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Coal Can't Fill World's Burning Appetite

With Supplies Short, Price Rise Surpasses Oil and U.S. Exporters Profit

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.
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)
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By Steven Mufson and Blaine Harden
Washington Post Staff Writers
Thursday, March 20, 2008; Page A01

Long considered an abundant, reliable and relatively cheap source of energy, coal is suddenly in short supply and high demand worldwide.

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An untimely confluence of bad weather, flawed energy policies, low stockpiles and voracious growth in Asia's appetite has driven international spot prices of coal up by 50 percent or more in the past five months, surpassing the escalation in oil prices.

The signs of a coal crisis have been showing up from mine mouths to factory gates and living rooms: As many as 45 ships were stacked up in Australian ports waiting for coal deliveries slowed by torrential rains. China and Vietnam, which have thrived by sending goods abroad, abruptly banned coal exports, while India's import demands are up. Factory hours have been shortened in parts of China, and blackouts have rippled across South Africa and Indonesia's most populous island, Java.

Meanwhile mining companies are enjoying a windfall. Freight cars in Appalachia are brimming with coal for export, and old coal mines in Japan have been reopened or expanded. European and Japanese coal buyers, worried about future supplies, have begun locking in long-term contracts at high prices, and world steel and concrete prices have risen already, fueling inflation.

In the United States, the boom in coal exports and prices has helped lower the trade deficit, which declined last year for the first time since 2001. The value of coal exports, which account for 2.5 percent of all U.S. exports, grew by 19 percent last year, to $4.1 billion, the National Mining Association said. An even bigger increase is expected this year.

That means that, in a small way, higher revenues for U.S. coal exports indirectly helped the U.S. economy cover the cost of iPods from China, flat-screen TVs from Japan and machinery from Germany. The still-gaping trade deficit of the world's largest industrial power at the dawn of the 21st century was slightly eased by a fuel from the era and pages of Charles Dickens.

Big swings in the prices of coal and other commodities are common. But while the price of coal has slipped slightly in recent weeks, many analysts and companies are wondering whether high prices are here to stay. As increasing numbers of the world's poor join the middle classes, hooking up to electricity grids and buying up more manufactured goods, demand for coal grows. World consumption of coal has grown 30 percent in the past six years, twice as much as any other energy source. About two-thirds of the fuel supplies electricity plants, and just under a third heads to industrial users, mostly steel and concrete makers.

Meeting rising demand will prove difficult. To maintain its role as the world's producer of last resort, the United States will need to make major investments in mines, railways and ports.

"We think the current world markets have legs," said Thomas F. Hoffman, senior vice president of external affairs at Consol Energy, one of the biggest U.S. coal producers. Consol is trying to decide whether to expand output at its Appalachian mines and to add capacity in Baltimore's harbor.

"We're at a point where we're running through the capacity," said David Khani, a coal analyst at Friedman, Billings, Ramsey Group. He compares the coal market to the oil market. For coal, he added, "it is unprecedented."

If high prices last, that would raise the cost of U.S. electricity, half of which is generated by coal-fired powered plants.

Expensive or not, coal is almost always dirtier to burn than are other fossil fuels. Although its use accounts for a quarter of world energy consumption, it generates 39 percent of energy-related carbon dioxide emissions. Climate change concerns could lead to legislation in many countries imposing higher costs on those who burn coal, forcing utilities and factories to become more efficient and curtail its use. Climatologists warn that without technology to capture and store carbon dioxide emissions, burning more coal would be disastrous.


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