After oil, coal prices also going up
Due to an upsurge in the global demand for energy in recent years, the world price of coal has nearly doubled
By Aftab Ahmad

Pakistan has massive coal reserves of nearly 185 billion tons which, according to experts, are expected to last for the next 100 years. It would, therefore, be in the interest of Pakistan to keep itself informed about the world-wide changes in the demand, supply and price of coal.

Due to an upsurge in the global demand for energy in recent years, the world price of coal has nearly doubled. Coal prices enjoyed a bull-run in 2004 and 2005, but today’s prices are even higher. The rise in coal prices is viewed with concern at a time when global recession is looming and international prices have twice crossed the $100 a barrel mark.

Thermal coal prices at the New Castle port (Australia) – an Asian price benchmark – closed at $125 per metric ton on February 18, as reported by the global COAL international trading platform. This price was higher by 34 per cent when compared to the price on January 25 and it was higher by 143 per cent when compared to the price in January 2007.

On February 18, Central Appalachian coal futures on the New York Mercantile Exchange stood at $78.25 per US ton for the delivery in March. The aforesaid price was double the price prevailing at the start of 2007, although the domestic demand was presently weak and stockpiles were above-average due to a mild US winter this year.

According to reports published in the US Press, the increase in the price of coal is due both to the supply constraints and the rise in the global demand. On the supply side, China had long been a leading supplier of coal to the entire world. In 2007, that surplus had reportedly declined to 2 million tons. According to an estimate, the loss of more than 80 million tons in exports worked out to about 12 per cent of the internationally traded market.

Another major coal producer Australia has also been facing difficulty in maintaining its exports at the present level. Flooding of major mines in that country since the middle of January has adversely affected its exports to the Asian markets. Also, Australia’s over-busy ports have been crowded with cargo ships, forcing the vessels to wait in long lines to get their coal.

Similarly, power shortages and blackouts in South Africa have hard-hit that country’s coal exports to Europe. In Russia, another major coal producing country, rail-car shortages have created difficulties for that country in meeting the growing global demand for coal.

Demand pressure was coming also from India, which has undertaken a major expansion of its coal-fired electricity plants. The country is reported to have increased its coal imports recently, although it has large domestic reserves of coal.

Over and above all that, a number of new coal-fired electric plants are under construction in the US. It is estimated that the same would generate an additional demand for 50 million tons of coal per year – meaning a 5 per cent increase above the current demand. Reports appearing in the US Press recently showed that the future energy policy of the country would attach due importance to coal because of its availability in abundance, although coal is not environment-friendly.

Experts are of the view that coal prices could remain at their high level or even keep moving up through 2009 and thereafter, depending on the intensity of the looming economic slowdown. Coal, being a relatively cheaper alternative to oil, is expected to remain in great demand particularly in rapidly industrialising countries such as China and India, which are not self-sufficient in oil. Such countries would prefer to consume increasing quantities of coal, even if they have to pay a slightly higher price.

Pakistan has so far attached a lower priority to coal. However, now that the value of its coal reserves of 185 billion tons has doubled due to the increase in the global price of coal, greater priority needs to be attached to coal. Pakistan can use this coal for power generation and can also earn valuable foreign exchange from its exports. However, the country badly needs the coal for power generation, in order to meet the serious power shortage which has already assumed a threatening posture recently. As such, it may export only limited quantities of coal, if it does export at all. It is amazing to see that coal has not been used in Pakistan for power generation, at a time when it is being used by all the developed and developing countries of the world on a massive scale. Coal is presently being used in Pakistan either by the brick manufacturers or the cement industry. The share of coal in the total energy production in Pakistan has not exceeded 7 per cent, while it has gone up to 50 to 60 per cent in the US, China and India.

Pakistan has made use of its natural gas rather excessively, as a result of which its natural gas reserves have nearly depleted and the country is now considering importing gas from Iran or the Central Asian Republics (CAR). Besides gas, Pakistan had thermal power plants run from oil. But, oil has to be imported and its international price has risen to around $100 a barrel. We are, therefore, converting our plants from oil to gas. Hydro electricity is also being used from Tarbela and Mangla. But, those dams were constructed a long time ago and no mega dam has been built in recent years.

In any future energy policy, priority should be given to those sources which are locally available in abundance and are relatively cheaper such as hydro-electricity and power generation from coal. Besides, wind energy and solar energy may be suitable for remote and far off areas of the country, where it may be uneconomical to supply electricity through the national grid.

In Pakistan, the cost of electricity has been relatively higher than in the neighbouring countries, as a result of which our manufacturers and exporters have been facing difficulty in competing with these countries in the international markets. The cost of electricity can be brought down only by substantially raising the share of hydro-electricity and power generation from coal, and the total energy production in the long run. The newly elected government may take necessary steps to expedite construction of mega dams and for power generation from coal.

During the last few years, some efforts were made to start power generation from coal. The government may consider constituting a committee of experts to study the matter and make its recommendations, after which the matter may be taken up again with foreign investors from friendly countries such as China etc. who may be interested in entering into an agreement with this country for power generation from the domestic coal reserves.