducted soon by the United States Agency for International Development, said sources in the Power Division.

The US agency - USAID - this week proposed to conduct the study that would take three to six months. It said trans-border electricity network could be developed to meet power demand in Bangladesh on a short-term basis for one to five years.

The agency said a regional infrastructure on inter-connecting power grid lines could be developed including SAARC and BIMSTEC countries, said sources.

The agency's mission director, Gene George, in a letter proposed that the South Asia Regional Initiative for Energy Cooperation and Development, a programme of the agency, would conduct the study.

He proposed the division to send experts for the study. The main objective of the study would be to ascertain bankable power, he said. A high official of the division said it was a 'good proposal' and there was no problem in having an expert on the study team.

'We have just received the letter. We will discuss the issue with the high ups in the government and send a reply,' he said. He said the issue of inter-connecting power grids in the South Asian region was discussed at the SAARC ministerial meeting in Delhi last month.