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The global picture for coal -- rapidly growing consumption of a cheap, abundant resource [ClearOnMoney]
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The global picture for coal -- rapidly growing consumption of a cheap, abundant resource

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Commentary

The global picture for coal -- rapidly growing consumption of a cheap, abundant resource

20 Jun 2012 by Jim Fickett.

This month BP produced its annual Statistical review of world energy, with data through 2011. It is interesting to see that the US situation, in which coal consumption has declined for the last few years, has not at all been mirrored globally. In fact global coal consumption has grown tremendously in the last 10 years:

Here is a concise summary on what is happening with the “market shares” of oil, natural gas, coal, and renewables:

World primary energy consumption grew by 2.5% in 2011, roughly in line with the 10-year average. …

Oil remains the world’s leading fuel, at 33.1% of global energy consumption …

Global oil consumption grew by a below-average 0.6 million barrels per day (b/d), or 0.7% …

World natural gas consumption grew by 2.2%. Consumption growth was below average in all regions except North America, where low prices drove robust growth. …

Coal consumption grew by 5.4% in 2011, the only fossil fuel to record above- average growth and the fastest-growing form of energy outside renewables. Coal now accounts for 30.3% of global energy consumption, the highest share since 1969. …

Renewable energy sources saw mixed results in 2011. Global biofuels production stagnated, rising by just 0.7% or 10,000 barrels per day oil equivalent (b/doe), the weakest annual growth since 2000. Growth in the US (+55,000 b/doe, or 10.9%) slowed as the share of ethanol in gasoline approached the ‘blendwall’, and Brazilian output had the largest decline in our data set (-50,000 b/doe, or -15.3%) due to a poor sugar harvest. In contrast, renewable energy used in power generation grew by an above-average 17.7%, driven by continued robust growth in wind energy (+25.8%), which accounted for more than half of renewable power generation for the first time. The US and China once again accounted for the largest increments in wind generation. Solar power generation grew even more rapidly (+86.3%), but from a smaller base. Renewable forms of energy accounted for 2.1% of global energy consumption, up from 0.7% in 2001.

Fundamentally, coal is increasing its market share because it is cheap. This old graph is out of date and covers only the US, but it gives the general idea:

As a citizen, I wish the world, and the US in particular, would implement a high carbon tax and use it to finance a crash program in wind power. As an investor, I trust most voters and politicians worldwide to keep doing what they are doing now: vote with their wallets for the cheapest form of energy, which is coal (ignoring the temporary blip of ultra-cheap natural gas prices in the US). So although the explosive demand growth of the last few years was probably dependent on unsustainable growth in China, I expect global coal demand to continue growing.

Coal is not only cheap, it is also plentiful. The world's reserves/production ratio is 112 years. The US has more than its share: US reserves are 27% of the global total, and the US has a current reserves/production ratio of 239 years. As oil continues to get more expensive, the short-term anomalies in the natural gas market work themselves out, and the value of dollars declines, the US will have to choose between cheap, dirty, easily accessible energy, or much more expensive, cleaner energy. The day of reckoning may be quite some time in the future, but it is likely that, in the end, the US will hold its nose and be very glad of all that dirty coal.

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