Coal production update

By Ron Hall

The price of coal has skyrocketed in over that the past few years rising tenfold from US$34 per tonne at the beginning of 2020 to over US$400 per tonne in September 2022 as a result of continued robust demand and persistent supply disruptions exacerbated by the war in Eastern Europe. Markets were tight even before the invasion as soaring natural gas prices in Europe and Asia in late 2021 intensified gas-to-coal switching in many countries.

Coal is an abundant natural resource used as a source of energy, as a chemical source from which numerous synthetic compounds (e.g., dyes, oils, waxes, pharmaceuticals, and pesticides) are derived, and in the production of coke for metallurgical processes and if the current rates of usage and production do not change, estimates of reserves indicate that enough coal remains to last more than 200 years. Today its main use is electricity generation although in 2018, the Government of Canada announced final regulations to phase-out traditional coal-fired electricity by 2030 although it will continue to be used for metallurgical processes.

Canada’s coal production in 2019 was 57 million tonnes and Canada exported 37 million tonnes of coal and imported 8 million tonnes – Alberta and British Columbia produced 83% of Canada’s coal alone. The country is the world’s fourth largest exporter of metallurgical coal, after Australia, the United States and Russia.

It is generally accepted that most coals formed from plants that grew in and adjacent to swamps in warm, humid regions. Material derived from these plants accumulated in low-lying areas that remained wet most of the time and was converted to peat through the activity of microorganisms. (Although peat is used as a source of energy it is not usually considered a coal but rather it is the precursor material from which coals are derived through the process of coalification). During this process, volatile phases such as water, carbon dioxide and methane were produced and escaped from the mass; hence, the coal became progressively richer in carbon. The classification of coal by rank is based on these changes—i.e., as coalification proceeds, the amount of volatile matter gradually decreases and the amount of fixed carbon increases. As volatiles are expelled, more carbon-to-carbon linkages occur in the remaining coal until, having reached the anthracite rank, it takes on many of the characteristics of the end product of the metamorphism of carbonaceous material—namely, graphite.

There were two major eras of coal formation in geologic history. The older includes the Carboniferous period from 358.9 million to 298.9 million years ago and the Permian period 298.9 million to 251.9 million years ago. Much of the bituminous coal of eastern USA and Europa is Carboniferous in age whereas Most coals in Siberia, eastern Asia, and Australia are of Permian origin.

A younger era of coal formation began about 145 million years ago, during the Cretaceous period and reached its peak approximately 66 million to 2.6 million years ago.

Coal today exists in underground formations called “coal seams” or “coal beds.” A coal seam can be as thick as 30 meters (90 feet) and stretch 1,500 kilometers (920 miles) and they are found on every continent. The largest coal reserves in the world are in the United States, Russia, China, Australia, and India.

Currently the biggest producer and consumer of coal by far is China but other big producers include the USA, India, Australia, Indonesia, Russia, South Africa, Germany and Poland. The biggest exporters of coal are Indonesia, Australia, Russia, United States, Colombia, South Africa and Kazakhstan.

Global coal production for 2019-2021 (2024F)

Notes: CAAGR = compound average annual growth rate. Data for 2019 and 2020 are from IEA statistics; 2020 are preliminary; 2021 are estimated; 2024 are forecasts. Differences in totals are due to rounding. Source: IEA

Increasing Energy Demands Worldwide pose a threat towards Climate & Paris agreement goal of reaching climate neutral world by 2050. To achieve the carbon-neutral target, companies are reducing operating emissions, reducing coal output, increasing investment in low-carbon metals like copper, cobalt, nickel, and zinc, and assisting in the implementation of low-emission technology. Global coal production was impacted by stringent COVID-19 preventative measures in key coal mining countries such as China, the US, India, and South Africa, among others, coupled with the mine-specific reductions, which led to lower coal production.

China remains the largest coal-producing country in the world, with production reaching 3,942 million tonnes in 2021 but the country’s coal mine production is now expected to remain flat at a CAGR of just 1.1% between 2021 and 2025, to reach 4.1 billion tonnes in 2025. The output will be affected by the country’s continued plans to reduce outdated coal production capacity. India, the second-largest coal-producing country, with the production of 767 million tonnes in 2021. Similarly, India approved a new production-linked incentive (PLI) scheme, which is expected to encourage EV production and hydrogen fuel vehicles, which will lead to a reduction in coal production in the coming years. Other top coal-producing countries like Indonesia, the United States of America, and Australia have also taken measures to reduce coal production.

Canada’s imports of coal imports have trended downwards for over a decade, while exports have held steady. Canada exports about half of its production. Most Canada’s coal exports go to Asia, which is still a significant consumer.

Top 10 Largest Coal Mining Companies in the World 2020

China Shenhua Energy Co Ltd [SSE: 601088; SEHK: 1088]

Established in 1995, China’s Shenhua Group is a state-owned coal mining organization. It is one of the largest enterprises featuring the one-stop business of production, operation, and transportation, with coal business being its foundation, and electricity, port, aviation, railroad, coal-to-chemical, as well as coal-to-liquid operations, all being integrated. Shenhua is currently one of the largest coal mining companies in the world with the highest level of modernization and the largest distribution worldwide. Recently, the government of China approved the merger of Shenhua group corp., with power major China Guodian Corp. With assets of $271 billion, the new organization will be the world’s second-largest company by revenue and largest by installed capacity.

BHP Billiton Ltd [ASX: BHP]

BHP Group engages in the natural resources business worldwide. The company engages in the exploration, development, and production of oil and gas properties, and mining of copper, silver, zinc, molybdenum, uranium, gold, iron ore, and metallurgical and energy coal. It is also involved in mining, smelting, and refining of nickel; the provision of towing, freight, marketing and trading, marketing support, finance, administrative, and other services; and potash development activities. BHP Group was incorporated in 1885 and is headquartered in Melbourne, Australia.

Coal India [BSE: 533278]

Coal India Limited (CIL) is a state-owned coal mining organization based in India. It one of the largest coal producers in the world. Operating through 82 mining areas with seven wholly owned coal making subsidiaries, CIL crossed the threshold of half-a-billion tons in 2016, both in coal off-take and production. The company is pursuing initiatives to acquire high CV thermal and metallurgical coal assets abroad to enhance the energy security of the country. Since 2018, the company has announced its list of possible destinations for investment, including the US, Canada, Columbia, and Indonesia, the coal mining giant has decided to focus on South Africa and Australia for the current acquisitions.

Shaanxi Coal [State owned]

Shaanxi Coal Industry Company Limited, together with its subsidiaries, mines, produces, washes, processes, and sells coal in China and internationally. It primarily explores for power, chemical, and metallurgical coal. The company has coal reserves of 16.433 billion tons; and recoverable reserves of 10.269 billion tons. Its coal properties are primarily located in Northern Shaanxi and Huanghua of China. The company was founded in 2008 and is based in Xi’an, China.

Teck Resources Limited [NYSE: TECK]

Teck Resources Limited was founded in 1906 and is headquartered in Vancouver, Canada. It researches, explores and produces natural resources in the Asia Pacific, the Americas, and Europe. It operates through five segments: Steelmaking, Coal, Copper, Zinc, Energy, and Corporate. In addition, the company holds interest in oil sands projects and other interests in the Athabasca region of Alberta; and owns interest in exploration and development projects in Australia, Chile, Ireland, Mexico, Peru, Turkey, and the United States.

China Coal Energy Co Ltd [SSE: 601898]

China Coal Energy Company Limited mines and processes coal products. The Company produces thermal coal and coking coal products. China Coal Energy also conducts coal chemicals production, coal mining equipment manufacturing, pit mouth power generation, and coal mine design businesses. It owns 12 coal mines, 13 coal processing plants, 5 coking plants, 4 coal mining equipment manufacturing plants, and 2 mine design institutes, making it one of the leading coal mining companies in the world

Yancoal Australia Ltd [ASX: YAL]

Yancoal Australia Ltd (Yancoal) is Australia’s largest pure-coal producer and one of the world’s largest coal mining companies. Operating five mines and managing five others across New South Wales, Queensland and Western Australia, Yancoal also has a ~50% share in the Middlemount joint venture. Yancoal currently employs approximately 3,000 people, sourcing the majority of its people from the local communities in which it operates.

Whitehaven Coal [ASX: WHC]

Whitehaven Coal Limited develops and operates coal mines in New South Wales and Queensland. The company operates five mines in Northwest New South Wales; four open cut mines at Maules Creek, Tarrawonga, Werris Creek, and Sunnyside; and one underground mine at Narrabri. It offers thermal and metallurgical coal. The company sells its coal primarily in Japan, Taiwan, Korea, India, China, Malaysia, Indonesia, Vietnam, the Philippines, Australia, New Caledonia, and internationally.

Alliance Resource Partners, LP [NASDAQ: ARLP]

Alliance Resource Partners, L.P. is a diversified coal producer and marketer with significant operations in the eastern United States. The Company operates its main facilities in Kentucky, Illinois, and Maryland. In addition, the company offers various industrial and mining technology products and services, such as miner and equipment tracking systems, and proximity detection systems. As of December 31, 2019, it had approximately 1.69 billion tons of proven and probable coal reserves in Illinois, Indiana, Kentucky, Maryland, Pennsylvania, and West Virginia.