Coal Can't Fill World's Burning Appetite

A labourer takes a nap after searching for usable coal at a cinder dump site in Changzhi, Shanxi province March 5, 2008. China has ruled out increases in state-set gas, power and oil product prices in the near future, despite repeating a long-standing promise to gradually reform the system used to set them, according to key policy papers issued on Wednesday. (Reuters)

That discourages investment, too. Although India's coal reserves are vast, they haven't been fully developed. The government hopes to boost coal production by 50 percent by 2012 and quadruple it by 2030. Yet that would require massive investment. Experts note that India's coal deposits are deep and difficult to mine. The dilapidated rail infrastructure is another obstacle; India's coal has to travel an average of 435 miles to reach plant and industrial users, said D.P. Seth, additional secretary in India's coal ministry.

As a result, India expects to import 51 million tons by 2012, nearly as much as U.S. exports last year. By 2022, imports could climb to 136 million tons, Kumar said.

Developing countries aren't the only ones using more coal. Throughout the 1980s and 1990s, British coal consumption declined as new sources of oil and natural gas were discovered in the North Sea. However, the trend has reversed and coal consumption has climbed steadily over the past six years, including a 9 percent jump from 2005 to 2006. Coal has now surpassed gas once again as the leading fuel for electricity plants.

However, the British mines that George Orwell described 70 years ago as "like my own mental picture of hell" are much smaller than they once were. Mine production capacity declined during the '80s and '90s "dash for gas." Now Britain imports coal from Russia, Australia, Colombia, South Africa and Indonesia.

At the Mercy of Nature

Sometimes it takes an act of nature to uncover human and policy flaws. The fragile balance of coal supplies in Asia has been exposed this winter to flash floods and torrential rains in Asia's top coal-producing nation, Australia. The floods caused six big coal producers in Queensland to declare "force majeure," a contractual option that allows them to miss coal deliveries because of events outside their control. The companies include Rio Tinto, BHP Billiton and Xstrata.

At two major coal ports in Australia, about 45 ships are stacked up, waiting for deliveries from the mines. Loading delays running between 20 and 28 days. The industry is expected to take months to recover. Workers are still draining water and mud that pooled in open pits and repairing machinery and roads.

Australia's problems have contributed to a surge in Asian spot prices, meaning prices for immediate delivery, for coking coal, used for iron and steel production. They are running at three times the current contract price of $98.

South Africa, which might ordinarily have come to Asia's rescue, was wrestling with its own supply problems. The state-owned utility, Eskom, let coal reserves dwindle, and power plants simply ran out. Power outages crippled the country. Heavy rain also dampened coal piles, making it harder to burn the tiny reserves efficiently.

Rolling power outages forced the mining industry to shut down for several days. Amid this political debacle, Eskom vowed to replenish its coal stockpiles, a push that will eat into supplies available for export.

Australia's gridlock also coincides with deep cuts in coal exports by Vietnam, a key supplier to Japan and China. Vietnam will raise tariffs on coal exports to slash them by about a third this year. The goal is to keep coal at home for domestic needs. Last year, Vietnam exported 32.5 million tons of its total production of 41.2 million tons.

Vietnam's Industry Ministry has reportedly recommended to the country's prime minister a total halt in coal exports after 2015.

Prices Squeezing Asia

The consequences of tight supplies are being felt throughout the region and are not limited to developing countries.