Chapter 5: Coal

Coal was the first ever hydrocarbon in human history to be used on an industrial scale. Coal, and especially peat, has been used for centuries for rudimentary household cooking and heating, in the form of open-hearth fires. As the power of steam was discovered and harnessed to mechanise every type of production activity from agriculture, to mining, to metallurgy, to manufacturing, to lighting and transportation, coal was the fuel that powered the industrial revolution from the early eighteenth to the early twentieth century, until it eventually took second place to oil.

Physical characteristics

Coal is a solid mineral, composed primarily of carbon; other components of coal are volatile hydrocarbons, sulphur and nitrogen, and the minerals that remain as ash when the coal is burned.

Most of the coal in the earth’s crust was formed during the Carboniferous period – between 280-345 million years ago. At that time much of the world was covered with luxuriant vegetation growing in swamps. Many of these plants were types of ferns, some as large as trees. This vegetation died and became submerged under water, where it gradually decomposed. As decomposition took place, the vegetable matter lost oxygen and hydrogen atoms, leaving a deposit with a high percentage of carbon. As time passed, layers of sand and mud settled from the water over some of the carboniferous deposits. The pressure of these overlying layers, as well as movements of the earth's crust and sometimes volcanic heat, acted to compress and harden the deposits, thus producing coal.

Coal is classified in several sub-types, primarily according to its carbon content. Peat, the first stage in the formation of coal, has a low fixed carbon content and a high moisture content, but it does not have the same uses as commercial coal.

Commercial coal is usually classified in two broad categories – brown and hard. The first category includes lignite – the lowest rank of coal – and sub-bituminous coal. Both of these types are invariably used for power generation and, because of their low quality, they are consumed in domestic markets. Lignite is usually brownish-black in colour and often shows a distinct fibrous or woody structure. Lignite is inferior in calorific value to ordinary coal because of its high water content and low (25-35%) carbon content; the high content of volatile matter causes the lignite to disintegrate rapidly upon exposure to air. Sub-bituminous coal is a bit better in terms of carbon content (ca. 35-45%), but still not high enough to make it up to export quality standard. As a result, practically all lignite and lower quality coal is consumed domestically, typically for power generation, but also for cement manufacturing and other industrial uses, especially because higher quality coal is more expensive or perhaps not easily available.

The term ‘hard coal’ comprises all the remaining high-quality types of coal, from bituminous coal to graphite. Bituminous coal has more carbon than lignite and a correspondingly higher heating value. It is primarily used for generating power, although coals closer to anthracite are suitable for further processing into coke for steel production. 

Anthracite is a hard coal with the highest fixed-carbon content and the lowest amount of volatile material of all types of coal. It typically contains over 86% carbon, ca. 9-10% ash, and ca. 4-5% volatile matter. Anthracite is glossy black, with a crystal structure; although harder to ignite than other coals, anthracite releases a great deal of energy when burned and gives off little smoke and soot. Anthracite is ideal for reduction into coke, which is then used to fire iron ore in order to produce molten iron.

Coke is a vital input in the steelmaking process. Coke is the name given to the hard, porous residue left after the destructive distillation of coal; it is blackish-grey, has a metallic lustre and is composed largely of carbon – usually about 92%. It has excellent burning properties, with a gross calorific value of 12-13,500 Btu/lb, which makes it appropriate for use as a reducing agent in the smelting of pig iron. Coke was first produced as a by-product in the manufacture of illuminating gas. The growth of the steel industry, however, produced a rising demand for metallurgical coke, making it inevitable that coke should be manufactured as a chief product rather than as a by-product.

The earliest method of coking coal was simply to pile it in large heaps out-of-doors, leaving a number of horizontal and vertical flues through the piles. These flues were filled with wood, which was lighted and which, in turn, ignited the coal. When most of the volatile elements in the coal were driven off, the flames would die down; the fire would then be partly smothered with coal dust, and the heap sprinkled with water.

A later development was the coking of coal in the beehive oven, so named because of its shape. As in open-air coking, no attempt was made to recover the valuable gas and tar that were by-products of the process. Beehive ovens have now been almost entirely supplanted by the modern by-product coke ovens. These ovens, usually arranged in batteries of about 60, are narrow vertical chambers with silica-brick walls, heated by burning gas between adjoining ovens. Each oven is charged through an opening in the top with anywhere from 10 to 22 tons of coal, which is heated to temperatures as high as 1,482°C for about 17 hours. During this period the gases from the oven are collected through another opening in the top. At the end of the coking period the red-hot coke is forced by a ram, out of the oven, directly into a car that carries it to the quenching hood, where it is sprinkled with water. The emptying process takes only about 3 minutes, so that the oven is ready for recharging with little loss of heat.

Although we are mainly concerned with coal for power generation and steelmaking, it is worth taking note of another form of coal – graphite; and a coal by-product – coal tar; both of which have a variety of industrial uses.

Graphite is one of the three allotropic forms of carbon; the other forms are diamond and amorphous carbon. It occurs in nature as a mineral invariably containing impurities. It is widely distributed over the world; important deposits are found in Siberia, England, Madagascar, Mexico, Sri Lanka, Canada, and numerous localities in the United States. Graphite is made artificially by baking a mixture of petroleum coke and coal tar pitch at 950°C for 11 to 13 weeks, then transferring the baked product to electric graphitising furnaces and heating it to about 2,800°C for 4 or 5 weeks.

Although graphite is chemically the same as diamond, it differs greatly from that mineral in most of its physical properties. Graphite is black, opaque, metallic in lustre, and has a specific gravity of 2.09 to 2.2. Graphite is extremely soft, it smudges anything with which it comes into contact, and it feels greasy or slippery to the touch. It is the only non-metal that is a good conductor of electricity; like other conductors of electricity, it is also a reasonably good conductor of heat.

The cores of ‘lead’ pencils contain no lead but are made of graphite mixed with clay. Graphite is used as electrodes in electrochemical industries where corrosive gases are given off, and for electric arc furnaces that reach extremely high temperatures. It is used as a lubricant either by itself or mixed with grease, oil, or water. It is also used in crucibles that must withstand extremely high temperatures, and in certain paints.

Coal tar is a viscous black liquid produced in the destructive distillation of coal to make coke and gas. Coal tar is a complex mixture of organic compounds, mostly hydrocarbons. Its composition varies with the coal, the temperature at which it is formed, and the equipment used. Coke is usually produced at about 1,000°C, and coal tar formed in that temperature range consists mostly of aromatic hydrocarbons, plus phenols and some compounds containing nitrogen, sulphur, and oxygen. The variation in composition means that most of the compounds in coal tar are formed during the coking process and are not present, as such, in the original coal. Some 300 distinct compounds have been identified in coal tar, of which about 50 are separated and used commercially. Separation is achieved through distillation, which produces benzene, toluene, naphthalene, xylene, anthracene, phenanthrene, and other valuable products. The processing may be varied to give different proportions. Left, after distillation, are residues of pitch used in making roads, in roofing mixtures, and in electrodes for the production of aluminium.

Coal tar was once regarded as a useless nuisance. Since then, however, it has led to a whole new field of chemistry and its compounds are indispensable to a vast number of products, including dyes, drugs, explosives, food flavourings, perfumes, artificial sweeteners, paints, preservatives, stains, insecticides, and resins. Coal tar is also the chief source of creosols, a group of chemicals used in antiseptics, creosote oil, paint removers, and plastics.

As we noted earlier, coal normally contains a number of other compounds, mainly sulphur and metallic elements, which form the ash. When burnt, coal generates a number of undesirable by-products, which have largely contributed to the image of coal as a ‘dirty’ source of energy. Carbon reacts with oxygen to produce carbon monoxide (CO) and dioxide (CO2). Increased emissions of these two gases have contributed to the greenhouse effect on the earth’s atmosphere, with detrimental long-term consequences for global climate. When burnt, the sulphur contained in coal reacts with oxygen to form sulphur dioxide (SO2), a gas that has several useful industrial applications. If the gas is released in the atmosphere, however, it mixes with water (H2O) in a lethal combination – sulphuric acid (H2SO4) – that returns to earth as acid rain. Finally, coal burning also produces a number of nitrogen oxides (NOX), which also have detrimental effects on earth’s atmosphere.

As the coal industry is trying to improve the image of the commodity, several attempts have been made to improve its combustion, with the aim to reduce emission of impurities, such as sulphur and nitrogen oxides, and increase the efficiency of energy production. Clean coal technologies (CCTs) may be increasingly commercially attractive in the 21st century, provided there are adequate incentives (say a substantially high price for carbon emissions) to make their use more widespread. In general, these technologies are cleaner, more efficient, and less costly than conventional coal-using processes. A wide variety of CCTs exist, but all of them alter the basic structure of coal before, during, or after combustion. CCTs include: improved methods of cleaning coal; fluidised bed combustion; integrated gasification combined cycle; furnace sorbent injection; and advanced flue-gas desulphurisation.

Finally, the most promising technology on which the coal industry is pinning its hopes for long-term survival is coal capture and storage (CCS), or more recently coal capture utilisation and storage (CCUS). This refers to a suite of technologies which capture the CO2 produced from the use of fossil fuels (coal in particular) in electricity generation and industrial processes and prevent it from being released in the atmosphere. This can occur in a number of ways:

Supply characteristics

The supply determinants of coal have essentially been discussed in chapter 2, together with other hydrocarbons. One definite advantage of coal over all other fossil fuels is its sheer abundance. World coal reserves were estimated at over 1,070 billion tonnes at the end of 2020, with an R/P ratio of ca. 140 years. With R/P ratios of ca. 50 years for natural gas and oil, coal may yet continue playing a very important role on the world energy mix in the long term, despite increased actions by many countries to limit its role in the energy mix. Another very interesting statistic is that while just between 10-15% of oil and natural gas reserves are located in OECD countries, over 45% of coal reserves are located in the OECD area, which makes coal a ‘politically safe’ source of energy.

With such obvious advantages then, why is coal not the most popular source of energy in most countries around the world? The answer lies very much in the single most important externality of producing and using coal: carbon emissions; and the challenge to coal by lower-carbon fossil fuels, such as natural gas, and carbon-free renewables.

As in any project for the extraction of mineral resources there are three main stages in coal recovery: exploration, development, and production. Exploration may last a few years, until proper geological surveys point with high probability to the existence of reserves. Several exploratory shafts may have to be constructed in order to assess the quality and extent of the deposits. Costs at this stage can be substantial and are sunk. The development stage involves the construction of an open pit (if the developer is lucky enough to find coal near the ground surface) or the digging of an underground mine. Again, costs at this stage are sunk, and further costs might have to be incurred at later stages of a project in order to improve and/or extend capacity.

At the production stage, most of the costs are operating costs, which tend to increase as reserves are being depleted and more effort is required to extract them. This is particularly true when underground mining is the method of production. Another important difference of coal mining from oil and gas extraction is that coal has to be moved at every stage, whereas oil and gas flow naturally; coal requires a lot more effort to break and extract, while oil simply requires a steady pressure which will keep it flowing out of the well, naturally.

Another key characteristic of the coal industry, which is also evident throughout the mineral sector, is the large extent of heterogeneity in production costs. Depending on the geomorphology of the field and local climatic conditions, costs can vary considerably from one region to the next. Indonesia, South Africa and Colombia, for example, are low to medium-cost producers, while countries like Germany and the UK produce coal at such high costs that it is much cheaper to import the commodity from distant, low-cost exporters. Apart from regional differences, one should also expect different production costs between surface and underground coal mines, as well as differences arising due to inland transportation costs. Russia, for example, has free-at-mine costs comparable to those of cheap producers, such as Indonesia and Colombia. However, the cost of inland transportation, in order to bring the coal to an export terminal, is as much as the mining production cost. Exhibit 2 shows the range of FOB supply cost components for internationally traded steam coal in 2017. Exhibit 3, on the other hand, shows the delivered cost of steam coal to Europe from various sources, whereby the width of each bar gives an indication of the amount of coal available from each supply country.

Although capital, land and fuel are the most important contributors to extraction costs, one should not underestimate the role of labour in coal production. Taking into account the fact that coal is largely produced in OECD countries, labour costs become quite sizeable, and labour relations are central to the uninterrupted running of a coal mine; one has only to recall the huge disruption caused, in the UK economy, by the long strike of coal miners at the beginning of the 1980s.

Reserves and production

Coal is found in nearly every region of the world, but deposits of present commercial importance are located mainly in Asia, Australia, North America and CIS, with smaller reserves in Europe, South America and Africa. – see Exhibit 4 and Exhibit 5 for the key reserve holders as of 2020. Great Britain, which led the world in coal production until the 20th century, has deposits in southern Scotland, England, and Wales. In Western Europe, coalfields are found throughout the Alsace region of France, in Belgium, and in the Saar and Ruhr valleys in Germany. The French and Belgian production is rather small, with the latter disappearing altogether, after 1993. Germany is still the most important Western European producer, but its production has been falling steadily for the last 20 years. Most of Germany’s deposits contain brown and sub-bituminous coal, which are of lower calorific value and, hence, decrease total German production in oil equivalent terms.

Eastern European deposits include those of Poland, the Czech Republic, Romania, Bulgaria, and Hungary. The most extensive and valuable coalfield in the former Soviet Union is that of the Donets Basin between the Dnepr and Don Rivers; large deposits have also been exploited in the Kuznetsk Coal Basin in Western Siberia. The Russian Federation holds the world’s second largest reserves of coal, with some 160 billion tonnes in 2020, which was behind US deposits of 250 billion tonnes. Apart from Russia, Ukraine and Kazakhstan are the other two former soviet republics to hold substantial reserves. As in Western Europe, coal production in Eastern Europe experienced a declining trend through the 1990s. This trend, however, started a reversal in the late 1990s, with coal production showing an increase as we have moved into the 21st century. Unlike Germany, the former Soviet republics – especially Ukraine and Kazakhstan – produce primarily hard coal.

There are large deposits of lignite and sub-bituminous coal in North Dakota, South Dakota, and Montana. Sub-bituminous and bituminous coal deposits are scattered throughout Wyoming, Utah, Colorado, Arizona, and New Mexico. The Pacific Coast and Alaska have small reserves of bituminous coal. Almost all the anthracite in the United States is in a small area around Scranton and Wilkes-Barre, in Pennsylvania. The best bituminous coal, for coking purposes, comes from the middle Atlantic states.

Canada does not have the massive coal reserves of the United States, but it produces very good quality anthracite, large quantities of which it exports to the Far East, as well as Western Europe. Most of Australia’s coal reserves are located in Western Australia, close to the large iron ore reserves. Australia is the world’s third largest reserves holder with 150 billion tonnes, closely behind Russia. The country is also a substantial producer and a top exporter of coal, particularly to the Pacific Rim.

The coalfields of north-western China, among the largest in the world, were little developed until the 20th century. Today, however, China is the world’s largest coal producer, although its reserves are only about two thirds of those located in the United States; the Chinese economy is a very intensive user of the commodity and has, indeed, driven the phenomenal growth coal consumption experienced since the 2000s.

Finally, the most important producer in Africa and the Middle East is South Africa, with reserves of just under 10 billion tonnes. The country is essentially the only significant producer of coal in the African continent, all of which is hard coal.

Turning our attention on production now, Exhibit 6 shows the development of coal production for the last thirty years. Note the big expansion recorded by Asia Pacific from 2000 onwards, accounted for mostly by China, but also by other economies in the region, such as Indonesia and Australia, who expanded their production in order to satisfy Chinese demand for imports of the commodity. Production in the rest of world remained rather static otherwise. Exhibit 7 lists the largest coal producers, starting with China, which is head and shoulders above everyone else, having produced ca. 52% of the world’s total coal output in 2023.

Demand characteristics

All types of coal have some value; as an old saying in the coal industry goes: “anything pale brown will burn”. This, of course, does not necessarily mean that it will burn efficiently. Although peat is frequently used as a fuel in rural communities and, more recently, peat and lignite have been made into briquettes for burning in furnaces, it is brown and hard coals that are consumed extensively; and, of these two, only hard coal is traded internationally.

If one were to point at a single factor that has tremendously affected the fortunes of the coal industry, this would be its cross-substitutability with oil and natural gas. In Chapter 1, we saw that energy is needed for residential, industrial, transport, and ‘other’, consumption. Although oil fits very well into all types of consumption, this is no longer the case for coal. Coal has been substituted by oil and natural gas in domestic consumption; in transport, coal burns inefficiently and is quite bulky to carry around; in industry, however, it is still used extensively.

Coal has two main uses – power generation, and as a fuel in the production of other industrial materials. Exhibit 8 shows the major categories of coal consumption and one can see how power generation dominates. Coal is used extensively in power plants with coal-fired electricity generators, as well as in other industrial processes that use coal-fired generators. In industry, coal is used in the production of steel and cement. For the latter, coal is mixed with limestone and other materials, and fired to produced clinker – the raw material which is pulverised to become cement. In steelmaking, the procedure is not that simple; coal has to be carbonised – i.e. purified – in special furnaces, in order to produce coke, a coal of a quality very close to that of graphite. Coke is then mixed with iron ore and a flux, and fired in a blast furnace, to yield pig iron, as we will describe in a later chapter.

Only anthracite and high-quality bituminous coal can be used for coking; coal with such attributes is known as coking coal. All other coal is used for power generation, and is known as steam coal. These two new groupings of coal should not be confused with brown and hard coal. By definition, all lignite and sub-bituminous coal is steam coal, and so is the lower-quality bituminous coal; anything of higher quality is suitable for coking.

Steam coal is a very important input in power generation, accounting for about 80-90% of the variable cost of producing coal-fired electricity. Demand for steam coal depends on the price of the commodity itself, the price of other substitutes – like oil and natural gas – and the ease with which a power plant can switch between different fuels. After the first oil price shock, although coal became affordable, it was rather difficult for coal to capture a large market share, because most power generators were geared to use oil as fuel. During the 1970s, it became evident that oil was getting too expensive and too unsafe to be relied upon; the result was increased popularity for coal, which was readily available from politically safe areas. With electricity companies and other industries changing their generators to accommodate coal, it was little surprise to see a massive boost in coal consumption and trade, after the second oil price shock. Coal-fired power plants are normally of large scale, at least 0.5 GW generation capacity, normally at least 1 GW, with the top ten plants having more than 5 GW capacity each (see Exhibit 9).

The use of coal for power generation was given a further boost from 2000 onwards, when China used it to produce most of the additional electricity required for the nation’s industrial growth. This has led coal to assume first position in electricity generation, although its share has been slowly eroded in the last decade or so, as can be seen if you compare Exhibits 10 and 11. 

While steam coal is by far the most important cost contributor in electricity generation, this is not the case with coking – or metallurgical – coal, which is estimated to account about 30-40% of the finished cost of steel. There is no substitute for coal in blast furnace steel production; instead, the whole steelmaking process has to be replaced with an electric arc furnace. The increased popularity of EAFs has curtailed the share of blast furnaces in crude steel production and has, therefore, undermined the demand for coking coal, as well. While this is true, however, new smelting reduction techniques for making steel utilise coal1 once again and, thus, increase the demand of coal.

Power generation, steelmaking and cement production are not the only uses of coal, however. Coal was also used, from the early 19th century to the World War II era, for the production of fuel gas, just as coal liquefaction techniques were used to produce liquid oil products. In the 1980s, several industrialised nations showed interest in developing CTL (coal-to-liquids), but the popularity of the environmentally friendlier natural gas and the availability of cheaper oil after the mid-1980s hampered the rapid development of such technologies. With the resurgence of oil prices since the mid-2000s, interest in such technologies remains active, albeit still marginal. Finally, coal has a number of additional minor uses. For example, it is used as a raw material for the manufacturing of carbon electrodes; also in pulverised form it is directly injected in blast furnaces for steel production.

Turning our attention total coal consumption, one can see from Exhibit 13 that, as discussed above, it experienced a resurgence since the beginning of the new millennium. Between 2000 and 2020, coal consumption increased by ca. 60%, in contrast to the mostly uneventful 1990s. Note that the data are given in tonnes of oil equivalent, rather than metric tons, but the message given is the same. This growth was driven entirely by Asia Pacific, in particular China and India, two countries who used coal extensively to power their economic growth.

Exhibit 14 gives the list of the key coal consumers around the world. It is evident that China dwarfs every other nation, while India was the second largest consumer in 2024, having overtaken the US in 2015. China alone consumed ca. 56% of the world’s coal in the same year. This was not surprising, given the country’s massive expansion of its steel industry, as well as the large amounts of energy, especially electricity, required to power its well-established manufacturing activity and the great push of the government to electrify large parts of the economy, including the replacement of conventional internal combustion engines with electric vehicles.

Even more poignant, however, are the projections about the future of coal consumption. Depending on which forecast one chooses, coal consumption is set to decrease, starting from 2030 and continuing either at a slow or fast pace until 2050. Only under EIA’s two scenarios does global coal consumption keeps increasing to over 180 EJ, as can be seen in Exhibit 15. In Exhibit 16 the reader can see the forecast for coal consumption produced by the EIA in its International Energy Outlook, which extends to 2050. Throughout this time OECD consumption is expected to remain stable at ca. 1.14 billion short tons, with all the remaining demand being generated by non-OECD economies, particularly the emerging ones in Asia Pacific.

Based on such projections, it may difficult to see how the world can reduce its dependence on coal, even though it is the most polluting of the hydrocarbons. Indeed, coal provides a stable, secure and cost-efficient source of electricity generation. Providing cheap and reliable electricity is very much a priority for most emerging economies, whose populations still consume less energy per capita and large parts of these populations do not even have continuous access to electricity. On the other hand, many developed economies have committed continue trying to replace their coal consumption with renewables in order to reduce their carbon emissions. In some cases this may be achieved by more stringent environmental regulations, for example in some EU countries. In other cases, this may be a by-product of market forces, for example in the US where cheap shale gas is substituting coal in power generation. The fact remains, however, that the world as a whole still has a great appetite for coal and the commodity will continue resisting those predicting or calling for its demise, for years to come.

From 2000 onwards, coal trade started increasing rapidly and in the space of just over ten years it doubled in size. From the same exhibit, one can also see the relative proportion of the two coal types. Steam coal accounted for just under 80% of total trade, with coking coal making up the balance.

The list of top exporters of coal differs somewhat from that of top producers. Some of the most important producers of coal use it domestically; the case of China is an extreme example, whereby the country is also the world’s largest importer. At the other extreme, Indonesia and Australia channel over 75% respectively of their production to the export market, while the United States presents a mixed picture, with substantial quantities of coal (ca. 90%) disappearing through domestic demand.

Being responsible for over 50% of the world’s coal production, one would expect that China would have enough to satisfy its domestic demand. Yet, the country is the world’s largest importer, with nearly 400 million tonnes imported in 2024. Indonesia and Australia have traditionally been the primary sources of Chinese coal imports, but in recent years the country accelerated its imports from neighbouring Russia and Mongolia, as can be seen in Exhibit 19. With the exception of China and India which have risen to prominence relatively recently, the list of the remaining key importers has remained practically unchanged. Japan is now the world’s third largest importer, strengthening its position after the Fukushima nuclear incident, which meant that the country had to accelerate its coal (and gas) imports in order to make up for the lost power generation capacity after the shutdown of its nuclear reactors. South Korea and Taiwan, the latter under 'Other Asia Pacific', are also sizeable importers, using coal both for power generation and steelmaking, while several European countries make up most of the rest of the list (Exhibit 20).

Coking coal imports are directed primarily to Asia nowadays, with only smaller amounts directed to European countries. In contrast to the past, China has overtaken Japan as the largest single importer of coking coal, sourcing most of its needs from Australia. Japan has dropped to third place, while India has now climbed to second place having expanded its steel production in recent years. Of the Europeans, Germany still is the biggest coking coal importer, while Turkey is a close second, also having expanded its steel producing output over the last decade.

Pricing

In the ‘good old days’, when coal was a less exciting commodity, pricing was a rather mundane business, with prices set on an annual basis, typically based on a ‘cost plus’ methodology. This methodology relied on a mutual agreement between buyer and seller on the cost elements of the commodity (fixed and variable production costs, inland transportation, international shipping), before negotiating on a profit margin for the producer that reflected the demand and supply conditions in the international markets for steel and energy.

This was particularly true of coking coal, a commodity supplied by only a handful of countries and companies, whose prices were closely associated with iron ore, the other key input in steel production. For thermal coal, the market was somewhat more competitive, as steam coal is more abundant and there are many more buyers and sellers, so that trading occurred on the spot market, as well as longer horizons.

So, if we take the example of a power plant procuring coal in the international market, what are the key considerations when negotiating prices? Coal quality is of course at the centre of the pricing mechanism and it is determined by a number of parameters, like its calorific value (measured in kcal/kg), percent content of volatile matter, moisture, ash, and sulphur; hargrove; and initial deformation point. Coal quality is important, because low-quality coal results in energy losses, excessive waste material that has to be disposed of, increased corrosion and, hence, increased maintenance costs, and increased expenses for desulphurisation. See Exhibit 23 for the quality specification for some of the key provenances of internationally traded coal: Australia, Colombia, Poland, Russia, S. Africa and USA.

As far as the supplier is concerned, a power plant needs a counterpart with adequate infrastructure, in an area of relative political stability, with a healthy financial position, a long-term attitude to doing business, and commitment to quality development, and cost control. Moreover, the supplier should preferably have prior export experience, which will help overcome any difficulties that may arise.

The contract is, of course, the most important part of the agreement, and should be fair and equitable, which will keep both partners happy throughout its duration. After all, the contract provides security of supplies for the buyer, while income security is the main benefit for the coal producer, together with the ability to use the contract as a loan collateral. Although contracts usually include long lists of clauses for every eventuality, it is always preferable to keep them simple, since arbitration is expensive and time consuming. Finally, contracts also make proper arrangement for the transportation of coal from source to destination. More than 90% of the world trade in coal is carried by sea - ca. 1.2 billion tonnes in 2024. Coal is in fact – with iron ore – the largest seaborne dry bulk commodity, providing employment for all sizes of dry bulk carriers, but particularly for Capesize and Panamax vessels. Interestingly, freight rates for both ship sizes also experienced unprecedented increases through the 2000s, adding to the cost of transportation included in the delivered price of coal and thus further adding to the coal prices witnessed during that period.

Conclusion

In this chapter we discussed the supply and demand economics of coal. One distinction that should be made when studying coal is that between steam and metallurgical, or coking, coal. Demand for the former is driven by demand for other energy commodities, while the latter depends on the fortunes of the steel industry.

Coal is considered a ‘safe’ commodity, because it is largely located in OECD countries; it also suffers from the negative image of the ‘dirty’ fuel, which is always lagging behind oil – and, at some point, was almost overtaken by natural gas.

The new millennium saw a surge in the demand for coal, both for power generation and steel making. Coal production, trade and prices rose to levels never seen before. As for the future of coal, forecast energy demand can only be satisfied on the assumption of abundant supplies of cheap coal. Although coal is the dirtiest of the three main hydrocarbons, its price competitiveness makes it an indispensable part of the energy mix of many countries, especially the rapidly emerging economies of Asia Pacific. Unless there are a drastic and rapid change in the urgency with which governments and citizens respond to climate change, coal’s future as an energy source is secure for many more years to come, albeit with a reduced market share.

References

Tamvakis, M. (2021). The coal price has skyrocketed in 2021: What does it mean for Net Zero? The Conversation. https://theconversation.com/the-coal-price-has-skyrocketed-in-2021-what-does-it-mean-for-net-zero-166117

Thurber, M.C. 2019, Coal, Polity Press, Cambridge.