The world's coal production ecosystem went for a toss in the last few months after production in many mining hubs was unexpectedly hit by natural calamities, oil and gas prices soared and economies opened up post Covid, fuelling high power demand. All these led to high coal prices and shortage. Though countries, including India and China, are importing coal to meet their increasing supply-demand gap of 20-30% every year, availability of coal has not been an issue globally despite surging prices and pressure to reduce carbon footprint. According to the International Energy Agency (IEA), global coal production has had a record run in recent years — 7,827 million tonnes (MT) in 2018, 7,960 MT in 2019 and a slightly lower 7,575 MT in 2020 due to Covid and global lockdowns.

China has the fourth-largest coal reserve in the world, and is also the largest producer with 3,724 MT in 2019 and 3,764 MT in 2020 — the highest ever since 1978. The country is also the largest consumer of coal in the world, and burns over 4,000 MT every year, nearly half of the global production. China imports about 300 MT a year from countries such as Indonesia, Russia and Mongolia.

Consumption Fuels Coal Burning

China, which banks on coal for 60% of its energy needs, is now rationing power to its homes and have imposed severe power cuts across its business production hubs and establishments, a move experts see as an effort to show its carbon footprint reduction initiatives, before the meeting of world leaders at the UN biodiversity summit in Kunming, China in October, and the crucial climate summit in Glasgow in November. Also, winter Olympics are scheduled to be held in Beijing this year. China aims to reduce electricity consumption below its GDP by 3% than last year — while its GDP grew 12.7% in the first half of 2021, electricity consumption was higher at 16.2%. Recent heavy rains and flooding in major coal producing centres such as Shanxi and Shaanxi provinces in Northern China are now causing severe shortage of coal. The country is trying to compensate by increasing production in other regions and raising imports, which grew 76% to 33 MT in September, against a year ago, according to sources.

India is the second-largest producer of coal with 775 MT in 2019 and 760 MT in 2020. As in the case of China, India also recorded its highest-ever production in 2019. The country’s total reserves stood at 344.02 billion tonnes as of March 2020, the fifth-largest in the world. Around 47% is available for extraction in terms of economic viability, feasibility study and geological exploration. But the country imports over 200 MT every year, mainly from Indonesia (over 40%) and from Australia (26%), to cater to the demand of over 900 MT a year. “India’s coal consumption assumes a strong economic rebound in 2021, pushing Indian gross domestic product (GDP) firmly above 2019 levels and driving up coal demand by almost 9% to 1.4% above 2019 levels,” according to recent estimates by the IEA.

Globally, coal prices have increased by over 100% in the last six months to over $240 per tonne. Australia’s Newcastle prices rose about 50% and Indonesian export prices went up by 30% in the last three months. This is mainly due to a combination of factors, including unexpected natural calamities in coal-producing regions across the globe, sudden rise in demand due to quick global economic recovery post Covid, and conscious efforts of countries such as China to reduce consumption and meet climate obligations, said sources.

Growing Production

Data shows global coal production has been steadily going up in the past four decades, despite initiatives and commitment to reduce carbon footprint across the world. If global coal production in 1980 was only 3,787 MT, it rose to 4,645 MT by 1990 and remained steady for a decade at 4,638 MT till 2000. By 2010, it rose substantially to 7,357 MT, and has been inching towards the 8,000-MT mark since then.

Indonesia, a country Indian power plants bank on to import cheap coal, mined 601 MT in 2019 and 564 MT in 2020. Australia, known for cleaner and highly efficient coal, mined 504 MT in 2019 and 493 MT in 2020. Russia is another major producer, which mined a record 439 MT in 2019 and 398 MT in 2020. The U.S., which was producing over 1000 MT till 2010, has cut down production to meet climate obligations and now mines only half — 641 MT in 2019 and 485 MT in 2020. Similarly, the European Union countries, which were mining nearly 1,000 MT in the 1990s, have progressively cut down coal production to 301 MT by 2019. OECD countries have also reduced production from over 2,100 MT in 2010 to 1,427 MT in 2020. Rest of the world produces a steady 800-plus MT a year.

Despite higher production, the IEA estimates a 4% decline in global coal demand in 2020, the biggest since World War II. “The main driver of the decline was lower electricity demand owing to Covid‑19 restrictions and the resulting economic downturn. Preferential dispatch or use of renewables in many markets squeezed gas and coal in the electricity mix,” the agency estimates. It also observes that lower gas prices saw significant fuel switching away from coal, particularly in the U.S. and the E.U., where coal use for power fell 20% and 21%, respectively, in 2020.

Follow us on Facebook, X, YouTube, Instagram and WhatsApp to never miss an update from Fortune India. To buy a copy, visit Amazon.