Energy Investing: The Location of the World’s Coal
Energy investors need to know that, as opposed to other energy sources, there is an almost endless supply of coal. No one talks of peak coal. Therefore, coal isn’t affected by new finds, dwindling supply, or politics in the Middle East.
In this way, it’s the most honest of energy commodities. You buy at the bottom of the business cycle and sell at the top. (That’s not to say the price of coal isn’t affected by politics.)
The two internationally recognized methods for assessing world coal reserves are as follows:
The first is produced by the German Federal Institute for Geo-sciences and Natural Resources (BGR) and is used by the IEA as the main source of information about coal reserves.
The second is produced by the World Energy Council (WEC) and is used by the BP Statistical Review of World Energy.
According to BGR, 1,004 billion tonnes of coal reserves are left. That’s equivalent to 130 years of global coal output in 2011. Coal reserves reported by WEC are much lower — 861 billion tonnes, equivalent to 112 years of coal output.
Since 1983, China has been the world’s top producer of coal. But that doesn’t mean it has the most, just that it has the highest demand. Production has less to do with reserves than it does with demand. As this table shows, the United States has by far the world’s largest reserves of coal. Some estimate that the United States has enough coal to last 500 years.
|Country||Coal Reserves (Billion Tonnes)|
When weighing coal-investment options, you need to look at not only value metrics like price to equity ratios, cash flows, and debt levels, but also the proximity to high-demand markets.
For example, Indonesia, Australia, and the United States export to Asia. South Africa and Kazakhstan export to India, and Russia exports to Germany, China, and Japan. Because coal production is low-cost and low-tech, any country with a rail line, a port, and an abundance of coal can be a major exporter.
Digging coal out of a pit mine is nothing like drilling two miles under the North Sea for oil. If coal spills, you pick it up. There are no blowout wells.
This table lists the largest exporters of coal. Note that Indonesia leads the list in exports but doesn’t even make the top ten in reserves. Indonesia had 5.5 billion tonnes of coal reserves in 2011, and exports 82 percent of its annual production.
It’s estimated that 90 percent of the 3.5 billion tonne coal demand growth in Asia will come from Indonesia in the next 20 years (at which point it will run out).
|Country||Coal Exports (Million Tonnes)|
This table reveals the top importers of coal. China, Japan, and South Korea import the most coal. But future demand growth will come from China and India.
|Country||Coal Imports (Million Tonnes)|