Economics of the International Coal Trade: Why Coal Continues to Power the World

483 Pages·2016·14.9 MB·English

by  Lars Schernikau (auth.)

Lars Schernikau
Economics of
the International
Coal Trade
Why Coal Continues to Power the World
Second Edition
Economics of the International Coal Trade
Lars Schernikau
Economics of the
International Coal Trade
Why Coal Continues to Power the World
Second Edition
123
LarsSchernikau
HMS BergbauAG
Berlin
Germany
ISBN978-3-319-46555-5 ISBN978-3-319-46557-9 (eBook)
DOI 10.1007/978-3-319-46557-9
LibraryofCongressControlNumber:2016952015
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Foreword
As the Internet of Things heralds a new age of technological innovation, cognitive
business solutions, and unequaled human enhancement, Lars Schernikau brings us
the second edition of “Economics of the International Coal Trade”, wherein he
convincingly argues Why Coal Continues to Power the World.
Theunderlyingfoundationofthenexteconomyis,notsurprisingly,man’squest
forscarce resourcesas“mundane”asfood,water, andenergy. And,hereinliesthe
significanceofthisbook,wherewefindthearchetypeofthemostperfectandmost
contested form offossil fuel energy.
Coalhascontributedsignificantlytobuildingmoderncivilization.Itcontinuesto
underlie the intrinsic existence of mankind in different stages from pit to port, to
consumer, alleviating poverty and contributing to economic development and
growth. Coal has fired micro- and macroeconomies for the past two centuries, and
has become an investment vehicle providing capital investment opportunities,
generating medium- to long-term returns. Coal is studied by geologists, chemists,
mining professionals, financiers, supply chain participants, economists, politicians,
primary energy generators, manufacturers, cement producers, shippers, scholars,
and environmentalists alike. Coal was only formally commoditized some 20 years
ago, and has grown in trade, fluidity to the market, cost optimization and in
sophistication as both a fossil fuel and a raw material feed.
However, the downside of coal mining and consumption is well articulated by
the environmental distress left from coal mining operations, pollution caused by
irresponsiblecapitalismandfurtherexacerbatedbyinefficientcoalburn,causingas
a side effect increased CO emissions, which Lars convincingly argues not a
2
problem.Inaddition,nationsbattlewiththelackofpertinentandsuccessfulcarbon
captureandstorage.Larsbuildsaworthyhypothesisaroundthephenomenathatthe
mostnewlybuiltpowerplants(intheEast)aretechnologicallyinferiorastheWest
hasabdicateditsresponsibilitytocontinueinvestingtherequiredfundstocontinue
improvingcoal-firedplanttechnology,andhasfailedtosupportdevelopingnations
in implementing efficient power plant designs. On a worldwide scale, we see zero
net additions, and retrofitting to polluting capital stock in the West (now powered
v
vi Foreword
by oil and shale gas, and intensified, albeit unsatisfied, renewable usage), but
substitution of and immense growth in new coal-fired power generation in
non-OECD countries.
Larsshapeshishypothesisbycitingthat,overthenext20years,theneteffectof
decreasedcoalconsumptionforpowergenerationisestimatedtobeapproximately
5%inrelativeterms.Thenewelectricitygeneratorsandconsumerswilldosofrom
lower quality coal sources, directly placing the onus on investment in clean coal
technologies, essential to make electrification of the developing world as envi-
ronmentally acceptable as possible.
As the reader begins to test this hypothesis, and gains an insight to potential
solutions to global CO efficiency, we are catapulted into the international debate,
2
forcing one to critically evaluate current reality, fusing existing literature and
opinionwiththealternative.Thisisanalternativethatformsalogicalpathtoreality
andfutureprobability.IsitpossiblethatLarselucidatesthepotentialBlackSwanof
coal?
Industryparticipantstheworldoverareacutelyawareofthebarrageofnegative
sentiment, bad press, disinvestment, blame, threat, danger, and jeopardy that is
placed on coal today. Coal mining horizons are shortened, and many companies,
individuals, and politicians speak forcefully and publically about exit strategies
where coal isconcerned. Lars puts it into perspective that the CO emissions from
2
coal burning causing climate change and greenhouse effects are mainly fueled by
reliance on popular opinion financed by big capital and philanthropy. Sponsored
negative opinion drowns out the contra-position and it hardly gets air time to
develop as a theory of scientific research.
Essentially,Larscommunicatesanewtheoryfortheindustry—elegantlyargued
and underwritten by robust research—that climate change is not caused by
anthropogenicCO emissionsfromfossilfuels.Notapopulistviewandnoteasyto
2
support if one has been allied to the contra, but an opportunity to do right to the
world.
ThisBlack Swan couldseesociety,lawmakers, investorsandenvironmentalists
moving towards rationality. Rationality will characterize the finding of solutions,
and enable capital to find its way back to addressing the very real threats of
pollution, dust, watercontamination, and unscrupulous rehabilitation. It will divert
investment anew into research and technology to enhance energy optimization,
super critical efficient power generation and sustainable environmental solutions,
primarily for the developing world, but calling for funding from whole world.
Moreover, it will create new millennial skills needed to reach these objectives.
This theory further holds that coal producers and consumers have a real
opportunity to reinvent themselves while operating unthreatened and unencum-
bered,freeingitselfastheculpritofclimatechangeandbecomingaradicalstimulus
forresponsiblemining,beneficiationandburn.Thisimpetusisofgreatimportance,
as coal will continue to power the world, or at least for the next 100 years. Most
importantly,LarsmakesacaseforCEOs,miners,financiers,marketers,buyers,and
traders to question conventional wisdom, study and challenge these findings, but
also to be active advocates for environmental respect and safeguarding.
Foreword vii
Asafinalpersonalcomment:havingbeenanactiveindustryparticipantoverthe
past 18 years, one of my greatest concerns has been the lack of transfer of skills
within the industry. Save for academic training in geology, mining, and mineral
economics, the intricacies of the industry are yet to be fully, and more formally,
theorized. The literature on international coal trading remains inadequate and is
characterized by government publications, economic bureau reports and paid
information from publishing houses.
Here,Larsformalizesanupdatedversionofthehistoryofcoal,includingcurrent
country statistics on demand and supply, technical and chemical compositions for
energy generation, and provides an insight into the purported value proposition in
each link of the supply chain required to ensure coal delivery to consumers. This
work culminates in the complete coal textbook by including the terminal coal
market,itsfeatures,development,andcurrentapplicationinproprietarytradingand
as a risk management tool.
I would recommend this work as the authority on the international coal trading
industry,anddefinitelyoneofthemostimportantcontributorstoskillstransferand
industry study for scholars, market players and modern governments.
Melanie Steyn
Coal Executive
Former Exxaro Coal
Johannesburg, South Africa
Acknowledgements
Iwouldliketothankmywifeandfamilyfortheircontinuedsupportandlettingme
take time—in addition to my day job—to finish this book.1
I would also like to thank all my business partners, colleagues, and friends,
especially Matthew Boyle, Giovanni Fabiani, Leon Hendrickz, Wendelin Knauss,
Georg Koehler, Amy Langley, Claudia Mandanici, Harald Müller, Guillaume
Perret, Rolf Wilting, and many others for their input and watch out comments.
I very much appreciate the support extended to me from the following companies:
Argus,BumiGroup,CRU,Exxaro,globalCOAL,HMSBergbau,Perret,SGS,and
many others.
1This book is the second edition and an indirect result of the author’s dissertation entitled,
“TheRenaissanceofSteamCoal”,2009,TechnischeUniversitätBerlin,Germany.
The author has previously published certain chapters or information provided herein on the
Internetorinformofarticlesinvariousenergytrademagazines.
ix
Contents
I Executive Summary... ..... .... .... .... .... .... ..... .... 1
1.1 Source of Coal ... ..... .... .... .... .... .... ..... .... 3
1.2 Use of Coal.. .... ..... .... .... .... .... .... ..... .... 5
1.3 Regional Analysis of Global Steam Coal Demand
and Supply .. .... ..... .... .... .... .... .... ..... .... 9
1.4 Freight and Logistics.... .... .... .... .... .... ..... .... 14
1.5 TheGlobalPerspective:TradeFlows,DerivativesandMarket
Abuse, Market Participants, Price Drivers and Investment
Sentiment ... .... ..... .... .... .... .... .... ..... .... 15
1.6 Environment—CO and Coal, Geopolitics and Policy.... .... 19
2
1.7 Conclusions, Implications and the Future of Coal.. ..... .... 26
II Introduction. .... .... ..... .... .... .... .... .... ..... .... 29
2.1 Prelude . .... .... ..... .... .... .... .... .... ..... .... 30
2.2 Book Structure and Market Definition... .... .... ..... .... 37
2.2.1 Book Structure... .... .... .... .... .... ..... .... 37
2.2.2 Market Definition. .... .... .... .... .... ..... .... 39
III Source of Coal ... .... ..... .... .... .... .... .... ..... .... 41
3.1 The Fundamentals of Energy Sources and Fossil Fuels... .... 41
3.2 Coal Formation... ..... .... .... .... .... .... ..... .... 43
3.3 Classification of Coal ... .... .... .... .... .... ..... .... 44
3.4 Key Characteristics of Steam Coal . .... .... .... ..... .... 46
3.4.1 Calorific Value... .... .... .... .... .... ..... .... 46
3.4.2 Ballast: Moisture and Ash and Ranking of Coal .. .... 50
3.4.3 Volatile Matter... .... .... .... .... .... ..... .... 60
3.4.4 Fixed Carbon.... .... .... .... .... .... ..... .... 61
3.4.5 Sulphur ... ..... .... .... .... .... .... ..... .... 62
3.4.6 Size, Grindability, Nitrogen, Chlorine and Fluorine.... 64
3.5 Key Characteristics of Coking Coal .... .... .... ..... .... 66
xi
xii Contents
3.6 Coal Sampling and Analysis.. .... .... .... .... ..... .... 68
3.6.1 Sampling .. ..... .... .... .... .... .... ..... .... 70
3.6.2 Sample Preparation ... .... .... .... .... ..... .... 72
3.6.3 Coal Analysis and Reproducibility.... .... ..... .... 73
3.7 Analysis of World Coal Production, Reserves
and Resources.... ..... .... .... .... .... .... ..... .... 74
3.8 Mining Cost Analysis ... .... .... .... .... .... ..... .... 79
3.8.1 Optimal Use of Resources.. .... .... .... ..... .... 81
3.8.2 Coal Mining Methods: Surface and Underground
Mining.... ..... .... .... .... .... .... ..... .... 82
3.8.3 Investments in Coal Mining. .... .... .... ..... .... 86
3.8.4 Coal Mining Operating Costs.... .... .... ..... .... 89
3.8.5 Environmental and Safety Issues Associated
with Coal Production.. .... .... .... .... ..... .... 91
3.9 Coal Upgrading—Washing and Drying.. .... .... ..... .... 93
3.9.1 Coal Washing ... .... .... .... .... .... ..... .... 93
3.9.2 Coal Drying..... .... .... .... .... .... ..... .... 95
IV Use of Coal.. .... .... ..... .... .... .... .... .... ..... .... 97
4.1 Introduction to Coal and Energy... .... .... .... ..... .... 98
4.2 Steel, Cement, and Other Industrial Markets.. .... ..... .... 101
4.2.1 Steel, Coking Coal, Coke, and Iron Ore ... ..... .... 101
4.2.2 Cement and Coal. .... .... .... .... .... ..... .... 107
4.2.3 A Discourse on Petroleum Coke . .... .... ..... .... 109
4.3 Introduction to Power Markets .... .... .... .... ..... .... 111
4.4 Coal-Fired Power Plant Technologies
and Energy Efficiency... .... .... .... .... .... ..... .... 117
4.4.1 Coal Preparation . .... .... .... .... .... ..... .... 118
4.4.2 Coal Burning.... .... .... .... .... .... ..... .... 118
4.4.3 Electricity Generation.. .... .... .... .... ..... .... 119
4.5 Coal Burn Today Is Worse for the Environment
Than a Decade Ago .... .... .... .... .... .... ..... .... 120
4.6 TheFutureofPowerPlantTechnology:IncreasedEfficiency,
Reduced CO .... ..... .... .... .... .... .... ..... .... 123
2
4.6.1 Efficiency and Boiler Types. .... .... .... ..... .... 124
4.6.2 Capturing CO : CCS and CCP .. .... .... ..... .... 126
2
4.6.3 Investments in Power Plants .... .... .... ..... .... 129
4.7 Alternative Use of Coal: CtL, CtG, CBM, and UCG .... .... 130
4.7.1 Coal-to-Liquid and Coal-to-Gas.. .... .... ..... .... 131
4.7.2 Coalbed Methane and Underground Gasification.. .... 133
4.7.3 Environmental Impact of CtL, and CtG.... ..... .... 134