With coal prices at $135 (Rs5,360) per tonne—double their level a year ago—miners are enjoying a bonanza. Since India and China, the two major engines of world growth, are both heavy coal users, this will not stop soon. However much environmentalists may prefer other energy sources, the World Coal Institute (WCI) 2030 production target seems very conservative.
Coal production is running way ahead of forecasts. In 2005, WCI reported production of 4,970 million tonnes (mt)—up 78% over 25 years. At that point, its 2030 forecast of 7,000mt seemed reasonable—44% above 2005’s level, suggesting a modest slowdown on environmental concerns. However, 2006 saw an 8.8% production increase and 2007 was another excellent year. At current growth rates, WCI’s 2030 production target would be achieved by 2010.
Global coal production was 5,370mt in 2006—up 8.8% over 2005 and 92% over the past 25 years. China was the largest producer at 2,482mt, followed by the US at 990mt, India at 427mt and Australia at 329mt.
The WCI target is probably unreasonable; economic growth should slow even in India and China. Nevertheless, with 80% of China’s power needs and 65% of India’s coming from thermal sources, other alternatives are not big enough to supply their rapidly growing economies. Nuclear power plants offer their own safety dangers, and take a long time to construct, while solar power is hopelessly short of the scale needed. The world’s largest solar plant, to be built in Victoria, Australia, will cost $270 million and when fully operational supply 354MW of power—0.1% of Australia’s needs, which are modest compared with those of India and China.
The arithmetic is thus clear. Both India and China are expected to quadruple their power consumption by 2030 and most of that increase must come from coal-fired stations. With modern clean coal technology, the new plants’ environmental impact can be lessened, but no reasonable carbon pricing will significantly slow the rapid rise of coal usage.
That’s good news for coal stocks, some of which have doubled in the past year. Furthermore, while oil supplies depend on the whims of tyrants and madmen, coal is abundantly available in countries with a healthy respect for private property. Thus coal stocks, not oil stocks, are probably the optimal long-term energy play.