The Coal Industry

The coal industry

The coal industry Charles Kernot

WO O DH EA D PU B LISH I NG LI M ITE D Cambridge, England

Published by Woodhead Publishing Limited, Abington Hall, Abington, Cambridge CB1 6AH, England www.woodhead-publishing.com First published 2000 # Charles Kernot, 2000 The author has asserted his moral rights Conditions of sale All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording or any information storage and retrieval system, without permission in writing from the publisher. While a great deal of care has been taken to provide accurate and current information, neither the author, nor the publisher, nor anyone else associated with this publication shall be liable for any loss, damage or liability directly or indirectly caused or alleged to be caused by this book. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library. ISBN 1 85573 105 3 Typeset by BookEns Ltd, Royston, Herts. Printed by Astron On-Line, Cambridgeshire, England.

For Helen

Contents Preface About the author Index PART 1: DEVELOPMENT OF THE INTERNATIONAL INDUSTRY

1 1.1 1.2 1.3 1.4 1.5 1.6

Coal from the earliest times The early days How coal was mined Costs and capital Transport The social cost The start of unionism

2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9

International discoveries Introduction Australia Bulgaria China Hungary Indonesia Poland South Africa United States of America

PART 2: WHERE COAL COMES FROM

3 3.1 3.2 3.3 3.4 3.5 3.6 3.7

What is coal? A fossil fuel Coal classification Composition and impurities Energy content Proximate analysis Ultimate analysis Coking coal

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Contents

4 4.1 4.2 4.3 4.4 4.5 4.6

Exploration, mining and production Introduction Feasibility studies Mining Productivity Total mining costs Reclamation

5 5.1 5.2 5.3

Treatments and quality assurance End product requirements Sampling Processing techniques

6 6.1 6.2 6.3 6.4

From mine to market Transport logistics Export ports Shipping Import ports

PART 3: COAL USES

7 7.1 7.2 7.3 7.4 7.5 7.6 7.7

Coal, electricity and the environment Who uses coal? How a power plant works Coal and the environment Flue gas desulphurisation Clean coal technology Competition Renewable competition

8 8.1 8.2 8.3 8.4 8.5

Coking, industrial and domestic coal Coking coal Iron-making Other metallurgical coal uses Industrial and domestic uses Other industrial applications

PART 4: SUPPLY/DEMAND, TRADE AND PRICES

9 9.1 9.2

World supply Introduction World producers

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Contents

10 10.1 10.2 10.3 10.4 10.5 10.6

World demand Introduction Areas of consumption The three coal markets Future demand Steel industry outlook Regional demand trends

11 11.1 11.2 11.3 11.4

International trade A blessing or a curse? International suppliers International consumers The traders

12 12.1 12.2 12.3 12.4 12.5

Coal pricing and hedging Introduction Contracts and pricing International coal prices Hedging Outlook

Appendix: Coal and shipping terms Bibliography

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Preface The international coal industry is a leviathan hidden beneath the surface of economic growth and prosperity. Indeed, despite its importance, it is surprising how few people know anything about the size and global reach of the industry. Whilst almost 500 million tonnes of coal are shipped annually around the world at a traded value of around US$15 bn, the total amount of coal mined each year amounts to some 3.8 billion tonnes. Assuming that this material fetches an average price of US$30/t, the total value of coal produced annually must approach US$100 bn. This is much higher than the next most important mined commodity, aluminium, which, after the substantial cost of upgrading the bauxite ore to the metal, has an annual output value of some US$35 bn. As this work has evolved it has moved from being a general book about the international coal trade into a more specialised information manual. Indeed, it contains detailed data on many parts of the international coal industry that are not available in one single source elsewhere. As a consequence, it should be useful to many of the players in the industry ± from mining exploration companies looking for coal, through the mining, processing and transport of the commodity, and ending with the consumers ± be they power generators or steel producers. Part one puts the industry in perspective, from the first discoveries of coal mines and the early development of the industry to feed the industrial revolution ± first in the United Kingdom and then spreading through the British Empire to the rest of the world. Whilst other countries also had coal industries in the seventeenth and eighteenth centuries, the first real developments outside the United Kingdom really began in the nineteenth century ± particularly in the United States. More recent developments include the coal mines of Colombia, Indonesia and Venezuela and the development of the steam coal export markets of Australia and South Africa. Part two looks at coal in more detail: what the commodity is and where it comes from. This has important consequences for both where the coal can be used and how it can and should be mined. Indeed, the treatments to upgrade the fuel to a saleable commodity

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are still advancing, to the extent that fine material is now finding a wider market. In the future there may be developments that can aid the removal of sulphur or moisture from coal to improve its value, although the ash content of the material will still need to be placed in a secure disposal site. Part three looks at the areas where coal is used ± mainly in the power generation and steel industries. In the future the amount of coal consumed is still set to rise given the increasing demand for electricity as countries develop and their economies expand. Whilst greenhouse gas problems may lead to pressure to reduce coal burn, what is more likely to occur is an increasing efficiency of the conversion of coal energy into electricity. Moreover, the increasing concerns about nuclear energy indicate that it will account for a declining share of the global electricity supply mix and that coal, gas and renewable electricity will increase their relative market shares. Part four finally considers the state of the coal market and the international trade in the commodity. It looks at the growth in supply of coal from Australia and South Africa in the early 1970s and the more recent growth in output from Colombia, Indonesia and Venezuela. The growth in demand in the Asia-Pacific region and the changing structure of the European energy industry are also covered as these provide important indications about the future development of the industry. There is also some data on coal prices, although this is the one area of the industry that remains extremely complicated at the present time. In the future, however, the creation of coal futures contracts by the New York Mercantile Exchange (NYMEX) may well remove some of the difficulty of extracting comparable coal price information on a global scale. The overall structure of the global coal industry is in a marked state of flux. Many of the non-mining companies that entered the industry in an attempt to secure a supply of energy during the 1970s are now turning their backs as they chase for better returns elsewhere. Indeed, the recent returns from coal-mining have been abysmal as increased production in the late 1990s coincided with the Asian economic crisis and meant that too much coal was chasing too little demand with the result that prices cracked. Consequently, those who are now buying into the industry will do so at depressed prices. If they can consolidate and coordinate production across mines with different cost bases and extract

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economies of scale they should make healthy returns. The ready supply of coal has meant that the industry has been forced into a position of price-taker rather than price-maker ± a situation that the current consolidation is set to change. The implications for returns on capital and mining company profitability should therefore be substantial ± but only if the companies left in the industry are more careful about planning and opening new mines than they have been in the past. For coal consumers the recent era of cheap coal energy is slipping into the past ± after all, the rise in the price of oil in 1999 is set to be reflected in the price of coal during 2000. This should provide further incentives to encourage consumers to make their consumption of the fuel more efficient. Indeed, the rally in the price of oil in the 1970s was a de facto environmental tax that encouraged sharply reduced consumption of the fuel. The low efficiency of many coalfired electricity generating stations across the world almost requires a similar price explosion in order to wreak similar efficiency improvements. This, perhaps more than any Kyoto Protocol, is what the world needs in order to reduce greenhouse gas emissions. In my first book on the coal industry, in 1993, I suggested that countries and companies should look to carbon sinks in order to reduce their net level of carbon dioxide emissions. This idea has now started to gain credence ± especially as a consequence of the plans to introduce the international trading of emission permits. Data, however, remains sketchy and many countries are unwilling to commit to a tax that could reduce their economic competitiveness. This, certainly, was behind the strong lobbying against US acceptance of the principle of global warming by domestic energy consumers in the early 1990s. Nevertheless, whilst the purchase of existing forests may help their specific preservation, what may well be required is the extension and expansion of forested areas in order to increase carbon reabsorption. This would increase carbon capture rather than continue to allow the slow build-up of CO2 in the atmosphere through the protection of existing forested areas from destruction by slash and burn agriculture. Although coal consumers clearly have an important part to play in the creation of protected areas, mining companies also need to consider what role they need to play. After all, the rehabilitation of old mine sites, be they open pits or underground

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operations, could provide large land areas for reforestation that would clearly help to improve the global environment. This work could not have been completed without the help and assistance of my long-suffering wife, Helen, who has encouraged and helped me through the dark periods when it looked as if it would never be completed. I also need to express my sincere thanks to all of those across the coal industry who have helped and provided me with information ± even if it only accounts for a sentence in this text. After all, it is this information that helps to create a single picture of an industry that remains split into a disaggregated part of global energy supply. As I mention above, I believe that the international coal trade is set to change dramatically over the course of the next few years, and this will be of as much importance to producers as to consumers. I hope that this work will aid their understanding of the industry and will help them formulate strategies to take advantage of these changes when they occur. Charles Kernot

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About the author Charles Kernot, head of metals and mining research at BNP Paribas, was educated at Winchester College and the Royal School of Mines, Imperial College, where he obtained his honours degree in mining geology. Since joining the City in 1985, he has researched all areas of the metals and mining industry, and has specialised in the coal sector, writing a book on the privatisation of British coal in 1993. Prior to joining Paribas in 1995, he was head of international mining research at Credit Lyonnais Laing. He is also a Member of the Institution of Mining and Metallurgy and the Association of Mining Analysts.

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1 Coal from the earliest times 1.1

The early days

1.2

How coal was mined 1.2.1 Origins 1.2.2 Water removal 1.2.3 Gas detection 1.2.4 Mechanical mining

1.3

Costs and capital

1.4

Transport 1.4.1 Canals cut costs 1.4.2 The age of the train

1.5

The social cost

1.6

The start of unionism

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1.1 The early days The earliest reference to the use of coal in Europe was by Theophrastus, the successor of Aristotle as head of the academy in Greece. In his treatise `On Stones' he describes a substance that was dug up in Liguria, north-west Italy, and Elis, in Thrace, because it could `be set on fire and burnt like charcoal' and was `actually used by workers in metals'. Whilst this substance is now thought to have been lignite rather than coal, it represents the first direct reference to the use of a mineral for fuel ± although the rarity of references to the use of lignite, or coals from the earth, indicates that it was not widely used during the Greek ascendancy. In the United Kingdom coal has been used at least since Roman times and probably from long before. The earliest indications come from Hadrian's Wall, where Roman troops are thought to have burned coal in order to keep out the Scottish cold over the long winter nights; and from Bath where coal provided the sacred flame in the Temple of Minerva. The destruction of forests in China also led to the early use of coal in the Asian region. One of the first recorded operations was the Fushun mine in Manchuria, which provided coal for copper smelting between AD1200 and AD1300. Despite these early sources of demand, mining is unlikely to have been carried out on an organised basis until the eleventh or twelfth centuries, and the initial gathering of coal probably took place where seams were exposed at the surface. Indeed this surface expression was one of the beneficial factors behind the early economic growth of the United Kingdom and meant that the country became the world's first major coal producer. Specifically, the first concerted efforts to extract coal in the United Kingdom were along the north-east coast, where coal seams were exposed by the erosive effects of the North Sea. This brought the fuel to the attention of the local population, which burned cheap coal in preference to the more expensive wood. It is in the thirteenth century that coal gets its first specific mention in the United Kingdom. Surprisingly, perhaps, there is no direct reference in the Domesday Book and neither did any of the other chroniclers of the earlier centuries give coal any mention. Consequently, the first explicit reference to the fuel seems to have been by the Bishop of Durham, in 1200, when he attempted to promote the development of coal in the Tyne Valley.

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In 1257 Queen Eleanor was forced to flee London because of the `fumes of the sea coals' and both Seacoal and Old Seacoal Lanes are to be found by Ludgate Circus in the City of London as a continuing reference of how coal was originally taken to the capital. Indeed, by far the easiest method of transport from the coal-mining area on the north-east coast to London was by coaster. The roads were in a dire state and it was not until the middle of the eighteenth century that the canal building programme really got underway. Notwithstanding London's increasing demand, the difficulty and expense of transport meant that there was little movement of coal from its immediate source until the thirteenth century and even this was not significant. Indeed, the majority of coal produced until the start of the sixteenth century was used within a two mile radius of a mine, and was largely restricted to the poor who could not afford to buy wood. The preference for wood was largely related to the lack of chimneys in most houses, which often just had a single central fire. As coal fires are sooty and smelly the cleaner, and in some cases more aromatic, wood was burned in preference to coal despite commanding a higher price. The population of London increased four-fold between 1500 and 1600, which led to such a great increase in demand for food that the surrounding land was cleared of forests and converted for agricultural use. Therefore, as with China, London's demand for coal was because the forests had been denuded and there was little other locally produced fuel available at an acceptable price. As coal could be transported by sea it could be moved right into the centre of the City and, therefore, directly to its market. This meant that there was little need for expensive overland movement and the low incremental cost of shipping greater distances meant that coal could be brought from further afield. The use of coal in London is first documented on a consistent basis by Westminster School, which kept records of the prices it paid for coal between 1585 and 1830. These prices are detailed in Fig 1.1, which shows that there were often marked fluctuations in the price that the school had to pay for its fuel supplies. These prices were often linked to periods of rising or falling prices generally, and the rise in price during the high inflationary period of the Napoleonic Wars at the start of the nineteenth century is clearly shown. This price rise is related both to inflation and the lack of manpower with troops fighting

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1.1 Prices of coal at Westminster School 1585±1830 (source: Kernot, 1993).

on the continent but is also related to the danger of attack by French privateers which sought to prevent coal reaching London. It should further be considered that most of the other known European coal regions were still in politically unstable countries and principalities and that there was therefore little threat of import competition. Both Belgium and Germany had large coal reserves but these countries were not in a position to invest large amounts of capital in order to serve the British market. This was despite the ease of access down the Ruhr and across the Channel. Therefore, mainland Britain was left in relative peace and security and this helped to promote the investment of capital in increasingly large-scale operations. Indeed, by the start of the eighteenth century coal was being mined in all known coal-bearing areas of the United Kingdom, with the exception of the deep Kent coalfield where mining did not start until the early twentieth century. It is difficult to estimate the total amount of United Kingdom coal production until the middle of the nineteenth century as the first country-wide statistics were not collated until 1854. Nevertheless, the annual production of coal probably averaged some 210 000 tonnes (t) in the 1550s and slowly grew to around 2.25 Mt in 1660, 2.5 Mt in 1700 and around 6 Mt in 1770. The sixteenth century saw the start of the

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1.2 Coal production in the United Kingdom 1550±1998 (source: Author).

upturn in coal output together with the first real increase in transportation to areas other than London. The increase in demand and production is sometimes referred to as `the sixteenth century coal rush' (Fig. 1.2) although the increase in production during the nineteenth century was clearly much more significant.

1.2 How coal was mined 1.2.1

Dunite

The first descriptions of coal mines in the United Kingdom exist from the fourteenth century when mining appears to have become an entrepreneurial operation with the coal often worked for sale rather than for personal consumption. In 1316 there is a description of a mine at Cossall in Nottinghamshire being worked by 12 men. Their payment of 12 old pence (12d) a pickaxe (equivalent to about 4d/t) was probably around one-third of the selling price of the coal at the time. The sixteenth century is also important as it shows the beginnings of the division of labour as the first full-time, specialist miners are recorded. Before this mines were small-scale operations employing no more than twelve individuals who were from the locality. Even so these workers would not have been employed for the

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full year as the need for agricultural labour during harvests meant that they were often relieved of their duties to help elsewhere on their lord's estate. Indeed, the ownership of the early mines was restricted to the few landowners in the vicinity of the coast and, for many years, one of the largest was the Church. Only the dissolution of the monasteries in the 1530s brought these properties into wider ownership. This additionally occurred at the time that London was starting to suffer from a timber famine, thereby stimulating the search for alternative sources of energy. The mines from which the coal was extracted were nothing like the great enterprises that exist today. As mentioned above, they employed probably no more than a dozen people and they were either simple drift mines cut into a hill or cliff, or they were bell pits dug out from a single shaft sunk into the ground. These pits could only extract coal from a restricted area at the bottom of the shaft because of the danger of rockfalls and the lack of ventilation provided by only one entrance. Indeed, it was not until the Hartley Colliery disaster in 1862, when 204 men suffocated at the bottom of a shaft because they had no other means of escape, that it became mandatory for two shafts to be sunk in every coal mine. As far as mining techniques were concerned, the introduction of improved ventilation through the use of brattices (doors or screens) to guide fresh air through the mines started in the 1750s. The decade also saw the introduction of pit ponies for the first time and, in this context, it is strange to consider that they were still employed in a handful of collieries in the 1980s. Whilst these improvements cannot be considered revolutionary they certainly helped mines to increase output to match the increase in demand that was occasioned by the industrial revolution in other sectors of the economy.

1.2.2

Water removal

Access to capital was important as the industry developed and expanded because of the need to pay for the technological improvements that were being made and could increase the production of coal from a mine. In particular, the development of the steam pumping engine was important as it enabled mechanical rather than manual removal of water from most underground mines accessed by a shaft. In 1698 Thomas Savery devised a steam pumping engine for the

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removal of water from underground mines in Cornwall. Unfortunately, the pump was inefficient in its energy consumption and it was necessary for Thomas Newcomen to make energy saving innovations in 1708 before the pump became more commercially viable. Demand for the modified pumps then spread across the country and by the start of the industrial revolution in the mid-eighteenth century there were around 100 pumping engines in the Tyne and Wear district.

1.2.3

Gas detection

There was only one major advance in the production of coal during the industrial revolution ± and some said at the time that it should not have been considered as an advance at all. This was the invention of the Safety Lamp. The need for safe illumination underground was well recognised in the industry and the sinking of deeper mines in order to increase output necessitated the development of a new method. This was because the deeper a mine, the poorer and more restricted its ventilation. In 1812 an explosion in the Brandling Main (or Felling) Colliery, near Durham, led to the formation of the Sunderland Society for the Prevention of Accidents in Coalmines. In 1815 the society appealed to Sir Humphry Davy to investigate methods of improving the safety of illuminating the mines, and this led to his development of the Safety Lamp. While Sir Humphry Davy later won most of the credit for the invention, his was only one of three lamps developed between 1813 and 1815, and it seems to have worked by default as he did not understand the real reasons for the success of the lamp. The other lamps were produced by Dr Clanny and George Stephenson and worked on a similar principle, restricting the amount and temperature of the air passing over the flame and thereby reducing the risk of an explosion that would have resulted from higher temperature combustion. The problem the miners faced as a result of these advances was that they were then able to extract coal from areas with poorer ventilation. This increased the potential problems of asphyxiation as a result of excess amounts of carbon dioxide (blackdamp or chokedamp) and the poisonous carbon monoxide (afterdamp) rather than the explosive methane (firedamp). This situation led to a comment by John Buddle to the 1829 House of Lords Committee into the mines

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that `we are working mines from having the advantage of the safety lamp, that we could not have possibly worked without it'. Although it was not recognised at the time, poor ventilation would have enhanced the likelihood of the miners contracting pneumoconiosis and other respiratory disorders.

1.2.4

Mechanical mining

If mechanisation is used as a strict definition of industrialisation then the industrial revolution of the British coal-mining industry did not start in earnest until the beginning of the twentieth century. The first real industrial advance was the introduction of mechanical cutting tools in the late nineteenth century but by 1900 they only accounted for 1% of the total of 228.4 Mt of coal mined in the country. The further developments of power loading and mechanical conveying were not introduced until the 1920s and 1940s, respectively, leaving the British coal-mining industry at the bottom of the world productivity table. This is not to say that there were no important innovations in the industry except for the development of the Safety Lamp. Indeed, in 1777, long before it was used above ground, the cast iron rail was being employed by Joseph Curr to aid underground transport. A wheeled corf, or wagon, was also invented by him to run on the rails and had the advantage of being able to be hauled straight up the shaft with no need to move the coal from one container to another, again reducing costs. These corfs were also hauled along the tracks using pit ponies rather than the women and boys who had previously been employed for the task. This meant that the miners could keep more of their money without the need to pay others to haul their coal out of the mine. However, it also meant that there was a large number of unemployed women and girls in the mining towns and villages and this labour attracted the textile millers who were setting up at the time. The delay in the implementation and introduction of new techniques and equipment was one of the reasons behind Britain's poor performance in the years between the two world wars. Whilst the productivity of a mine, of necessity, declines with age, a move to mechanical cutting and power loading can increase the output per man-shift considerably. However, one of the difficulties of moving to

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the new techniques was that many of the mines had already been constructed before the advances were made. As a result, the cost of altering the existing mine infrastructure was too great to overcome, especially because the availability of relatively cheap labour meant that the extra expense did not need to be justified.

1.3 Costs and capital As the early operations were small-scale affairs they had little need for capital beyond the work that was put into them by the miners. In 1350 a mine at Coundon near Bishop Auckland in Durham cost 5 shillings (s) and 6d to set up, including the cost of ropes, scopes and windlass. Prior to the development of efficient pumps the mines would not have been very deep so it did not take long until a new mine began producing coal and paying its way. Hence what might appear to be a relatively low cost of capital. There are other examples of the industry from the period which include lease payments for the land from which the coal was produced. Lease payments were a significant part of the total cost of coal and by the seventeenth century they had been transferred into royalties specifying a payment based on the production from the mine. This was deemed necessary because the landowners started to realise that the coal was a wasting asset and that they should seek some return from this asset rather than the use of the land from which it was produced. When a landowner wanted to let out the production of a particular area the miners could be charged both rents and royalties. The leases that were offered were normally for a period of 21 years at most and were sometimes only for a shorter period. This meant that the first mines were only relatively short-life operations and that large amounts of capital could not be recouped unless the owner had the freehold rights to the property and could be guaranteed long-term tenure. These royalties were initially very high in comparison with the royalty fees that are payable today, although this was partially due to the high rates of inflation during the period 1540 to 1620. By the late seventeenth century royalty rates averaged 5d/t, although some were as high as 1s/t, around a quarter of the pit-head selling price. In his

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Inquiry into the Nature and Causes of the Wealth of Nations Adam Smith mentions that `in coal mines a fifth of the gross produce is a very great rent; . . . and it is seldom a rent certain, but depends upon the occasional variations in the produce'. One reason for these high rents, or royalties, was because of the one-third rents that were paid on agricultural produce at the time. The mention that the one-fifth payment is `a very great rent' is to emphasise that it is still less than agricultural rents despite the much lower security offered by mining operations. Smith expanded this by stating that the variations in production `are so great that, in a country where thirty years' purchase is considered as a moderate price for the property of a landed estate, ten years' purchase is regarded as a good price for that of a coal-mine'. The expansion of industry during the seventeenth and eighteenth centuries required ever larger amounts of coal and the consumers also became dependent upon a secure source of supply. Both of these factors were important in the move of many manufacturers and merchants into the coal mining business, in addition to the need to control the cost of supply. This is shown in Gray's Chorographia, in 1649, where he mentions a group of Londoners buying 30 year mining leases on the Tyne. One of the advantages that these early entrepreneurs and capitalists had was a cheap source of capital. Even though inflation was relatively high during the sixteenth and early seventeenth centuries, the Usury Laws kept the cost of capital very low. The maximum rate of interest that could be charged was lowered from 10% to 8% in 1625 and then further reduced to 6% in 1657 and 5% in 1714. Subsequently, in 1720, the bursting of the South Sea Bubble led to the introduction of legislation that effectively halted the development of equity financed companies with limited liability. Until the `Bubble Act' was repealed in the nineteenth century, only a few companies were set up with the equivalent of limited liability under the aegis of a Royal Charter. Consequently, most of the development of the coal-mining industry was undertaken by groups of merchants who had access to family capital and who could also borrow money from each other. In the nineteenth and early twentieth centuries one further constraint on the mechanisation of the British coal mines was the lack of available capital in the industry. This was exacerbated by the great

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railway boom of the 1840s, which also attracted much of the free capital available. Indeed, by December 1845 there were 260 different railway shares (including preference and debenture stock rather than just basic equity capital) quoted on the London Stock Exchange, and in 1846 a total of 273 railway bills received Royal Assent. These new companies were made possible by the 1844 Registration Act which was then extended by a second Act in 1856 that offered limited liability to all companies registered under the 1844 Act. Whilst new companies went straight to the equity market for funds, many private concerns in the coal, engineering and iron industries just took advantage of the protection offered by limited liability status. This was particularly important because a profitable mine could be brought down by the bankruptcy of a shareholder. It was intended that the removal of personal liability would prevent this from happening.

1.4 Transport Whilst the nineteenth century development of the railways boosted demand for coal the inadequate transport network in earlier centuries forced up the price of coal away from the pit-head. It was not until the 1750s and 1760s that canals, and other advances in transportation, helped to reduce the price of coal to levels that started to stimulate demand. These years also saw an increase in coal exports from England and Wales and began the start of a major export industry for the country (Fig. 1.3). The middlemen who transported coal by sea to London also charged for their services, and the retail price of the coal was about 24s 3d for a London chaldron at Westminster in 1700. The `chaldron' was a unit of weight that was in use in both London and the Tyne. However, the Tyne chaldron seems to have varied in size over time thereby making comparisons difficult. In London the chaldron was equivalent to some 28.5 hundredweight or 3192 lbs (1.45 t) and the price of coal therefore works out at some 16s 9d/t ± a mark-up of about 600%. The high rates of inflation during the period may take some of the blame for this but much of the increase in price is related to the actual cost of transport. Nevertheless, the merchants had something of a monopoly on the transport of the coal from the coalfields to London and made use

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1.3 United Kingdom coal exports 1697±1939 (source: Kernot, 1993; Mitchell & Deane).

of this by making sure that their profits kept pace with the inflation of the period. In 1590 the Lord Mayor of London complained that the price of coal had risen from 4s to 9s a chaldron since the early 1580s when the Grand Lease of Newcastle traders was set up as a monopoly. In 1600 the Grand Lease was formally incorporated by Royal Charter as the Company of Hostmen. There were originally 24 important partners in the Grand Lease but by 1622 the number of members of the Company of Hostmen had grown to 31, as the profitability of the enterprise became known. As the cost of coal transport in the early 1700s was so great, the expanding metal mines started to ship their output to the coalfields rather than the other way around. For instance the much greater amount of coal needed to smelt the copper and tin produced from the mines of Devon and Cornwall meant that it was cheaper to take the ore to Swansea for smelting where coal was around half the price that would have to be paid in Cornwall. Coal still had to be transported to Devon and Cornwall to power the pumping engines but this was relatively insignificant in comparison with the amount of coal needed in the smelting operations. Bristol also lost out to the cheaper fuel from Wales despite its better position to supply end markets. Indeed, by 1750 over half of the total copper and lead production of the country was smelted on the south Wales coalfield.

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1.4.1

Canals cut costs

The British road network was poorly maintained and often impassable during spells of bad weather. This meant that internal trade was often slow and expensive and that access to many parts of the country in the mid-eighteenth century remained difficult despite the vast expansion in navigable rivers. Where canals had been started they were only relatively modest in scope and did not have a great effect on the movement of produce. However, the last 30 years of the eighteenth century saw a massive move to canal construction with the result that many prices fell, sometimes drastically, as the availability of produce increased. In 1724 there were some 1000 miles of navigable rivers, an amount that had doubled over the previous century. For instance, Liverpool council stated its desire to improve the waterways in the south Lancashire and Cheshire district and ordered surveys to be taken to help in the task. In particular, they wanted to improve transportation between the river Ribble and the Wigan coalfield, and along the Mersey, both south using the river Weaver to get to the Cheshire saltfield at Winsford and north up the river Irwell to that coalfield. The most famous canal of the period was that constructed for the Second Duke of Bridgewater between 1759 and 1761, in furtherance of a project started by his father. The canal was built by James Brindley and included an aqueduct and 42 miles of underground waterway to take the Duke's coal from his colliery at Worsley almost to Manchester. The last stretch of the canal into Manchester was completed in 1763 and was helped by the low level of interest rates at the time. The construction of the canal at a price of some 10 000 guineas a mile halved the price of coal in Manchester and led to a massive increase in the number of other canal proposals. Indeed, like motorways that attract traffic, the reduction in the price of coal brought about by canals stimulated and increased demand to such an extent that they provided a high initial return on investment. Such was the increase in the demand for coal from the Duke's mine that he is reported to have said that `a navigation should have coals at the heel of it'. And in 1785 J Phillips' book A Treatise on Inland Navigation stated that the Duke's `mine had lain dormant in the bowels of the earth from time immemorial without the least profit

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to the noble owner, on account of the price of land carriage which was so excessive that they [the coals] could not be sold at a reasonable price'. The success of the Bridgewater Canal and the massive boom in canal construction across the country can be shown by the large number of Private Bills sponsored through Parliament to authorise the building of the new waterways. Of the 165 Canal Acts that were passed through Parliament between 1758 and 1802 there were 90 that expected coal to be the major commodity carried. The main link from the Midlands to London was started in 1793 and completed in 1805 when French privateers were causing trouble along the coastal routes. Additionally, a total of 160 miles in the vicinity of Birmingham gave a great impetus to the construction of collieries in the Midlands coalfield as they gave access to the sea as well as to London. Between 1724 and 1815 the increase in the availability of water transport had been phenomenal, with a further doubling in the length of navigable rivers to 2000 miles and some 2200 miles of canal network had also been constructed.

1.4.2

The age of the train

The invention of the rotary steam engine and the age of the train led to a massive increase in the demand for coal. Not only was it required for the obvious powering of the engines themselves but also it was needed to make the iron both for the trains and for the tracks. The great age of the railways really started in the 1840s and continued for much of the rest of the century, helping to spur the development of the coal-mining industry at the same time. Indeed, between 1841 and 1901 the mining areas attracted around 500 000 people from rural parts of England and Wales and by 1851 there were 216 000 men and 3000 women employed as coal miners throughout the country. Although the Stockton and Darlington, the first public railway line with a moving steam powered engine, did not open until 27 September 1825, the initial work on steam engines had started at the end of the eighteenth century. This was encouraged by the need to transport the coal from the pit-head to roads or rivers where it could then be shipped to other parts of the country. Initially, during the seventeenth century, large collieries placed wood on the ground to ease the movement of wagons. In the early eighteenth century the

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greater availability of iron meant that the wood started to be replaced by iron plates, particularly at bends where the wear was greatest. In 1767 the first track was laid by Richard Reynolds from Coalbrookdale to the river Severn. It used rails with flanges to keep the wagons in place but, as this was found to be inefficient at keeping the wagons on the rails, the flanges were transferred from the track to the wheel following the advice of John Smeaton in 1789. The Stockton and Darlington was a particularly important railway in view of its effect on the movement of materials. Like the development of the canals some 40 years earlier, this railway's prime motive was to transport coal in order to break the effective monopoly on the production and distribution of coal held by the colliery owners of the Tyne. The construction of the railway was intended to open up the country to the south so that new mines could be dug and the monopoly broken. It was the idea of a group of three Quaker businessmen, Pease, Richardson and Backhouse, and was made possible because of the invention of a movable engine rather than one that was fixed in position and wound wagons using a cable. The power of the engine had also been increased by George Stephenson who was able to improve engine efficiency by increasing the draught of the fire box so that it could pull more than its own weight. He first built locomotives for the Killingworth Colliery in 1814 and served as the engineer for the Stockton and Darlington railway. This experience must have helped him to win the Rainhill competition on the Liverpool and Manchester line between 6 and 14 October 1829, which showed that steam engines could offer faster travel than other alternatives. As with the canals, the opening of new railway lines reduced the price of coal in the areas they served, and this helped to increase the demand for the product. By the end of the 1840s a skeleton network of some 5000 miles of track had been completed, whilst by 1886 the final total of 16 700 miles of track had been laid. Overall, however, there were periods during which the expansion of the mining industry could not keep pace with the development of the railways and the price of coal was forced up. This was often only a local effect in areas of iron and steel production as manufacturers needed to purchase coal in order to maintain and increase output. It must also be related to the integration of many coal and iron companies which would supply their own plants first before selling any excess production on the open

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1.4 Coal prices fob export 1831±1913 (source: Mitchell & Deane).

market. If there was insufficient coal to meet demand then the price would be forced up because of the need to transport it from collieries further afield. The fall in price is shown if Fig 1.4 is compared with Fig 1.1 detailing the price of coal delivered to Westminster School in London. Fig 1.4 also includes a real price index to show how the deflation of much of the nineteenth century led to a real rise in the price of coal.

1.5 The social cost There can be no discussion of the history of coal-mining without reference to the social cost of the industry. The early miners in the United Kingdom had little in the way of protection and rights of employment and the yearly bond by which a miner was tied to a specific colliery was often the subject of a dispute. The other main problem covered the legislation of the period with one particular Act in 1610 stating that any able-bodied person who even threatened to run away from his or her parish could be sent to a house of correction and be treated like a vagabond. The other restriction of the yearly bond was that it would last for a year less one day. This was because of the Poor Law legislation which meant that a parish had to look after any inhabitant who had

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spent more than one year within its boundaries. If a miner had to travel to a different parish to work there was often much disaffection between the new arrivals and the original inhabitants. This was particularly the case with small villages far from large-scale habitation that could be overwhelmed by an influx of miners to open up a new colliery. In 1606 the inhabitants of a Shropshire village complained to their landlord that the new colliery had brought with it `a number of lewd persons, the scum and dregs of many [counties] from whence they have been driven'. As already mentioned, the seventeenth and eighteenth centuries saw an increasing amount of industrial specialisation as miners started to concentrate fully on mining with little time spent on the farms of their landlords except, perhaps, at harvest time. The sparse population in many rural areas also failed to help matters as the increasing need for manpower meant that local food production could not be maintained if a mine was to be opened up. It was therefore necessary to import labour into new coalfields and to ignore the resentment shown by the indigenous population. One of the areas particularly deficient in inhabitants was Wales and the Society of the Mines Royal was given the right to conscript labour in the country in 1625. The power of the local lord was often sufficient to put down any complaint during the pre-industrial age. This was partly because of the relatively small number of employees working in any one mine and partly because of the still feudal nature of society at that time. Indeed, the feudal nature of the coal-mining industry in Scotland continued into the nineteenth century with the employees being included in any purchase agreement over a mine. It is only during the late eighteenth and early nineteenth centuries that the increasing size of the workforce meant that it could start to organise itself to greater effect. It was also the case that the increasing move to towns and cities meant that the feudal system started to break down and that the control that could have been exercised in the past became less effective. The increasing wealth of merchants and the power that this conferred on them also meant that the authority of a local lord was reduced. The merchants then came to usurp the previous system of feudal control and often purchased property directly, whether for mining or agricultural purposes or both. One of the most significant Parliamentary enquiries into the state

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of employment in the British coal mines was the First Report of the Commissioners on the Employment of Children, which covered their employment in coal mines and was published in 1842. The Commissioners set themselves to look at 14 separate aspects of children's employment, including their ages and the hours that they were expected to work. One of the most revealing details was the very young age of many of the children who worked in the pits, often with very little supervision and left for long periods on their own in the dark. `The lowness of the roof or the thinness of the bed of coal . . . is no doubt the cause of employing boys instead of horses or asses' to move the coal was one of the conclusions of the report, which found children as young as six or seven at work. The publication of the report led directly to the Mines Act of 1842, which forbade the employment of boys under ten and all females with a penalty of £5 to £10 for each offence. The numbers of people employed per thousand adult males (of which there were around 200 000 at the time) is shown in Table 1.1. This preoccupation with the value of life in the industry led to the formation of some of the most militant unions to represent the miners in their claims for better pay for the work which they undertook in such frightening conditions. Table 1.1 Number of individuals employed in British coal mines per 1000 adult males County

Adult Females

Leicestershire Derbyshire Yorkshire Lancashire South Durham Northumberland & N Durham Mid Lothian East Lothian West Lothian Stirlingshire Clackmannanshire Fifeshire W. Scotland Monmouthshire Glamorganshire Pembrokeshire

22 86 333 338 192 228 202 184 19 424

13 to 18 Males Females 227 240 352 352 226 266 307 332 289 283 246 243 223 302 239 366

36 79 184 296 154 129 213 109 19 119

Under 13 Males Females 180 167 246 195 184 186 131 164 180 184 142 100 99 154 157 196

41 27 52 103 109 107 87 34 12 19

Source: First report of the Commissioners on the Employment of children in mines.

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1.6 The start of unionism Many of the problems of poor working and living conditions were beyond the control of the miners during the nineteenth century. The British population was increasing at a much faster rate than in earlier centuries and this led to a greater pressure on the workforce to find employment. This meant that there was often little option but to accept the conditions laid down by the mine's management during the early part of the period. Indeed, the lower standing of the workforce can be seen from the civil offence with which employers were charged for breach of employment contract, rather than the criminal offence with which the employee would have been charged for a similar offence. As time progressed, the widening of the voting register helped to introduce a fairer spread of views in Parliament with a succession of Commissions, Enquiries and Acts during the century. As far as the mining community was concerned, the first whisperings of unionism had started in the years following the defeat of the French at Waterloo. The recession between 1825 and 1840 led to the start of several small unions that sometimes succeeded in achieving their aims and were sometimes defeated by the employers. Nevertheless, as the scale of industrial operations became larger, it became necessary to treat the workforce on a collective basis. It followed that the repeal of the 1799 and 1800 Combination Acts was required so that the formation of employee groups, which could engage in collective bargaining, was possible. These Acts were repealed in 1824 and 1825. The spread of political thought also moved into the mining communities during the nineteenth century, although there appears to have been little influence from the Chartist movement in the 1840s. This may have been part of the reason for the delay in the miners getting the right to vote until the Reform Act of 1884. This followed from the previous Act of 1867 (when working men in towns were enfranchised) and the widening of the franchise and redistribution of seats which was given in 1832. Despite this the first miners to be elected to Parliament in 1874 were Alexander Macdonald and Thomas Burt, both of whom sat as Liberals.

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2 International discoveries 2.1

Introduction

2.2

Australia

2.3

Bulgaria

2.4

China

2.5

Hungary

2.6

Indonesia

2.7

Poland

2.8

South Africa

2.9

United States of America

# Charles Kernot

2.1 Introduction During the eighteenth century, the transport of coal in coasters from the north-east coast to its main market in London meant that the fuel started to become important to Britain's shipping industry. The expansion of the British colonies also made an important contribution to the size of the British fleet as a consequence of increasing trade, and this saw coal transported internationally to meet specific areas of demand. The nineteenth century development of steel production increased the amount of steel-hulled shipping and encouraged the use of steam engines for propulsion, thereby generating an increased demand for coal in locations further away from the source of supply. Initially, these steam ships were recharged with coal transported from the United Kingdom's own mines and stored in purpose-built bunkers around the world. However, the discovery of coal in other locations encouraged the development of local production given the economic advantages this offered. In addition to the need for coal to power growing international trade, the economic growth of many countries also increased their demand for energy ± and hence coal. The early industrial heartlands of the United States were centred in areas where coal was readily available to provide cheap power. This was also true of France, where the steel and metallurgical industries were centred in the north-east of the country and in the central region of the Massif Central, where coal and iron ores were also available. Moreover, as indicated in the previous chapter, the United Kingdom did not hold onto its market dominance for long. Indeed, mines developed with the technology of the eighteenth or early nineteenth centuries were unable to compete with the mines constructed later in the nineteenth or in the early twentieth centuries. Indeed, the first mines effectively just scraped coal from the surface ± with little need for deep mining and the associated high requirements for and costs of both capital and labour. Coal deposits in other parts of the world benefited from nearsurface locations, which had been exhausted in the United Kingdom, and also from very amenable geology. This meant that the coal could be mined more easily and efficiently ± especially with the benefit of newly devised techniques, which would be expensive to retrofit into

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existing mines ± and this helped other industrialising countries, particularly the United States, to overtake the United Kingdom's economic dominance in the early part of the twentieth century. It is interesting to note that whilst countries like Belgium and France increased coal production rapidly in the nineteenth and early twentieth centuries, their industries have now almost completely closed. This reflects the low level of reserves present in these countries, which meant that they were unable to sustain demand for any considerable length of time. The United States, conversely, saw a steady increase in production into the middle of the twentieth century but then, as oil became the dominant source of energy, there was a marked decline in local coal production. This situation is now reversing with increasing demand for electricity ± which can often be more economically generated from coal. Figures 2.1 and 2.2 show coal production in the United States and France to indicate the different levels of output from the two countries, and can be compared with Fig. 1.2, which details coal production in the United Kingdom. In recent years, the global coal sector has seen some consolidation. This has been driven by low coal prices and a desire of some organisations to stem losses, whilst others have hoped to improve profitability through economies of scale and other mining-related benefits. Strategic decisions by the major oil-producing companies to pull out of coal-mining, so that they can concentrate on their core oilbased operations, have also influenced mergers and acquisitions across the sector. This strategy has seen disposals by Arco and Shell,

2.1 US coal production 1831±1998 (source: EIA, OECD; Facts about coal; Author).

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International discoveries

2.2 French coal production 1850±1997 (source:OECD; Author).

whilst other oil companies such as Total (especially now that it has merged with Elf), Exxon and BP Amoco may not be far behind. The coal assets that have been offered in this way have largely been purchased by large conglomerate mining companies rather than by companies concentrating on the sector. This is a strange situation given the wide-ranging acquisitions of operations in the aluminium sector by companies such as Alcoa and Alcan, which would offer them the opportunity to supply customers on a truly global basis. The same is true of the copper sector, but coal mines have either been subsumed into large organisations or have been bought by coal-mining companies with operations in a single country. The other point to bear in mind is that the companies that have bought into coal assets have not been selective about the type of coal purchased, which means that most coal-miners have a range of coking and thermal coal operations. Whilst there are synergies offered by a knowledge of coal-mining technology and techniques the ability to market and sell the final product is paramount for a successful operation. In this case, the two different markets for steam and coking coal are not served by dedicated organisations but, rather, by companies with a broad specialisation across the sector. From an international perspective it is also important to ensure that any acquisition of a mine or a deposit has sufficient infrastructure and access to enable the mine to operate with minimal additional costs. Furthermore, an existing or potential market in the form of a local electricity producer or steel mill could well add to the attraction

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of an operation. This is because it may be able to sell the coal at either the same or at a slightly lower delivered price than that obtainable by the consumer from other sources but still at a higher price than it could obtain elsewhere. If coal is being produced for the export market then access to road, rail or sea will be of prime importance and is one of the reasons for the impressive development of the Australian coal-mining industry.

2.2 Australia The first non-Aboriginal discovery of coal in Australia was made by William Bryant, an escaping convict, at the mouth of the Hunter River near Newcastle in New South Wales in 1791. Subsequently, in 1797, the first coal mines were built, supplying the bulk of the country's domestic needs. Moreover, the relative proximity of Australia to the other British colonies of the Pacific and Indian oceans helped in the development of an export industry and in 1799 coal was the first mined product to be exported from Australia when it was shipped to Bengal, India. At that time, annual exports only amounted to some 4000 t in comparison with New South Wales's current exports of around 75 Mt. The first official coal-mining operations were set up as a monopoly by the State Governor, Philip Gidley King in 1801, and employed convicts as miners in increasing numbers. By 1804 some 128 convicts worked in the operations, increasing to 553 in 1817. Even the first private mining operation employed more convicts than free men from its foundation in 1831 until 1843. This operation was set up near Newcastle by the Australian Agricultural Company (AAC) and produced 40 000 t in its first 12 months of operation, supplying coal to various steamships including Sophia Jane, the first paddle-wheel steamer to enter the Sydney Heads. Like the first government-run mine, AAC's operation was run as a monopoly but this was eventually overturned in 1847 and production expanded dramatically so that by 1868 it had increased to 18 times the 1848 level. Mining production in New South Wales continued to expand, reaching 1.3 Mt in 1881, 1.5 Mt in 1888 (when total Australian output reached 2.5 Mt) and 3.5 Mt in 1900 as more deposits were discovered and mines constructed. Some of these deposits contained coal with

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better characteristics than the initial discoveries, including the Borehole Seam near Newcastle (1850) and the Bulli Seam in the Illawarra district, which was found in the 1850s and contained a good coking coal. The development of associated industries, such as coke manufacture, iron- and steel-making and town gas generation for street lighting, increased demand, and production from these discoveries was able to provide supplies. One of the least expected locations for a coal mine is under Sydney harbour but construction of the Sydney Harbour Colliery started in 1897 after drilling proved the geological theory of a deep coal basin in the area. At this time the attraction of reduced transport costs offset the 2900 feet depth of the 10 foot coal seam discovered by the drilling, even though only a relatively small proportion of the coal could be extracted given the requirement to support the roof of the mine. Shaft-sinking took five years to complete and, initially, intersected several thin seams. This disappointment led to the reconstruction of the company and a decision to mine in the direction of the original drillhole discovery. Whilst the thickness of the seam improved, the company failed to generate any cash and mining eventually ceased in 1915. In 1924 the mine was restarted by Sydney Collieries Ltd but continuing financial problems required a second capital reconstruction as a co-operative, with the miners operating as the Balmain Coal Contracting Company Ltd. This scheme was successful for a short time but by 1931 the worldwide depression and industrial problems forced the companies into liquidation. Some work has since been undertaken looking into the possibility of extracting methane from the coal seam but this, too, has proved unsuccessful. In 1909 the mines in New South Wales were paralysed by a lengthy strike, and Victoria, which had relied on New South Wales for its coal, looked for alternative sources of supply. Coal had already been discovered at Wonthaggi, 150 km north of Melbourne, and the state government authorised the development of an emergency coal mine to stave off the threat to local industry caused by the closure of the New South Wales collieries. With a depression in the local gold-mining areas around Bendigo, the new mine attracted over 2000 individuals with aspirations of working in a state-controlled operation. Unfortunately, state ownership did not live up to expectations with the local authority refusing to

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give the mine a monopoly position in supplying Victorian demand. Moreover, the colliery was placed under the management of the railways department, which had little practical knowledge or understanding of the industry. Strikes occurred even in the early years of operation and continued to be a factor of the entire life of the Wonthaggi State Coal Mine, which became a hotbed of Australian unionism. This was enhanced by the dire working conditions at the colliery and by the loss of at least 80 lives during the 59 years that the mine was in operation. Over this time the miners produced at least 16 Mt of coal, sometimes waist-deep in water, given the proximity of the mine to the sea. Nevertheless, the colliery eventually closed due to exhaustion on 20 December 1968.

2.3 Bulgaria The first state-owned coal mine opened in Bulgaria in 1891 and production increased rapidly thereafter to meet increasing local demand for the fuel. From output of around 130 000 t/year in 1900 production rose to 6 Mt/year by 1950. In the initial years all mining was carried out using underground techniques but, as equipment became larger and more efficient, open pit mining was also practised, as at the Maritza Iztok mine which opened in 1950. Peak production from Bulgaria's mines of around 38.5 Mt/year was achieved between 1986 and 1989, although production has since fallen considerably. The active mines still contain significant reserves and resources including 2.7 bn t of lignite, 324 Mt of brown coal and 11 Mt of black coal, which is still not considered a high quality coal. Internal consumption of coal is 85% for electricity generation, 4% for heating and 11% for other purposes. From the consumer's viewpoint, coal generates 39% of Bulgaria's electricity and provides 70% of domestic heat and power. This is achieved through 12 coal production companies, which have all been transformed into joint stock companies. The companies control over 20 mines, which in 1997 produced a combined total of 30 Mt, utilising both open pit and underground extraction methods. Bulgaria's coalfields can be zoned according to the quality of the coal that they contain. The south-west energy region stretches

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westwards from Sofia to south-west Bulgaria and includes the Sofia, Pernik, Bobov Dol and Oranovo Simitli coalfields, where a pilot mine closure programme has been initiated. The Marishki energy region comprises the east and west Maritza coalfields and the mines are located close to the regional power plants. Finally, the Sliven energy region comprises the Cerno More and Balkan mines, and is located in eastern Bulgaria.

2.4 China Coal-mining was one of the few major industries that had been developed before the Communist takeover of China, with production previously peaking at 66 Mt in 1942. This level of production was next seen in 1952 as the country recovered from the civil war that brought the Communists to power. The subsequent introduction of the country's first five year plan led to a resurgence in output growth as a direct result of increasing investment in the industry to about 12% of the State's total industrial budget. The second five year plan led to an emphasis on small-scale mining (which is now being closed down ± see Chapter 9) but this was not without problems at the time and between 1957 and 1960 about 110 000 small operations were opened in an attempt to increase local self-sufficiency. By 1974 small mining operations accounted for around 28% of total coal production within China. Most coal in the country is steaming or semi-soft coking and China, therefore, still needs to import hard coking coal to supplement its indigenous needs. In the period before 1960 growth in China's coal production was nearly 20% per year, but this fell markedly in the following 15 years to an average of only 2.8% per year. As a consequence of both the slowing in output growth and increasing oil and natural gas production, the overall share of coal in China's primary energy supply mix has fallen from almost 100% to only 73% of the total. Output of coal in China is detailed in Fig 2.3. The privatisation programme in China now means that many of the larger coal mining operations are looking for outside sources of capital. Two mining companies have so far been listed on local stock exchanges (Yanzhou Coal and Yitai Energy) and although the programme was halted in the late 1990s, as a consequence of

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2.3 Chinese coal production (source: Howe, 1978; China Coal Industry Yearbooks; Author).

economic instability across the Asian region and the low price of coal, it is expected to restart as economic growth picks up. China's known coal reserves of 264 500 Mt place the country third in the world league table, after those of the CIS and the United States. Most of the coal deposits are present in rocks of Carboniferous, Permian or Jurassic geological age, but have a great advantage in that the seams are often very thick, flat and shallow. These factors help to reduce mining costs, although they also sometimes require innovative mining techniques such as sub-level caving above a longwall, with the coal drawn from behind the supports. The recoverable tonnage of coal is split between 129.5 bn t of bituminous coal, 81.7 bn t of sub-bituminous coal and 53.3 bn t of lignite. In 1991 the average heating value of all coal mined in China was 22 GJ/t, with a sulphur content of 1.1% and an ash content of 30%. Two-thirds of all reserves are situated in the provinces of Shanxi, Shaanxi and Inner Mongolia. The bulk of the country's reserves of coal are located in western China, although only a modest proportion of output comes from the region as demand is concentrated in the east of the country. This problem is being addressed in many ways but mainly through investment in infrastructure. This is shown by the 2.5 times increase in the transport of coal between regions between 1952 and 1956, and that by 1956 coal accounted for 40% of all rail freight and remains at a very high level.

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2.4 Hungarian coal production (source: SZEÂSZEK; Author).

2.5 Hungary Peak production of coal in Hungary was in 1965 when some 31 Mt was produced from 134 coal mines that employed between 125 000 and 130 000 individuals. The number of coal mines has fallen consistently since then with 20 mines in 1996 and 19 in 1998. About 90% of the coal production in the country is destined for electricity generation (see Fig 2.4). By the start of the 1980s, the coal-mining industry in Hungary, centred around eight districts and was controlled through the  ). The district around National Ore and Mineral Mines Company (OEÂA Mecsek in south Hungary produces hard coal, although the majority of the country's production is of brown coal, from mines spread along the northern border with Slovakia. The first deposits are situated along the Austrian border to the west, then moving eastwards, there are the Ajka, OrosziaÂny and TatabaÂnya regions. To the east of Budapest the Borsod region sits along the Slovakian border, whilst just inland is the MaÂtra district, which is a lignite producing area. During the 1990s the Hungarian Government instituted a process of change across all sectors of the economy, with local prices starting to move towards world market levels. Unfortunately for the coal industry, this meant that prices were lowered and this, in turn, led to an increase in debt as local mining companies were unable to reduce costs to match the fall in prices. Indeed, during the

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period 1991±6 the coal-mining industry received subsidies of Ft4938 m (US$40 m). In 1990 the Hungarian Government set up the Restructuring Centre for Coal-Mining (SZEÂSZEK) to reorganise the structure of the industry. SZEÂSZEK, in turn, set up joint stock companies to control the mines and sell all of their output. The subsequent privatisation of the  began in 1991, with initial concentration on the metalliferous OEÂA mining activities of the organisation. One of the events that promoted the privatisation of the industry was the passing of enabling legislation by the Hungarian Government in 1993. The Mining Act introduced a range of Mining Laws that vested all in situ mineral resources in the state and allowed mining to be authorised by one of two routes. The first method is through a traditional permit granted to mining companies by district mining authorities for unclaimed areas. The other route is through a mining concession that covers closed areas. As with many Eastern European countries, most of the organisations had various subsidiary activities under their control, which had to be subsidised from their own budgets. As part of the initial move towards the privatisation of the industry the subsidiary companies were spun out into separate satellite organisations. At the same time the coal-mining companies were restructured into three organisations that integrated the coal mines with the power companies.

2.6 Indonesia Indonesia has long been known as a coal-producing nation and coal-mining is talked about by Joseph Conrad in some of his books set in the region around the end of the nineteenth century. Indeed, coalmining in the vicinity of Ombilin, some 55 km north-east of Padang, the capital of western Sumatra, has been known for at least 100 years. Nevertheless, production from the underground mine, Ombilin 1, has recently ceased due to the exhaustion of reserves, although it used to be trucked and railed to the port of Teluk Bayur for export and for domestic use at Padang. In southern Sumatra the coal basin covers an area of approximately 20 000 km2 and was investigated by Bataafsche Petroleum Maatschappij prior to 1942. Between 1975 and 1976 Shell Mijnbouw

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carried out a range of exploration work in the area, including general surveying and drilling, but did not proceed with any further investigation. The Directorate of Mineral Resources then regained the property and the state coal-mining company PT Tambang Batubara Bukit Asam (Persero), or PTBA, was established under Indonesian Government Regulation No 42 in 1980 and Notarial Deed No 1 on 2 March 1981. A further exploration and drilling programme on the property was authorised in January 1982. This work was carried out between 1983 and 1986 and concentrated on the northern flank of the Muara Tuga anticline. Nevertheless, economic exploitation was prevented by the inaccessibility of the deposit and the consequent inability to transport coal out of the area efficiently. The situation changed when a railway was constructed from the deposits in the Tanjung Enim region to the dedicated coal port of Tarahan on the south coast of Sumatra and some 420 km from the Tanjung Enim mining operations. A railway was also constructed to the dedicated coal port of Kertapati 165 km away and close to the capital of Sumatra, Palembang, which is located 180 km to the north-east of Tanjung Enim. PTBA then proceeded to develop the Tanjung Enim mining operations and now produces 9 Mt/year from a number of open pit mines in the vicinity of the town. In October 1990 Government Regulation No 56 merged PTBA with PT Perum Tambang Batubara so that all of the country's state coal-mining operations were controlled through one organisation. In 1996 all of Indonesia's coal was vested in PTBA, with the company receiving a royalty equivalent to 13.5% of all coal mined in the country. The royalty was payable in cash and was to be calculated on an ad valorem basis using the price at the point of sale. The royalty income was to have been paid to the government within one year of the date of receipt. This vesting has since been rescinded and independent coal-mining companies now pay their royalties directly to the Indonesian State. Indonesia's coal production in recent years and the phenomenal growth of production as a result of the construction of new mining operations in Kalimantan are detailed in Fig 2.5.

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2.5 Indonesian coal production (source: Indonesian Coal Mining Association).

2.7 Poland For the 40 years following the Second World War, Polish mining enterprises were encouraged to maximise tonnage, almost at any price. Economic reform measures were introduced in Poland between 1990 and 1992 and so the country is more concerned with ensuring that resources are mined to the best advantage. This is a factor underlined by the Geological and Mining Code that was introduced in 1994. In 1997 Poland's coal-mining industry suffered a fall in profitability of 5.7% against a fall of 0.4% for the mining industry as a whole. In early 1999 the Ministry of Environmental Protection, Natural Resources and Forestry introduced changes to the country's mineral resources policy. This centred on environmentally compatible development, ensuring security of energy supplies and a targeting of mineral output to ensure that it was commensurate with the country's needs.

2.8 South Africa The Vaal River coalfield was discovered in 1878 by George Stow, a geologist commissioned by the Orange Free State Volksraad to

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undertake a geological survey of the northern part of the Province. During his exploration work he discovered coal near the junction of the Vaal and the Taaiboschspruit rivers. The extent of the deposit was soon confirmed, stretching from Maccauvlei in the east to Leeuwspruit in the west. Unfortunately for Stow, the Volksraad had been hoping that the geologist would find precious metals or diamonds (which had been discovered elsewhere in South Africa over the preceding decade) and cut off his funding when he reported the discovery of a large deposit of coal. Convinced of the value of the coal, Stow looked elsewhere for a new source of funding. In the diamond town of Kimberley he met Sammy Marks, a Lithuanian who had emigrated to South Africa in 1868 and had become hugely successful in the diamond industry. Following Cecil Rhodes's introduction of water pumps, there was an increasing need for fuel in the Kimberley area and, recognising this, Marks formed an association, or Vereeniging, which included Stow, to acquire the land for exploitation of its coal resources. Stow was appointed the manager of the operation and trial mining for coal commenced in 1880. As this was a success, full development of the coalfield was undertaken and the Bedworth Colliery was established in 1882, producing 360 t in its first year and 720 t in 1884. Most of the production from the mine was destined for the diamond operations to the east, although the gold discoveries near what was to become Johannesburg also provided a potential new market. However, full access to Johannesburg awaited the development of a railway linking the coal mine across the country to north and south and providing additional contracted demand to fuel the trains. By the end of the 1880s the coal mine had branched out into associated businesses, particularly bricks, tiles and refractories, which could be produced from clays found adjacent to the coal deposits. Agriculture and forestry were also initiated on the land that the association had acquired, with the forestry division concentrating on the provision of timber for the mines. The need for additional capital encouraged the owners to look to the stock market, and Vereeniging Estates Limited was incorporated on 26 August 1897 with an initial capital of £730 000. By the Boer War, the company had expanded into two new mines, Cornelia and Central, but production suffered as a result of the conflict. The Central Mine

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Table 2.1 Expansion history of Vereeniging Estates Colliery

Date

Bedworth Cornelia Central Largo Schoongezicht Vryheid Bertha Shaft at Cornelia

1882 By 1900 By 1900 Acquired early 1920s Acquired early 1920s Acquired 1928 1941 September 1945 Acquired 1949 Opened 1950s Opened 1950s Opened 1950s Acquired 1950s Acquired 1950s 1978 1979

Springbok New Largo Springfield Schoongezicht Two Blesbok Blinkpan Koolmyn Kleinkopje New Denmark

Comments

By 1926 output reaches 2m tons By 1933 output reaches 3m tons By 1941 output reaches 5m tons Acquired by Anglo American By 1949 output reaches 12m tons

By 1964 output reaches 16.7m tons

Source: Anglo American; Author.

was also the location for the conference of Boer generals that preceded the Peace Treaty in Pretoria. Vereeniging Estates also started to benefit from the further expansion of coal demand in southern Africa (see Table 2.1). This saw the negotiation of a contract in 1910 to supply the newly formed Victoria Falls and Transvaal Power Company, which undertook to construct a power station adjacent to the mine. Under the contract the company undertook to supply 200 000 t/year of coal over a 14 year period at a guaranteed profit of 1s/t. In the period leading up to the Second World War production continued to increase and in 1936 the group combined most of its mining interests with those of the African and European Investment Company to form Amalgamated Collieries, which remained controlled by Vereeniging Estates. After the war Anglo American acquired a controlling interest in Vereeniging Estates in order to obtain gold mine holdings in the western Free State; the coal assets were almost considered as a sideshow. Post-war expansion yielded additional coal supply contracts and underwrote the future of the group through the provision of a regular income from South Africa's electricity generating stations. By the 1950s some 60% of the group's output was sold directly to pithead power stations operated by the South African Electricity Supply

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Commission (Eskom). Anticipation of continued increases in the demand for electricity within South Africa encouraged the company to look for more deposits amenable to the construction of an accompanying power station. This led to successful tenders for the Arnot and Kriel power station contracts in 1965 and 1970, respectively. With the domestic market fully supplied, the company, together with its competitors in the Transvaal Coal Owners Association (TCOA), started to look internationally for new customers and expansion opportunities. In order to ensure international demand, it was first necessary to produce a low ash coal ± effectively increasing the energy content of the coal through the reduction of the amount of waste that would have to be transported. This was achieved by Vereeniging through a two-stage beneficiation process of coal produced from the Witbank No 2 seam, with the remaining fraction sold as steam coal to local power stations. The TCOA then had to develop a market for the coal, and negotiations commenced with Japanese steel mills. In 1971 the two sides reached an agreement whereby the TCOA members would supply 27.8 Mt of coal over a 14 year period, with Anglo American supplying some 10 Mt of the total. As a consequence of the inland location of the collieries, the most important part of the project was the development of sufficient rail and port infrastructure to ensure that the coal could be delivered on time and in the required quantities. This required further negotiations, also including South Africa's port and rail authorities and the choice of a site at Richards Bay for the Richards Bay Coal Terminal (RBCT). Following a successful conclusion of a 570 km railway, the port and associated handling facilities with an initial capacity of 12 Mt/year were soon under construction and were commissioned on 1 April 1976 at a cost of R43 m. By the end of the 1970s the coal terminal had been proven a success and had started on the first of many expansions ± the first of which led to an increase in capacity to 24 Mt/year at a cost of R34m. The third expansion of the terminal cost a total of R385 m and led to almost another doubling of capacity, to 44 Mt/year, and commenced in 1980. At this stage, however, South Africa was embroiled in an international outcry over the continuation of apartheid policies and suffered from the imposition of sanctions by many international

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countries. This led to the loss of export markets in France, Denmark and Holland. Other countries were also expanding their international marketing of coal, and increasing competition developed from Australia, Colombia and the United States, depressing prices ± a situation exacerbated by the tail-off in global energy demand after the second oil shock. Nevertheless, in an attempt to reduce unit costs by increasing throughput the terminal embarked on its fourth expansion (known as the Phase 3 Upgrade) ± to 54.5 Mt/year in 1990±91 at a cost of R290 m. The latest, and final expansion, to 66.5 Mt/year at a cost of R205 m, was approved in 1996 and incremental expansions may be able to increase capacity to a maximum of around 70 Mt/year with current infrastructure. Coal is now produced from a total of 19 separate coalfields across South Africa, of which the 16 main areas are contained in six basins covering an area 500 km east±west and 700 km north±south. The rank of coal increases to the east, i.e. towards the port at Richards Bay, although the number and thickness of the seams tends to decrease. In the main bituminous coal-producing area of Transvaal/Gauteng the coal is mined from relatively thick seams, although anthracite production in KwaZulu Natal is from thin seams. Total recoverable reserves in the country are estimated at 55 bn t, of which only 1% is anthracite and 4% is of metallurgical quality.

2.9 United States of America The United States is now the second largest producer of coal in the world, after China. Coal was first used for baking clay by the Hopi Indians in what is now Arizona by AD1000. The first Europeans to record their discovery of the fuel were the Canadian-born Louis Jolliet and Father Jacques Marquette in Illinois in 1673, and then the La Salle expedition in 1680. It was later found by Huguenot settlers at Manakim on the James River near Richmond, Virginia, in 1701, where the first commercial mining started in 1748. As with the United Kingdom, the development of the railways and discovery of coal adjacent to sea or river transport spurred the domestic United States coal industry into life. The industrialisation of the country during the nineteenth century also spurred output growth,

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especially with the increase in iron and steel production during the century. Consumption continued to increase in the early part of the twentieth century, pushing up prices and encouraging new entrants to the industry. The supply±demand balance then started to move in consumers' favour after the domestic United States coal price peaked in 1923 and continued on a downward trend until the start of the Second World War. However, the discovery of the major coal deposits in Wyoming and the development of low-cost methods of extraction and transport reversed the decline. This situation was further aided by the 1970s oil crises and the nuclear scare at Three Mile Island to the extent that coal production in the United States is now over 1 bn t/year, in comparison with the 530 Mt/year produced in the mid-1940s. One of the best-known areas of coal production in the United States is along the Appalachian mountain ranges of Pennsylvania. The occurrence of coal within the state was first recorded by John Pattin at the Kiskiminetas River in 1751 and the fuel was used by the garrison at Fort Augusta during the winter of 1758. Mining from the Pittsburgh coal seam on Coal Hill (now Mount Washington) commenced in 1761. Further development of mining operations continued during the eighteenth century and George Washington burned coal at Stewarts Crossing (Connellsville) in 1770, whilst the fuel was also used by the arsenal at Carlisle during the American Revolution. As with Coalbrookdale in the United Kingdom, the naming of Carbondale in Lackawanna county in north-east Pennsylvania was a direct consequence of local deposits of coal. The city was founded by William and Maurice Wurts who were prospecting for coal and subsequently developed open pit coal-mining operations in the locality. In another mirror image of the mother country, the mine inspired the construction of the Delaware and Hudson canal in 1825 and a gravity railway from Carbondale to Honesdale. In June 1831 the city laid claim to the world's first underground anthracite mine, although some Welsh miners may disagree. Anthracite was discovered by Nicho Allen at Pottsville in Pennsylvania in 1790, and the town soon experienced boom conditions. This was due to the iron smelting operations that had been constructed in 1800 and expanded in 1806. By the 1860s some of the mines in the region had been sunk to depths of 1500 feet but there were few qualified mining engineers in the country. As a consequence,

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the mine owners turned to skilled workers from England, Scotland and Wales who had developed knowledge through practical experience. Some of the mining problems and the influx of British management to oversee a workforce of largely Irish origin, led to a feeling of discontent amongst the employees. During the 1860s and 1870s this led to the formation of a number of associations, including the Ancient Order of Hibernians and the more widely known Molly Maguires ± a miners' secret society that campaigned for improved working conditions. The disaster at the Avondale shaft in September 1869, in which 110 men and boys died (see Chapter 4), no doubt contributed to the discontent within the workforce and increased the overall level of violence in the mining communities. In order to find the ringleaders of the Molly Maguires, who were said to be behind the uprising, the mine owners hired the Pinkerton Detective Agency at a fee of US$100 000. The Agency then hired agents to infiltrate the Molly Maguires and obtain sufficient evidence to lead to convictions. On 21 June 1877 six members of the society were hanged at Pottsville and four others hanged at Maunch Chunk (now known as Jim Thorpe) in Carbon County. The four members of the society hanged at Maunch Chunk had been convicted of two murders; three of the four (Alexander Campbell, Edward Kelly and Michael Doyle) were convicted of the 1875 murder of John P Jones, a mine boss from the Lonsdale Mine in Lansford. The fourth, John `Yellow Jack' Donohue was found guilty of the murder of Morgan Powell, the boss of the Summit Hill mine in 1871. Controversy still surrounds the events and the trials as much of the evidence leading to the convictions was provided by the mine owners acting through the Pinkerton Detective Agency. Indeed, some still suggest that the prosecutions were instigated in order to suppress the nascent organisation of labour that the Molly Maguires represented. Nevertheless, there can be no doubt that the area was wracked with violence and that many people in positions of authority were murdered between the formation of the group in about 1857 and the crackdown on the organisation that began in late 1875. Unionism also became aggressive during the 1920s and 1930s in the eastern Kentucky coal district, which tends to produce coking coal along the Appalachian Mountains. Bloody Harlan commemorates the violence that erupted in Harlan County during disputes that highlighted working and living conditions at the time.

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Finally, coal was first discovered in the State of Ohio in 1808 and its coking properties meant that it was suited to local iron-making activities. Following the later discovery of major iron ore deposits in the Upper Midwest, demand for Ohio coal increased due to the burgeoning demands of the iron and steel industry.

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3 What is coal? 3.1

A fossil fuel

3.2

Coal classification

3.3

Composition and impurities

3.4

Energy content

3.5

Proximate analysis 3.5.1 Moisture 3.5.2 Volatile matter 3.5.3 Ash 3.5.4 Fixed carbon

3.6

Ultimate analysis 3.6.1 Carbon and hydrogen 3.6.2 Sulphur 3.6.3 Nitrogen 3.6.4 Oxygen 3.6.5 Chlorine 3.6.6 Sodium 3.6.7 Fluorine 3.6.8 Phosphorus

3.7

Coking coal

# Charles Kernot

3.1 A fossil fuel Coal is the word used to describe a rock found on a widespread basis around the world. The rock is generally assumed to represent the remains of vegetable matter that has been compressed and heated to the extent that much of the hydrogen, oxygen and other elements in the original material have been driven out, leaving a carbon-rich rock behind. Given that different types of trees or forests, leaves or spores, from swamps, deltas or other environments represent different building blocks, coal can have varying chemical characteristics, which can be important when considering where it can be used. Furthermore, it has no definitive physical crystalline structure, which means that it is not strictly a mineral, whilst the definitively structured diamond or graphite are carbon-rich minerals. No two coals mined in different parts of the world are the same, moreover, coals from different seams but in the same location may also exhibit significant differences and these can determine where and how it is consumed. The key determinants are not just how the coal formed but also what geological processes have affected it over time and how this has affected its current composition. As a consequence of its method of formation, coal is a sedimentary rock, probably the one of most economic significance, found in distinct layers or horizons within a sequence of other sedimentary rocks. Depending on the degree of geological activity to which the rocks have been subjected, the layers can be anything from near-surface and horizontal to deep and vertical, although the latter, because of the difficulty and relative cost of mining, are unlikely to be extracted for commercial use unless they are located near the surface. Before the process of burial and compaction coal would have been a peaty material ± rich in organic matter formed from the death and decay of plant life in massive swamps or deltas. As each layer of vegetable matter was deposited it would first have been subject to the usual processes of decay currently present at the earth's surface. This would have promoted the decomposition of the material until it became buried beneath other plant life that had also died and fallen to the ground. At this stage the presence of water would have been important as this would have provided a reducing environment, and slowed or prevented the rotting process which destroys much of today's plant life. Evidence of the reducing environment can be

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gleaned from the relatively high sulphur content of many coals, and with reference to swamps where peats are currently being formed. As any fan of the dinosaurs will remember, large tracts of the earth have, at various times, been covered with swampland, often in the deltas of rivers which drained into inland seas in much the same way as the Okavango river drains into a massive swamp and marshland in central Botswana today. The main feature of these areas was that they tended to sink relative to the surrounding land and that the delta therefore slowly filled up with thicker layers of sediment and organic material. The rate of sinking played an important part in the formation of the peat, as too fast a rate would have led to the drowning of the vegetation and allowed the deposition of deeper water sediments such as shales and silts. Too slow a rate would have allowed the possibility of too much erosion to occur, thereby preventing the build-up of seams of sufficient breadth or thickness to be economically viable. If the rate at which the swamp sinks is similar to the rate at which new plants grow then the surface of the swamp will stay relatively stable and more vegetation can be added and form the bed on which successive generations of the plants can develop. If the rate of sinking was too slow then the layers of vegetation would not be covered by the water and would be more likely to oxidise and hence rot away ± preventing the formation of the peat, and hence coal. Alternatively, if the land sank at too fast a rate there would have been the danger that high tides or flash floods would either have washed some of the peat away, or introduced silt or sand and reduced the thickness of individual layers of coal. In some areas a cyclical rotation can be determined by geological investigation of coal deposits, indicating a mismatch between the rates at which the various processes were occurring ± considerably limiting coal seam thicknesses. In some instances such cyclical sequences have been found to be up to 3000 m in thickness. In the major basins of the United States, the Commonwealth of Independent States (CIS) and China this relative sinking occurred at optimal rates and some very thick seams were formed during the local coal ages. These ages did not take place at the same time in different parts of the world because of the local differences in geological and geographic conditions, although the need for long-term deposition means that much of the hard coal produced today comes from rocks

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Table 3.1 Spread of coal deposits through geological time AGE (million years before present)

System

Share of total coal reserves (%)

Area covered; in order of importance

0±65

Caenozoic

28.7

65±135

Cretaceous

16.7

135±200 200±240 240±280

Jurassic Triassic Permian

14.3 0.5 24.3

280±370

Carboniferous 15.6

Europe, Australia, New Zealand, North America, South America North America, South America, Europe, New Zealand Asia, Europe, Australia, North America Europe, North America Africa, Antarctica, Australia, Asia, Europe, North America, South America Europe, North America, Asia

Source: World Energy Conference. Survey of Energy Resources, 1980.

that were deposited some 240±370 million years ago. The time and geographical spread of coal deposits is shown in Table 3.1. Another example of how a coal basin can form can be seen from the south and central Sumatra coal basins in Indonesia. These basins are thought to have formed along the back-deeps or foreland basins along the Indonesian island arc, and are parallel to the subduction zone on the plate boundary running from south Java to south-west Sumatra. The basins are hinged to the larger land mass that previously existed to the north-east. The basins started to develop during the Oligocene/Miocene boundary, and during the Lower Miocene epoch deposits of a range of continental, fluvial, limnic, lagoonal and open marine phases were created. This included a range of volcanic sediments that formed from the volcanicity of the island arc to the south-west. During later phases of magmatic activity intrusions beneath the basin led to the generation of folds and, in some areas, this has increased the rank of the coal present in the area. The south Sumatra basin was able to produce a regular pattern of coal deposition because of the exceptionally regular subsidence coupled with the right type of climate. In terms of plate tectonics, this period probably coincides with a hiatus in the subduction process, which was recorded in the Upper Tertiary period and would extend to the Upper Pliocene and perhaps to the Middle Pliocene. This hiatus would have reduced volcanic activity and meant that the surrounding rocks would have sunk back as the magma cooled.

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Table 3.2 Coals produced in south Sumatra Content Total moisture Ash (dry basis) Sulphur (dry basis) CV net (in situ) Sodium in ash Grindability

23%±54% 3%±12% 0.2%±1.7% 10±20 MJ/kg 1.8%±8.0% 37±56 HGI

Source: PTBA.

In the areas close to volcanic activity the coal has increased in rank to the extent that some anthracite and bituminous coals have been formed with energy contents of up to 22MJ/kg (see Table 3.2). In other areas, such as in Sydney harbour, some coals adjacent to volcanic activity have been turned to cinder, completely destroying any economic value. As can be seen in Table 3.1, there is a wide spread of coal deposits around the world throughout a wide range of geological time. There are few if any deposits older than the 370 million years of the Carboniferous period because of the lack of spread of vegetation at this time. It is also the case that the older the rock the greater the possibility that geological processes will have affected the coal physically or chemically through faulting, tilting or alteration associated with the high temperatures and pressures of metamorphism. In the United States the Carboniferous period is split in two with the earlier and later but not strictly Lower and Upper periods represented by the Mississippian and the Pennsylvanian, respectively. Coal formation occurred in major swamps during the Carboniferous period when much of the continental crust was concentrated as Gondwanaland in the southern hemisphere. Eventually, after a period thought to be as much as 40 million years, the land level rose relative to the sea and the climate became drier. This led to an end of the conducive conditions for coal formation. In some instances these temperatures and pressures are beneficial and can upgrade the type, or rank, of coal from the basic peaty material that is initially formed, to the high grade and quality bituminous coals or anthracites that are used in the metallurgical industry or in domestic applications, respectively. However, if the coal is subjected to too much heat or pressure it may volatilise with the

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Table 3.3 The calorific value of different coal types Specific gravity

Carbon (%)

BTU/lb

0.85 1.04 1.15 1.30 1.50

60.83 67.43 72.92 83.48 95.35

3 000 6 500 ± 7 000 8 000 ± 10 000 10 000 ± 13 000 15 000

Peat Lignite Brown or sub-bituminous coal Bituminous coal Anthracite Sources: G L Kerr, 1919; Author.

carbon being absorbed into surrounding rocks or, as occurred with the formation of some of the gas fields in the North Sea, may combine with hydrogen to form natural gas. As a consequence the rank of a coal is largely dependent upon its age as this increases the probability that it will have experienced many of the geological processes inherent in the formation of high rank coal. The lowest grade lignite yields the lowest amount of contained energy per unit weight and is therefore of lowest value (see Table 3.3). Anthracite, which has been subjected to the highest grades of metamorphism, yields the highest amount of energy per unit weight, and is therefore of the highest value. Other factors, such as the amount of sulphur contained in the coal are of importance due to increasing environmental concerns and major producers are now publishing sulphur contents of their coals.

3.2 Coal classification Most coals are classified according to their carbon content and the specific amount of energy that they contain. The greater the amount of carbon, the higher the effective rank of the coal and the higher the average energy content of the material. Table 3.4 shows the coal classification of the American Society for the Testing of Materials (ASTM), which is widely accepted for determining the name of a coal, although other countries and organisations have their own nomenclature. This can be particularly confusing in the international arena as different producers may describe broadly similar coals very differently. Furthermore, the use of different measures for energy content is also particularly confusing. It will be noticed that coals of higher ranks are classed in terms of

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Table 3.4 The classification of different coal types Class

Group

Fixed carbon Volatile matter Calorific value (%) (%) (MJ/kg)

Anthracite

Meta-anthracite Anthracite Semi-anthracite

Bituminous

Low volatile bituminous Medium volatile bituminous High volatile A bituminous High volatile B bituminous High volatile C bituminous

98±100 92±98 86±92

0±2 2±8 8±14

78±86 69±78 <69

14±22 22±31 >31

>32.6 30.2±32.6 26.7±30.2

Sub-bituminous

Sub-bituminous A Sub-bituminous B Sub-bituminous C

24.4±26.7 22.1±24.4 19.3±22.1

Lignite

Lignite A Lignite B

14.7±19.3 <14.3

Source: Ward, 1984.

their carbon content whereas coals of lower ranks are classed in terms of their energy content. High carbon coals are generally used in metallurgical processes where the carbon is primarily used as a reducing agent, for instance, to take the oxygen out of iron oxide in the production of pig iron and steel, rather than specifically as a source of heat. There are also other factors that have to be taken into account when considering whether or not a coal will be suitable for use in the metallurgical industry. This criteria is mainly related to the coal's `caking' power, which is its ability to cake or fuse when heated. As only some of the organic constituents of the coal contribute to this caking process coals of a similar carbon and ash content may fall into different categories (see Chapter 7). Additionally coals of too high a rank are unlikely to have a sufficiently high level of organic constituents and may not, therefore, be suitable for use in the metallurgical industries.

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3.3 Composition and impurities As indicated earlier, the higher the temperature and pressure the greater the proportion of carbon in the coal. This is because of the reduction in the non-carbon constituents of the material which will, effectively, be squeezed out during the metamorphic processes. One of the disadvantages of metamorphism, however, is that it may occur with an introduction of fluids from other rocks. These fluids often contain sulphur and iron and may therefore leave deposits of iron pyrites in the coal. This is often a problem and leads to the need for flue gas desulphurisation (FGD) equipment in many coal-fired power stations (see Chapter 6). However, because of the increase in the energy content of the coal, which results from the metamorphism, consumers may be willing to bear the additional expense of FGD equipment because less coal needs to be burned to produce the same amount of energy. A range of coals of different age groups found in the United States is shown in Table 3.5. Table 3.5 Chemical composition of coals of different geological ages Age

Moisture

Volatile

Fixed

(%)

matter (%)

carbon (%)

Ash (%)

Sulphur

Energy

(%)

(MJ/kg)

Carboniferous

2.4 ± 10.2

5.2 ± 41.2

39.4 ± 81.3

4.2 ± 12.3

0.7 ± 3.3

25.45 ± 33.56

Cretaceous

5.0 ± 10.7

35.8 ± 42.4

38.1 ± 50.4

6.4 ± 15.0

0.6 ± 1.1

23.73 ± 29.64

Tertiary

5.0 ± 45.9

7.2 ± 35.8

22.1 ± 76.7

4.4 ± 15.7

0.3 ± 2.7

13.35 ± 29.45

Source: Ward, 1984.

3.4 Energy content The heat of combustion of the coal can be determined by utilising the Dulong formula where: NCP = 338C + 1423*(H ± O/8) + 92S ± 24.4*(9H + M) NCP = net calorific power in kilojoules/kg (or gigajoules/tonne) C = Weight percentage of contained carbon H = Weight percentage of contained hydrogen O = Weight percentage of contained oxygen S = Weight percentage of contained sulphur M = Weight percentage of contained moisture

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If the gross calorific power of the coal is required then the last term in the formula should be omitted as this refers to the moisture content of the fuel. In the United States coal is more usually classified in terms of its British Thermal Unit (BTU) content. The BTU is the old imperial measure of energy and is equivalent to 1.05506 kJ. The other point to bear in mind is that the country also bases all of its statistics on imperial measures of weight and that the energy content is recorded for each pound of coal. Moreover, the unwary can be further confused as different companies will refer either to short tons (2000 lbs), long tons which are also referred to as just tons (2200 lbs) or metric tonnes (2204.6226 lbs). The relevant conversion factors are shown in Table 3.6. Furthermore, it should also be noted that GJ/t is exactly the same as MJ/kg ± both the numerator and the denominator being multiplied by 1000 in the case of the GJ/t statistics. To confuse matters further, many Pacific Rim countries calculate the contained energy of various coals in terms of the calories of energy that the coal contains. In this instance the calorie is equivalent to 4.184 joules, or one BTU is equivalent to 252.2 calories. Given the lower equivalent value of energy represented by a calorie it is often Table 3.6 Coal energy content conversion factors BTU/lb

GJ/tonne

cal/g

Mtce

6 000 6 500 7 000 7 500 8 000 8 500 9 000 9 500 10 000 10 500 11 000 11 500 12 000 12 500 13 000 13 500 14 000 14 500 15 000

14.0 15.1 16.3 17.4 18.6 19.8 20.9 22.1 23.3 24.4 25.6 26.7 27.9 29.1 30.2 31.4 32.6 33.7 34.9

3 336 3 614 3 892 4 169 4 447 4 725 5 003 5 281 5 559 5 837 6 115 6 393 6 671 6 949 7 227 7 505 7 783 8 061 8 339

0.48 0.52 0.56 0.60 0.63 0.67 0.71 0.75 0.79 0.83 0.87 0.91 0.95 0.99 1.03 1.07 1.11 1.15 1.19

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expressed in terms of calories for each gram of coal. In an attempt to bring all of the different terminologies together, some reports talk in terms of tonnes of coal equivalent. In this case a nominal energy content is supposed to represent all coals produced globally and is chosen as 29.3 GJ/t, 12 600 BTU/lb or 7000 cal/g. In the United States the heat contents of coals are classified as detailed in Table 3.7. As can be seen there is some overlap between the bituminous and sub-bituminous coal detailed in view of the other different characteristics of the fuel. It should also be noted that, in broad terms these energy contents are similar to those presented above, but are not strictly the same. Table 3.7 Classification of coals by energy content US definitions BTU/lb

Rank Anthracite Bituminous coal Sub-bituminous coal Lignite

Over 14 000 10 500 to 14 000 8000 to 11 500 6000 to 7000

GJ/tonne Over 24.4 to 18.6 to 14.0 to

32.6 32.6 25.6 16.3

Other definitions GJ/tonne Over 26.7 to 19.3 to Under

32.6 32.6 26.7 19.3

Source: Wyoming Coal Information Committee, 1997; Author; Ward, 1984.

3.5 Proximate analysis The composition of coal from a metallurgical standpoint may be expressed by either its proximate or ultimate analysis. The proximate analysis provides details of the percentage content of a range of different constituents of the material ± whether moisture, volatile matter, ash or fixed carbon. Each of these characteristics is determined by standardised procedures and it is necessary for each consumer to ensure that the same procedures are used as different procedures would yield different results.

3.5.1

Moisture

Moisture, or water content, can also upset the statistics of what may look to be a usable coal ± particularly in view of a low sulphur content. The moisture contents around the world are normally detailed in terms of the weight per cent moisture in the coal.

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Nevertheless, there can be different ways of calculating moisture content ± either as mined, as delivered or on an air dried basis (ADB). Moisture is particularly important as it adds weight to the coal but does not provide any additional heating capacity. Moreover, a coal containing up to 25% moisture will effectively contain only 75% coal ± the remaining 25% of the weight that needs to be transported from supplier to consumer is effectively dead weight that provides no benefit to the consumer. Prices of coals with high moisture contents tend to reflect this situation. Moisture in coal can be evident in four different forms: as surface moisture or as a film on top of the coal surface; as hygroscopic moisture contained in pores or capillaries; as decomposition moisture that is incorporated in some organic compounds; or as mineral moisture contained in the crystal structures of clays and other minerals. Most surface moisture is driven off at 100 ëC, but some mineral moisture is not driven off until the temperature reaches 500 ëC. Total moisture effectively calculates the amount of moisture contained by the coal in situ and is calculated through the loss of mass of the coal when heated to between 105 ëC and 110 ëC. The air dried moisture content is calculated using the same or similar techniques but with coal that has been dried in air before the test is carried out.

3.5.2

Volatile matter

The volatile matter contained by a coal encompasses all of the contents of the material that are driven off when it is heated to a temperature of between 900 ëC and 950 ëC depending on whether British/Australian or United States procedures are being followed. The only exception is moisture that is calculated separately, and it is also necessary to determine how much volatile matter is used in the classification process. Moreover, the different temperatures used in the different procedures will provide different results for the same coal and so it is necessary to confirm which has been used.

3.5.3

Ash

The ash content of the coal is also an important consideration and depends upon the specific environment of deposition. If the area was often subject to flooding then there may well have been an influx of sediment, which would not have been removed by any of the

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metamorphic processes briefly outlined above. In this instance the coal will have a higher ash content and, as the majority of the ash will be inert, a lower energy content than an otherwise similar coal. Additionally, the ash also needs to be disposed of, and the increase in the number of environmental restrictions in the United States is starting to become a problem for some of the electricity utilities, particularly those in the north-east of the country. Another way of considering the ash content of a coal is as that portion of the rock that will remain following combustion. It is effectively all of the inorganic compounds in the coal, with the exception of any carbon dioxide, sulphur dioxide or moisture that is driven off in the heating process. The ash represents a cost to the consumer in two ways, first it tends to reduce the heat content of the coal and second it will need to be removed from the furnace following combustion. The ash content can be calculated through one of two methods which are again different depending on whether British/Australian or United States procedures are followed. Either the coal is slowly raised in temperature to 815 ëC and is then held at that temperature until a constant mass is attained, or it is heated first to 500 ëC and then to 815 ëC in order to prevent some of the contained sulphur being fixed into the ash. In the United States the intermediate temperature is also 500 ëC, although the top temperature is between 700 ëC and 750 ëC in both the one stage and two stage tests.

3.5.4

Fixed carbon

Fixed carbon is the last coal component calculated using proximate analysis. It is effectively the remainder after all other components of an air dried coal ± moisture, volatile matter and ash ± have been calculated. The fixed carbon content is used as an indication of the yield of carbon into coke and may also be a guide to the rank of a coal.

3.6 Ultimate analysis An ultimate analysis provides details of the content of individual elements within the coal. This includes the carbon, hydrogen, sulphur, nitrogen, and oxygen content of the coal together with minor but

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The coal industry

important constituents such as chlorine, sodium, fluorine and phosphorus. Ash contents are also calculated, although this can be described in terms of its constituent elements. This is important because some of the chemical building blocks can affect the physical properties of the material and can therefore affect its uses for coking, gasification and liquefaction. The ultimate analysis is calculated on a moisture-free basis and the moisture content has to be provided separately. The reason for this is that the moisture content of the coal will vary depending on how it long has been stored and how far it has travelled and under what conditions.

3.6.1

Carbon and hydrogen

The bulk of the carbon and hydrogen contained within a coal will be found as organic compounds, although carbon may be present in some inorganic carbonates and hydrogen will be present in inherent moisture or from water contained in clays or other minerals. After allowing for these sources the content of carbon and hydrogen in a coal can be calculated from heating the material in dry oxygen and calculating the amount of carbon dioxide and moisture produced. It is also necessary to determine the amount of carbon dioxide contained in the coal's inorganic compounds as the release of this gas absorbs energy produced on combustion of the coal and reduces its overall heating power.

3.6.2

Sulphur

In view of the concerns about acid rain and increasing environmental legislation the content of sulphur in a coal is becoming ever more price sensitive. The sulphur may be present in one of three forms: as organic compounds; as inorganic compounds such as pyrite or other sulphides; or, in some instances, as sulphates (often formed by oxidation of sulphides if the coal has been exposed to the air for some time). In most analyses the total sulphur content is calculated, although it will not differentiate between the element in its different forms. This is important because some sulphates and sulphides may be removed during a coal washing process, whereas organic sulphur will be retained within the coal. Moreover, sulphur content is not only a problem with respect to acid rain, it can adversely affect the

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What is coal?

performance of a boiler, leading to enhanced corrosive effects and to the fouling or clogging of the boiler tubes. One method of calculating the sulphur content of a coal involves using chemical techniques such as the formation of barium sulphate. The mass of this compound produced will then indicate the amount of sulphur in the coal. Alternatively, burning to produce sulphur dioxide and thence sulphuric acid, the acidity of which will give an indication of the amount of sulphur present, is also possible. Sulphur content can be problematic when comparing coals from different areas. In the United States the sulphur content of a coal is sometimes referred to in terms of the amount of sulphur for every million BTUs of heat that burning the coal will generate. In these terms low sulphur or `compliance' coals are thought of as having a sulphur content of less than 1.2 lbs/million BTU. This was the original standard set by the Clean Air Act in the United States when defining a low sulphur coal. A ready-reckoner for the different sulphur contents of the coals and the equivalent in per cent, which is the more widespread nomenclature, is detailed in Table 3.8. In rough terms it is possible to see that the numbers are broadly similar, although the energy content of the coal clearly can have a significant bearing on the sulphur content and could take a consumer over a compliance threshold.

3.6.3

Nitrogen

Whilst not generally considered as significant as sulphur content the nitrogen content of a coal may also lead to atmospheric pollution in view of the various oxides that can be produced during combustion. In some coal and processes it is also possible that hydrogen will combine with the nitrogen to form ammonia. Nitrogen contents of coals are determined using sulphuric acid in order to produce ammonium sulphate, the yield of which will determine the original nitrogen content of the material.

3.6.4

Oxygen

Oxygen can be present in many different forms and is important because it can aid or hinder various downstream processes. In particular, too much oxygen could lead to the generation of steam or

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Table 3.8 Conversion statistics from sulphur in lbs/million BTU to per cent when using metric energy units lbs/millionBTU 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2.0 2.1 2.2 2.3 2.4 2.5

GJ/tonne 20

22

24

26

28

30

0.43% 0.52% 0.60% 0.69% 0.77% 0.86% 0.95% 1.03% 1.12% 1.20% 1.29% 1.38% 1.46% 1.55% 1.63% 1.72% 1.81% 1.89% 1.98% 2.06% 2.15%

0.47% 0.57% 0.66% 0.76% 0.85% 0.95% 1.04% 1.13% 1.23% 1.32% 1.42% 1.51% 1.61% 1.70% 1.80% 1.89% 1.99% 2.08% 2.18% 2.27% 2.36%

0.52% 0.62% 0.72% 0.83% 0.93% 1.03% 1.13% 1.24% 1.34% 1.44% 1.55% 1.65% 1.75% 1.86% 1.96% 2.06% 2.17% 2.27% 2.37% 2.48% 2.58%

0.56% 0.67% 0.78% 0.89% 1.01% 1.12% 1.23% 1.34% 1.45% 1.56% 1.68% 1.79% 1.90% 2.01% 2.12% 2.24% 2.35% 2.46% 2.57% 2.68% 2.79%

0.60% 0.72% 0.84% 0.96% 1.08% 1.20% 1.32% 1.44% 1.56% 1.69% 1.81% 1.93% 2.05% 2.17% 2.29% 2.41% 2.53% 2.65% 2.77% 2.89% 3.01%

0.64% 0.77% 0.90% 1.03% 1.16% 1.29% 1.42% 1.55% 1.68% 1.81% 1.93% 2.06% 2.19% 2.32% 2.45% 2.58% 2.71% 2.84% 2.97% 3.10% 3.22%

carbon dioxide during gasification or liquefaction where methane or other hydrocarbons are required. As with the determination of the fixed carbon content in proximate analysis, the oxygen content of a coal may be calculated by difference, or, alternatively, by direct determination through such methods as the generation of carbon monoxide and subsequently carbon dioxide, the amount of which can be measured to yield the amount of oxygen originally contained in the coal.

3.6.5

Chlorine

Chlorine may be present in coals either as inorganic salts (either salt itself or as potassium chloride) or as some organic compounds. Chlorine causes similar problems to sulphur ± potential acid rain together with fouling and corrosion of boilers. It is often analysed at the same time as sulphur with the determination of hydrochloric rather than sulphuric acid.

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What is coal?

3.6.6

Sodium

Sodium (Na) content is important in some coals, particularly those formed in an open sea environment. The sodium content needs to be investigated in order to prevent boiler slagging and fouling as a content of Na2O of over 3±4% markedly reduces ash fusion temperatures. Furthermore, a substantial impact on boiler operation is to be expected at an Na2O content of above 6±8%. Specifically, the Na2O content of the ash produced from the coals in the south Sumatra coalfield ranges from 1.8% up to around 8% and so this has to be determined before the coal can be sold. In many instances internal blending of coal and the dilution of coal by wallrock tends to reduce the concern as most wallrocks contain a significantly lower level of Na2O.

3.6.7

Fluorine

In the United Kingdom the fluorine content of a coal can be important as it too can lead to enhanced corrosion of boilers. In order to overcome this potential problem, the bulk of the deep mined coal produced in the country is blended on a five to one basis with coal produced from surface, which has a much lower fluorine content.

3.6.8

Phosphorus

Phosphorus is normally contained in inorganic compounds such as apatite. It is not normally a major concern, except in coking coals where it can adversely affect the steel-making process if concentrations are too high.

3.7 Coking coal The caking ability of coal, which is its ability to fuse when heated in the absence of oxygen, is of great importance to the metallurgical industry. This is because the coke produced is needed to support the iron ore and fluxing materials in a blast furnace. This support is important because it helps to maintain spaces for the passage of gases or molten metal within the furnace, allowing the gases to escape and molten metal and slag to be tapped out at the base. The strongest

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The coal industry

cokes are required in the iron industry, whereas other metallurgical processes can be undertaken with weaker or semi-soft cokes. Not all coals are amenable to coking, or will produce cokes of varying strengths, and it is therefore necessary to determine the coking propensity of individual types of coal. In general terms heating the coal in the coking process (see Chapter 8) transforms some of its constituent carbon compounds into a semi-liquid state, and further heating then leads to the expulsion of its volatile constituents. As the volatile constituents escape the coal re-solidifies to form coke, although those coals unsuitable for coking may simply fall into a powder. The heating process may also lead to a swelling in the size of the coal and it is necessary to determine this to ensure that it does not cause any problems in the coke-making process. In some respects the only method of determining whether or not a particular type of coal will cake successfully is through practical experiment. This is because coals of similar chemical composition can exhibit vastly different caking characteristics. Moreover, some of the organic compounds in the coal may aid the process whilst others hinder it, with the inorganic and non-volatile compounds also yielding different effects. The caking ability of a coal may be determined by the measurement of its crucible swelling number (CSN). In this test one gram of coal is heated in a special crucible at 820 ëC under standard conditions, and the profile of the resultant button of coke left in the bottom of the crucible is compared with a set of standard profiles. There are 19 separate standards, from 0 to 9 in a series of half increments with 0 effectively solely powder and 9 a highly swollen coal. The second method of determination is the calculation of the coal's position on the Gray-King scale. In this test 20 g of coal is heated at 600 ëC under standard conditions and after full carbonisation of the coal the resulting material is graded from A to G depending on the amount of loss of volume of the material, with A effectively still a powder and G retaining the same volume as the original coal sample, but fused together. For coals that swell on heating the test is expanded from G1 to GX, with X up to a maximum of 19 and representing the number of grams of carbon that have to be added to the 20 g sample in order to prevent the coal from swelling above its original size. A comparison of the results of a CSN test and the Gray-King test is shown in Table 3.9.

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What is coal?

Table 3.9 Comparison of crucible swelling numbers with the Gray-King scale Gray-King CSN

A

BC 1

D

EF 2

1.5

G 3

G1

G2 4

G3 5

G4 6

G5 7

G6 8

G7 8

G8 9

Source: Brame and King, 1967.

One of the factors that is important in the caking process is that two coals with different CSNs will not yield an average CSN in a 50:50 blend. The CSN of the blended material will depend on the relative proportion of components in the coal, how they are distributed and how they react when heated. In particular, the fluidity of the coal on heating, as measured by the Giesler plastometer test, can be important, aiding the blending process within the coke oven. In the plastometer test a crushed and pressed sample of coal is heated from 300 ëC to 600 ëC at a rate of 3 ëC/minute. A defined torque is applied to a spindle with a number of rabble arms set within the coal and as the coal becomes fluid the spindle will turn, producing a reading of dial divisions per minute (ddpm) on a separate dial. Table 3.10 gives an indication of the different characteristics of various Australian coking and semi-soft coking coals for comparative purposes. Table 3.10 Comparison of different Australian coking coals Producer

Brand ± Type

Total Inherent Ash Volatile moisture moisture (%)

(%)

Fixed

Total

CSN Giesler

matter carbon sulphur (%)

(%)

(%)

fluidity

(%)

(ddpm)

BHP

Blackwater ± hard

10.5

2.0

8.0

26.5

63.3

0.50

6.0

BHP

Blackwater ± semi

10.0

2.0

9.5

24.5

63.5

0.55

3.0

200 15

BHP

Bulli ± hard

9.0

1.0

9.5

21.5

67.6

0.38

7.0

1200

BHP

Gregory ± hard

8.0

2.0

6.5

33.5

58.0

0.65

9.0

7500

BHP

UHV (Gregory semi)

8.0

2.0

9.7

31.5

56.8

0.67

8.0

3000

Coal & Allied

Mt Thorley ± semi

9.0

2.5

9.5

33.5

54.5

0.50

5.0

100

Coal & Allied

Mt Thorley ± soft

9.0

2.5

8.5

33.8

55.2

0.55

5.0

100

Source: Australia's Export Coal Industry, 1999.

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4 Exploration, mining and production 4.1

Introduction

4.2

Feasibility studies

4.3

Mining 4.3.1 Surface mining 4.3.2 Underground mining A dangerous business Longwall mining Room and pillar mining

4.4

Productivity

4.5

Total mining costs 4.5.1 Taxes and royalties 4.5.2 Processing costs

4.6

Reclamation

# Charles Kernot

4.1 Introduction Given the geological knowledge surrounding how coal forms and with what other rocks it should be associated, the exploration process can begin. This process is relatively straightforward, especially because coal outcropping at surface is a very different rock in terms of colour and hardness than almost any other. After discovery, coal deposits can be tracked along their surface expression to provide information on the thickness and length of strike of the horizon. Examination of the local geology can also provide information about the potential lateral extent of the deposit, together with its dip and consequent depth from surface. If these initial indications are encouraging, then the deposit will be drilled in order to confirm the initial hypotheses and delineate the full extent of the resource. The initial discovery of coal deposits not exposed at surface is more complicated, and in the early days of coal-mining the only exploration that could be undertaken was through the sinking of exploration shafts or adits. It was only in 1864 that diamond drill bits were used for the first time, in this instance for boring blast holes during the construction of the Mount Cenis tunnel through the Alps. Diamond drills then gained wider acceptance, reaching Australia in the 1870s, and first finding economic quantities of coal in the Helensburgh bore in 1884, which then led to the development of the Metropolitan Colliery. As exploration techniques have advanced, regional and satellite geology can be used to give an indication of where to look for hidden deposits. Seismic analysis, like that used in the oil industry, geochemical analysis and other techniques developed over the years can also be used to provide an indication of where to look. Nevertheless, drilling will still be required in order to confirm the presence and extent of any deposit.

4.2 Feasibility studies After discovery, and assuming economic potential can be foreseen, the deposit becomes subject to a concerted testing programme to confirm its size and extent and the number of tonnes of each type or grade of coal contained. This involves the drilling of

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The coal industry

additional holes over the lateral extent of the deposit to check depth and thickness of the coal seam (or seams). The drilling programme will also take samples for the large number of tests required to give an indication of the quality, and therefore value, of the coal (see Chapter 5). One further factor in the delineation of the reserves and resources is the distinction between clayey coal and coaly clay along the edges of any coal basin. This is because where a line is drawn on a map is very important with respect to ash contents and other potential impurities that can adversely affect the overall value of the coal. Thereafter a full mining programme has to be constructed for the deposit. This will determine whether the coal can be mined from surface or underground and, if from underground, how much needs to be left to support the roof. The extractable, rather than in situ, amount of coal can then be determined for the financial evaluation that is needed to calculate whether or not mining the deposit would generate a positive return on investment. This information represents one part of the data required by the company to construct a full model or feasibility study of the economic potential of the deposit. In addition to the size of the deposit and the mining process, the feasibility study will also need to calculate the capital costs of the equipment and any associated process plant required to clean the coal produced by the mine. The potential market for the coal is important in view of the costs of transport ± whether or not local rail, road or port infrastructure contains sufficient capacity for the additional tonnage that would be produced from the mine. Labour availability, power supplies and a host of other factors, including financial costs, taxation and royalties also need to be included. Finally, and now of increasing importance, a whole host of environmental considerations and their financial costs to the project, need to be taken into account. If all are still positive, then the mining company will move to financing, construction and, eventually, production from the deposit.

4.3 Mining Across the mining industry as a whole both surface and underground mines can be split into a number of different categories

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Exploration, mining and production

4.1 Split between surface and underground coal production in the United States (source: Facts about Coal).

depending on the many different types and shapes of orebody. Nevertheless, the shape is often restricted to a particular type of mineral and coal is almost exclusively limited to tabular deposits. By definition these deposits cover a large surface area and whilst in some instances it may be a blessing, in others it can cause problems and increase the costs of extraction in comparison with vertically oriented veins or disseminated stockworks. Recent data for the split between the amount of coal mined from surface or from underground in the United States is shown in Fig 4.1. The mining techniques used for extracting coal will be tied to the tabular orientation of most economically exploitable coal deposits. Unfortunately, in some instances, the area including the deposit may have been subjected to considerable geological deformation, as a consequence of which the coal seam may be vertical or undulating. This, in turn, will dictate the mining techniques that can be employed to extract the coal, and that can influence the further processing of the material. Indeed, it may become difficult to separate the coal from the waste rock, thereby reducing its relative thermal content and hence its value. As a consequence, the interrelation between all of the different factors can be important and must be determined before deciding on the mining and processing techniques to be employed.

4.3.1

Surface mining By far the most common term to describe a surface mine is as an

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The coal industry

`open pit'. Essentially, this just means a mine open to the air with `pit' being the reference to the hole in the ground created during the mining process. Open pit mines utilise a range of mobile mining equipment including powered shovels or excavators and trucks that cart both the waste rock and the coal to either the waste dump or the next part of the operation. In view of the economies of scale offered by ever larger mines, the equipment used in the world's major mining operations is becoming ever larger. This is particularly the case in coal mines as there is normally a requirement to move a large amount of both coal and waste, and the more efficiently this can be achieved the greater the potential economic return. A 1998 survey by the Parker Bay Company indicated that 46% of the world's 760 major mining operations produced coal using large-scale equipment (see Table 4.1). Table 4.1 Use of large-scale equipment in the world's major mines Region

Coal

Gold

Copper

Iron ore

Others

Total

North America Latin America Europe/Africa/ Middle East Former Soviet Union Southern Africa Asia Australasia

202 11

45 11

23 26

13 23

57 17

340 88

44 2 14 26 55

1 6 7 0 35

8 0 4 3 14

6 8 4 8 11

33 2 13 11 17

92 18 42 48 132

Total

354

105

78

73

150

760

Source: Mining Magazine after the Parker Bay Company.

Rather than use a fleet of hydraulic shovels or bulldozers to load the trucks or the in-pit crushers and conveyors, some mines have looked to other methods to reduce costs and improve efficiency. One of these mines is PT Tambang Batubara Bukit Asam (PTBA) in Indonesia, which is the state-owned coal-mining company. At its Air Laya open pit mine at Tanjung Enim in south Sumatra, Indonesia, it employs five bucket-wheel excavators, which mine coal at a combined annual rate of up to 15 million bank cubic metres. The coal is then fed directly onto in-pit conveyors, which transport it to the rail loading station or the local power plant. In coal mines in Australia, South Africa and the United States,

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massive caterpillar tracked, or walking, draglines with single scoop buckets capable of moving up to 100 t are used to mine and remove waste. They tend to be faster and more efficient than a fleet of trucks and shovels, particularly because their 100 m reach means that they can dig waste and cast it to its final resting place in one movement. As a consequence, there is no need to use trucks to transport the overburden, thereby enabling significant cost savings. Indeed, the cost of production of some of the major coal mines using this technique in the Powder River Basin in Wyoming is below US$4/t. Additional advantages of using this `open cast' technique are that it is normally possible to carry out the reclamation of the mine site as mining progresses and that the use of the dragline allows careful positioning of mine waste for reclamation purposes. Admittedly, in some open pit mining operations, the pits are dug ever deeper in a series of benches or giant steps into the earth and such mines cannot be refilled until all mining has been completed. Such a mine plan is not normally used in most mineable coal deposits in view of the additional costs involved. Nevertheless, there will sometimes be particular design advantages in using this technique either due to the depth or orientation of the deposit or because of population or other infrastructural pressures. Such a scheme may also require negligible price competition so that the mine can obtain a high enough price to cover the higher costs of mining the coal using these more expensive techniques. In some instances open cast mines are referred to as `strip mines' because the coal is exposed by the dragline in a long single strip, perhaps 35 m wide and up to 2 km in length. Strip mines may also work on different seams of coal, although the cut will normally be created perpendicular to the dip of the seams. The width of the cut may be greater or less than 35 m but it will primarily depend on the size of the mobile equipment used to extract the coal exposed in the cutting. Essentially, the cut needs to be wide enough to enable the trucks and shovels to operate without any difficulties that could slow or hinder the mining process. Recent developments in satellite technology and global positioning systems (GPS) are also being introduced in large mining operations. These enable individual trucks to determine their exact location within the mine and relay this information to a central computer, which displays it on a screen. Mine managers can use the

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Chapter 4/page 5

The coal industry

information gleaned from the system to ensure efficient truck despatch so that they are idle for as little time as possible. This helps to improve productivity and reduce unit costs in view of the large amount of capital invested in each truck (on average over US$1.1 m each). As the technology advances it may become possible to dispense with drivers and to use GPS to guide trucks through a mine, although drivers will still be required for manoeuvring vehicles in small areas. An additional factor in the profitability of a surface mine is the amount of waste material that has to be removed from the surface of the coal in order to allow extraction. In some instances coal outcrops at surface, with little overburden, and this provides a very low-cost mining operation. However, it is more normal for some waste to be sitting on top of the coal, which will therefore need to be removed in order to expose the coal for mining. Waste to coal ratios can be relatively high in the case of higher value coking coal mines, given the higher value of coking coal and its consequent ability to bear higher mining costs. The relative proportion or ratio of waste to coal is normally referred to as the `strip ratio', however, this has no particular relationship with a strip mine as all open pit mining operations that need to remove waste will have one. In most metalliferous mining operations the strip ratio is given in terms of the number of tonnes of waste that need to be removed in order to expose one tonne of ore. Hence a strip ratio of 2:1 is better than one of 4:1. In the coal-mining industry, however, the strip ratio is often calculated on the basis of the number of bank cubic metres of waste that need to be removed to extract one tonne of coal. The reason for this differing basis is that much of the overburden of a coal deposit is often relatively unconsolidated rock with a low specific gravity. As a consequence, the weight of the waste is less important than the volume that it occupies as this is what will determine the number of trips that trucks need to take in order to remove it and expose the coal for mining. Indeed, unconsolidated waste rock may well occupy up to twice its volume prior to blasting and digging. Moreover, given the tight operating margins on which many mines operate, it is important to control both the volume and the distance hauled much more closely than the weight. This is additionally important in view of the relatively flat-lying nature of most coal deposits and, hence, there is little concern with the

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Exploration, mining and production

potential energy that would need to be expended hauling weight up a steep incline.

4.3.2

Underground mining

Underground mining is also carried out to win coal, although the material has to be of sufficient value to justify the additional expense that underground mining tends to incur. This expense is not just related to the need to dig tunnels and shafts to access the coal, but also relates to the much greater need for safety in underground coal mines. Additional safety problems arise underground due to the different gases that can seep out of a coal seam, including methane, carbon monoxide, coal dust and silica dust. The first three are more easily recognisable as lethal due to the explosions that can be caused if they are ignited. Carbon monoxide is also highly poisonous and can be fatal if it builds up to a high level in the atmosphere. Coal dust and silica dust can cause pneumoconiosis and silicosis respectively, both of which lead to the deterioration of the sufferer's lungs and breathing capacity. Efficient ventilation is therefore one of the most important aspects of underground mining. A dangerous business The slow advance of technology meant that underground mining during the nineteenth century was a very dangerous occupation. It remains hazardous today but the advance in technology makes it considerably less so than in even the recent past. One of the reasons for the increasing danger during the nineteenth century is related to one of the basic facts of mining. The first tonne is the easiest and safest to extract and the risks increase, almost at a compound rate, thereafter. This occurs because the first tonne is removed from the bottom of a shaft, or the start of an adit, whereas the last tonne will be taken from the furthest point away from the shaft bottom, with all of the ventilation and support problems that entails. Ventilation remained a problem for many years and is still one of the most difficult and dangerous areas in mining. The main reason for this is the unpredictability of rushes of methane out of the coal seams that can then be ignited to cause the dangerous explosions which have claimed so many lives. The accident at Haswell Colliery in the United

# Charles Kernot

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The coal industry

Kingdom in 1844 is a fearful example of the problems of insufficient ventilation. The mine suffered an explosion due to the ignition of excess coal dust in the air underground. Insufficient oxygen meant that the dust was not fully burned and so the air had a large amount of afterdamp, or carbon monoxide, in it following the explosion. It was this that killed most of the 95 miners who died, not the direct effect of the blast. Another failing of the ventilation system was brought to light by the accident at Hartley Colliery in Durham in 1862. The beam of the pumping engine at the mine broke and crashed down the shaft. Under most circumstances this might not have been a serious problem but, unfortunately, the mine only had a single shaft with a brattice or screen to separate the air flows through the mine. One side of the shaft was for the clean air going in and the other for the used air coming out. The iron beam crashed through the brattice and disrupted the air supply to the miners, who were all unharmed by the fall of the beam. However, as the oxygen at the bottom of the mine was used up the miners slowly suffocated and all 204 in the pit at the time of the accident died. This led to the requirement that all coal mines in the United Kingdom should have two shafts in order to help ensure that there was a sufficient flow of air through the mine at all times. Brattices had earlier been invented to lead the flow of air through the underground workings of a mine and prevent it from dissipating without having any beneficial effects. This idea was developed by Carlisle Spedding of Whitehaven in the 1750s and was enhanced by John Buddle who invented a system involving three shafts and a more elaborate method of `coursing' or leading the air through the workings. Sometimes, if the two shafts were at the same topographical level, the air had to be helped to start it moving through a mine. This was often achieved by lighting a fire at the bottom of the shaft through which the engineer wished the air to escape and the subsequent loss of pressure in the pit sucked air in through the other shaft. Fans were not powerful enough to be useful for the ventilation of mines until well into the twentieth century, but are now used in the majority of underground mining operations. Unfortunately, within seven years of the accident at the Hartley Colliery this method of improving ventilation led to a depressingly similar disaster. This occurred at the Avondale colliery near Plymouth in Luzerne County, Pennsylvania on the morning of 6 September 1869.

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The region was known for its union militancy at the time (see Chapter 2) and the mine had reopened that morning following a lengthy strike. As with the Hartley Colliery, the shaft was divided into two compartments with a wooden brattice and, in order to enhance the flow of air through the operation, a fire was customarily lit at the base of the upcast side of the shaft. At about 9 am the stable boss descended the shaft with a load of hay for the mules and discovered that the ventilating furnace had set fire to the woodwork in the shaft. He just had time to escape before a mass of flame engulfed the shaft, setting fire to the coal breaker and the engine house, which then fell back into the shaft, further stoking the fire, which raged for several hours. The fire was eventually quenched with water, and by half past five that evening the 40 feet of debris that had collected at the bottom of the shaft was cleared and a dog with a lamp was lowered on a rope. As the dog stayed alive and the lamp remained lit, a party of men soon followed to clear the remaining debris and search for survivors. This group was soon driven back by the noxious gases that had collected in the mine and it took a further 30 hours before a ventilating fan had blown enough clean air into the mine to enable further search parties to be despatched. At half past six in the morning, nearly two days after the fire started the searchers found the bulk of the 110 men and boys who had been in the mine when the fire started. Longwall mining Only those deposits covering a relatively large area can be exploited using the most economical means of underground mining, namely longwall mining. The technique is in widespread use around the world as it is generally regarded as both efficient and relatively safe. In this type of extraction two parallel tunnels are driven into the coal from a main driveage in the mine. The tunnels are spaced about 200 m apart and can be up to 2000 m long. Finally, a third tunnel is driven across at the end making a rectangle, or panel, of coal exposed on all four sides. This means that any geological problems can be determined before mining commences and can be built into the mining plan. A longwall shearer, which is essentially a huge gouging machine, is placed in the third, end tunnel and works its way back by taking slices off the coal. The coal is then mechanically scraped, dragged or

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The coal industry

conveyed to one of the entry tunnels, from where it is conveyed to the main driveage and out of the mine. As each slice is taken the machine is moved forwards, allowing the hanging wall rock to fall into the gap left by the removal of the coal, sometimes referred to as the goaf. This reduces the potential scope for a build-up of noxious gases and as the miners are cocooned within the shearer they are relatively safe from debris that could fall from the roof. The return of the machine to the main driveway of the mine means that the state of the roof is of little matter as there will not be any more need to use the first tunnels driven through the coal. The machine is therefore available for use in the next longwall panel and after a few days to complete the move it will be back cutting coal. The machines generally cost about US$50 m, depending on their size, cutting speed and associated conveying capacity. Whilst most underground shearing operations are carried out on coal seams of up to two metres in thickness, there are some in China that are extracting seams of up to eight metres thick. In these mines the collapse of the roof is controlled and coal conveyed from a second conveyor behind the shearer until roof rock becomes visible. The shearing machine is then moved forwards to take the next undercut of the coal seam. Room and pillar mining If there are problems either with the strength of the hanging wall or with faulting within the deposit, then more expensive methods of mining need to be employed. These tend to involve the need to leave pillars of coal within the mine which can, only occasionally, be extracted as the mine closes. In view of this the recovery of coal is lower than in longwall mining, which recovers around 95% of the coal in each panel, and the cost to mine a deposit of the same geological size would be higher. It is also the case that the presence of the pillars may make it difficult to ventilate the working faces adequately to prevent the build-up of noxious or explosive gases. Indeed, in many cases, not just in coal-mining, it is very important to check the mineable size of a deposit rather than the geological size. A deposit can be huge, but if only a small fraction of it can be extracted, due to geological or other problems, then its ultimate size is of little consequence. As an example, Yanzhou Coal stated coal reserves of 1957 Mt in its 1998 listing prospectus, of which only 739 Mt

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(or 38%) was actually recoverable using modern mining techniques. The room and pillar method was by far the most used method until the development of the fully mechanised longwall method. Indeed, the widespread use of room and pillar mining, not just for coal, has led to it acquiring a number of names, including pillar and stall, post and stall, bord and pillar, and stoop and room. In this technique the coal can be mined using a variety of different equipment, from an individual with a pick and shovel to the larger continuous miners or gouging machines that can mine coal and place it directly on a conveyor for transport out of the colliery. It must be noted, however, that the technique is an `advance' mining technique, rather than a `retreat' technique, as is the case with longwall mining. As a consequence, the roof will need to be supported in order to provide access to the coal face, and this is often achieved using rock bolts which increase the cost of room and pillar extraction. In view of the relative weakness of coal-bearing strata, the greater the depth of the deposit, the greater the pressures on the rock and the likelihood that the hanging rock will fail. This means that the pillars that are left behind have to be larger at increasing depth. General statistics that were adopted in the United Kingdom coalfields give a rough guide for the recovery of coal from underground workings using room and pillar methods and clearly show why longwall mining is the more profitable and preferred method of coal extraction (see Table 4.2). Table 4.2 Depth and coal recovery in room and pillar mining Depth (feet)

Recovery (%)

300 300±600 600±900 900±1500

50 35 25 20

Source: Kerr, 1919.

In many cases it is possible to increase the recovery by taking out the pillars at the last stage of mining the deposit. This is, however, a more dangerous and expensive exercise, as support has to be given to the roof during the extraction process to prevent the roof from falling. In view of this it is often necessary to leave at least some of the pillars behind. Furthermore, there are also restrictions about the location of underground coal mines and their presumed areas of surface

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The coal industry

influence. As a consequence, mining is restricted under or near sites of historical interest and centres of population. In undersea collieries, such as RJB's Ellington mine in Northumberland, the use of room and pillar mining is a requirement of the government's Health and Safety Executive (HSE) in order to minimise the risk of a breach to the seabed that could flood the mine. The need to provide support to the roof also means that there has to be a relatively large amount of rock left behind around the mine shaft, even after the end of mining, often referred to as the shaft or crown pillar. This is also because of the danger involved in removing the coal, which would then remove most of the support for the shaft and headframe. Should this collapse, then any miners underground could be trapped as their immediate escape route would be blocked. Such a problem normally only arises in the mining of tabular or relatively flat-lying deposits as, for economic reasons, the shaft would need to be positioned as close to the middle of the deposit as possible. This would minimise life of mine travelling and transport time from the coal face to the shaft for both personnel and coal. The mining of metalliferous deposits is often more complicated as the style and shape of the deposit is likely to have been influenced by a number of different factors. This is not to say that coal deposits cannot undergo large-scale deformation, but that the higher costs of mining such deposits would not make exploitation profitable. Indeed, most of the closures of coal mines in the United Kingdom have been on economic grounds rather than because they ran out of coal. Nevertheless, the room and pillar mining operation can reduce some mining risks as such a mine can be worked on several sections or faces at one time. It is also possible to mix and match different techniques ± even between open cast and underground techniques within the same deposit. Indeed, in some open cast mines, adits or tunnels are driven in under the highwall and can either be used by continuous miners to extract coal, or can be used to form panels for longwall mining operations. The different underground mining techniques employed in the United States in recent years are detailed in Fig. 4.2 and show that the bulk of the coal is produced using continuous miners, although longwall operations have increased dramatically in popularity since the early 1980s, with consequent benefits to productivity and profitability.

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4.2 Production from different underground mining techniques in the United States (source: Facts About Coal).

4.4 Productivity The British coal-mining industry suffered from poor productivity during the nineteenth century as it sought to increase production by employing more miners rather than by improving mining techniques. Indeed, by 1913, the British coal mines were much less productive in terms of annual output per employee than those of either Germany or the United States, despite Britain having a much greater overall level of output. This low level of productivity and the problems associated with the great depression of 1873±1896 led to calls for a coal combine or cartel to attempt to maintain prices and keep the industry profitable. Poor productivity seems to have resulted from the massive spread of the industry from relatively small-scale operations to much larger concerns that were provided with public capital. The real difficulty in the extraction of coal had been overcome with the invention of the pumping engine, which enabled the removal of water from underground workings beneath the water table. After this there was little concentration on the mechanisation of mining as many of the pits worked seams that were only 18 inches thick and that even today cannot be worked economically using mechanical techniques. Indeed, one of the reasons for the higher level of mechanisation of mines in other countries was the thicker seams, which enabled

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more profitable extraction. It is also true that many of the United Kingdom's easily accessible thick seams had been worked in earlier times and that only the thinner, near surface ones were left. The deeper seams that are now being mined are also relatively thick and can be extracted using mechanical techniques but they were too deep to be mined during the nineteenth century. Despite these earlier problems, British Coal's productivity improved dramatically in the years running up to privatisation in 1994. This can be seen from the improvement in the overall productivity of the mining operations between 1979 and 1983 (see Fig. 4.3). Indeed, during the previous five years the productivity of the coal mines had fallen both in terms of output per man-year and output per man-shift from 474 t and 2.29 t to 448 t and 2.24 t, respectively. Between 1979 and 1983, i.e. before the start of the miners' overtime ban on 31 October 1983, productivity had improved to 504 t/man-year and 2.44 t/man-shift. A large part of the increase in productivity must, however, be related to the long-term nature of the improvements wrought by the 1974 Plan for Coal in view of the long-term nature of the investment needed to increase output in the mining industry. Indeed, as Derek Ezra wrote in 1983 `there is a gap of up to a decade before full benefits of major investment are realized so that the industry is now seen to be significantly influenced by the under-investment of the 1960s'. Within the framework of the Plan for Coal, the number of deep mines run by British Coal fell from 246 to 191 between 1974 and 1983 and this must

4.3 Productivity at British coal mines 1974±92 (source: Kernot, 1993).

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have had an impact on the productivity improvement in the latter years of the period. In South Africa, productivity increased from 1827 t/man-year in 1986 to 4128 t/man-year in 1995. However, mechanisation in the country is not as easy as it is in other coal-mining countries as a consequence of differing geological conditions. For instance, while longwall mining has been particularly successful in Australia, and to a certain extent in the United Kingdom, it has not achieved similar gains in South Africa. Moreover, as with the problems faced in the gold industry, the increase in public holidays following the election of the country's first truly democratic government in 1994 served to disrupt production. This, when combined with other restrictions on Saturday and Sunday working, and the occasions when public holidays fall in the middle of the week thereby disrupting output in the earlier or later days, has caused a relative fall in productivity. There has been much work within South Africa to improve the output of the mining industry. Much of this has focused on education programmes aimed at multi-skilling which should, in turn, enable a reduction in the overall numbers of employees. Nevertheless, it has often been the case that management levels have been reduced whereas the actual miners are retained. In 1994±95 Sasol's productivity was 4340 t/man-year and Ingwe's productivity was 4332 t/man-year. In Ingwe's case, merging together various operations yielded a number of synergy benefits including a wider range of production sources yielding greater varieties of quality, better blending opportunities, easier coal transport logistics and a unified marketing approach. Amcoal's 1995 productivity rose dramatically with the reduction in the labour force from 23 000 in 1985 to only 9000 in 1995, leading to productivity of just below 6000 t/manyear in 1995. Productivity at Peabody's mines in the United States is detailed in terms of short tons for each shift worked. This was 33.3 t/shift in 1990 and nearly increased by 2.5 times to 82.9 t/shift in 1996. Total output per employee from the group's mines in Australia was 11 034 short tons in 1994. Average productivity statistics across the United States, including important support staff not actively involved in winning coal, shows that the overall trend in the country has improved dramatically (see Fig. 4.4). As indicated, in all productivity

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The coal industry

4.4 Productivity of United States coal mines (source: Facts About Coal; EIA)

statistics it remains important to ensure that the data is directly comparable as some companies may have different criteria to decide which employees to include in the statistics. Productivity in China has deteriorated in the state-run mines probably at least partly due to the effect of small mine expansion to only 1.33 t/man-day in 1992. Despite this push for mechanisation only 41% of state operations were classed as fully mechanised in 1993. Productivity statistics for state-run mines are detailed in Table 4.3. Table 4.3 Productivity statistics for Chinese state-run mines Location

1952

1965

1979

1992

Overall Face

0.66 2.34

0.86 3.82

0.97 4.08

1.33 6.67

Source: Mining Magazine.

In Poland's restructuring plan productivity was expected to rise from 508 t/man-year to 616 t/man-year. In 1993 productivity in Germany was 741 t/man-year whilst in the United Kingdom in the same year it was 2811 t/man-year. In 1996/97 in Queensland, Australia, productivity was 12 014 t/man-year, and in the following year it rose to 15 163 t/man-year. The rise in productivity came as a result of new longwall operations starting production, which im-

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proved the underground statistics by 43%. Nevertheless, they remained at only 10 768 t/man-year, still substantially below the 16 599 t/man-year average of the open pit mines in the state.

4.5 Total mining costs Mining costs are heavily dependent on the geological and geographical situation of the deposit, the mining technique employed and the country of operation, with respect to both employee costs and taxes. As a consequence, it is a subject that needs to be considered on a micro rather than a macro level although, as indicated above, companies are under continued pressure to reduce costs to ensure profitability in an increasingly competitive market. One of the lowest production cost areas of the world is the Powder River Basin of Wyoming in the United States. The low cost of production is related to the near-surface presence of thick seams of coal, which reduces mining costs and ensures that the coal can be priced at a level that can bear substantial transport costs. The average 1996 cost of production of Wyoming coal, based on a selling price of US$5/t, is detailed in Fig. 4.5. This shows that the mining company would have a relatively meagre net income of only about 5% of the selling price of the coal ± and it is for this reason that coal-mining has become a low margin but high volume business. This also belies the potential cash generative ability of coalmines ± especially if the additional depreciation charge of US$0.30/t is added back into the

4.5 Breakdown of average 1996 Wyoming coal costs and profits based on a US$5.00/ton sales price (source: Wyoming Coal Information Committee, 1997).

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equation. As a consequence, a mine's cash inflow is likely to be more than twice the level of reported profits.

4.5.1

Taxes and royalties

All coal mined on federal leases in the United States is now subject to a royalty of 12.5% of coal value. This represents a rise of 500% over the previous royalty, which was of the order of US$0.20/t. In total, United States taxation and royalties can account for about 37% of the total cost of coal shipped to a consumer. This accounts for about US$1.85/t out of a potential sales price of US$5.00/t. This shows how extraneous costs can influence the economics of a mining project ± especially if the taxes are levied on an ad valorem basis.

4.5.2

Processing costs

The use to which the coal is to be put and the additional treatments required can significantly add to the cost of production. As an example, Anglo American has detailed the respective costs of production at its Eskom-dedicated mines (which tend not to need any pre-treatment ahead of sale) and its trade mines (the output from which often requires washing and sizing before sale ± especially for the export market). The free on rail costs are detailed in Table 4.4, which indicates significant costs of treating coal from the trade collieries so that it is acceptable to the export market. Table 4.4 Cash production costs of Anglo Coal South African collieries (US$/tonne) Year to 31 December

1996

1997

1998

Eskom-dedicated Collieries Trade collieries Average

6.70 12.00 8.60

6.70 13.30 9.00

6.20 12.10 8.20

Note: Costs are detailed before allowing for amortisation or the cost of transport from mine to port. Source: Anglo American.

It should also be noted that although the costs are detailed in US dollars, the actual costs will be incurred in South African rand and so the exchange rate between rand and dollars can affect the level of costs on translation. The general depreciation of the South African currency against the US dollar (a similar situation that also affects the

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Australian dollar during commodity price weakness as it is also a commodity-backed currency) tends to benefit local producers that sell into the export market in US dollars. As a consequence, costs should fall at a faster rate than revenues, assuming that local currency inflation remains under control.

4.6 Reclamation One of the increasing costs in the mining industry is the cost of reclamation of a mine following the exhaustion of reserves or closure on economic grounds. When a mine closes the reclamation programme is normally well underway ± especially as most opencast mining techniques involve the removal of overburden from the top of a coal seam and its placement in a previously mined out area. In South Africa Anglo Coal estimates that the rehabilitation of open pit mines accounts for 10% of the operating cost, whilst it is only 3% of the operating cost for deep mines. The differential is similar at RJB Mining in the United Kingdom, where provisions are £62 m for deep mines that produced 19.8 Mt in 1998 and £97 m for open pit mines that produced 5.8 Mt in the same year. In South Africa Anglo Coal estimated the cost of rehabilitation at around R130 000/ha in 1995, against the cost of land of R2000/ha when used for cattle grazing or arable farming. In the United States ongoing reclamation costs are estimated at between US$24 700/ha and US$37 000/ha with higher water management charges responsible for the top end of the range. In order to minimise some of the water management costs, Anglo Coal is investigating the possibility of using a series of beds through which water run-off from waste dumps can be channelled so that the various impurities can be neutralised. At the Arnot coal mine water is first passed through reduction beds to remove oxygen and prevent the limestone in subsequent beds from being coated with iron oxides. Limestone neutralisation of acid follows and the water subsequently passes through a bed of carboniferous material such as manure or sewage sludge. Finally, the water passes through a `polishing' wetland system before discharging into a natural watercourse. In order to ensure that a mining company is able to complete its final closure obligations it is often asked to post a reclamation bond

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The coal industry

with the local authority or government. In some instances the posting of a bond is particularly important ± especially if a company is forced to close for financial reasons. In this instance the bond can be used to carry out the required closure procedures and not leave the liability with the local authority. As a further incentive the mining company may be able to complete the final closure programme more quickly than estimated and for a lower cost. As a consequence, any over-provision of closure expenses could yield additional cash flow that has not been expected. This could also involve the sale of the old mine site for landfill, or for development of industrial or other buildings. Such a site is unlikely to be used for residential housing. In the case of underground coal-mining the use of the site is likely to be precluded in view of the potential concern of subsidence that can damage the surface. Moreover, the structure of any buildings constructed above an old mine could also be undermined, thereby increasing the danger to residents or employees. As a consequence, the land above most mining operations is likely to be used for agricultural purposes. This reduces the danger that sink-holes and other surface expressions of the underground workings will open up without warning and risk injury to the local population. In addition to the straightforward filling of open pits (or their conversion into lakes or other local amenities, which could also add value to a local community) a longer term commitment often has to be given to cover mine-water drainage. Before mining commences, and during the mining process, the seepage of water is controlled and is unlikely to cause any problems to local lakes and river systems. However, when mining has been completed and the old workings fill with water there is a danger that the water will overflow. If it has picked up sulphur and formed sulphuric acid from the sulphur content of the remaining coal this can cause a long-standing problem for local aquatic life. As a consequence, mining companies are now required to construct special wetlands and other acid absorbent areas around old mines in order to reduce the risk of polluting local waterways. Mining companies also have to be aware of the potential disruption to local communities that can be caused by the mining process. This can involve the use of explosives at specific times of day and the amount of dust that surface explosions may cause.

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Furthermore, the transport of coal and waste from the mine to the customer or the dump, respectively, may also need to be controlled if the mine is located adjacent to a densely populated area.

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5 Treatments and quality assurance 5.1

End product requirements

5.2

Sampling 5.2.1 Sampling techniques Size distribution Hardness and abrasiveness Float-sink analysis

5.3

Processing techniques 5.3.1 Crushing and screening 5.3.2 Coal cleaning Jigs Heavy medium baths Cyclones Froth flotation Other separation methods

5.3.3 Dewatering

# Charles Kernot

5.1 End product requirements Coal is a generally widespread commodity with Australia and South Africa being the two major exporters. Increasing supply now means that coal producers and traders competing in the international market have to offer coals of consistent quality in order to ensure customer satisfaction. It is for this reason that treatments to produce a specific quality of coal are becoming more important such that 80% of all coal-mining operations in New South Wales have a preparation plant. Coal sold locally is often not subject to such stringent criteria, with mine mouth power stations often designed to take run-of-mine (ROM) material. This is the situation in South Africa where a large proportion of local production is consumed in power stations constructed adjacent to the collieries. With negligible transport costs there is little economic advantage in minimising the amount of waste transported to the power station. Furthermore, fly ash or bottom ash can be used as backfill in the open pit mines, thereby negating disposal concerns. Consequently, this coal is normally sent directly from the colliery to the power station with no washing or other pretreatment undertaken. Export coal, however, is washed ahead of being put onto the railway wagons for shipment to the 65 Mt/year Richards Bay Coal Terminal.

5.2 Sampling In order to determine what processes are needed to treat the coal to improve its market acceptance, it is necessary to undertake a number of different tests. Some of the potential problems with coal are detailed in Chapter 3, but there are additional factors in the makeup of the material that can affect demand. In order to determine these it is first necessary to undertake a thorough sampling programme across the deposit. This should determine how the physical and chemical characteristics of the coal change across the deposit and ensure that the coal is of consistent quality. If the quality of the coal fluctuates markedly it may be necessary to construct a mining programme that ensures an average blend of coal over the life of the mine.

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A further consideration in the market evaluation process will be the expected dilution of the coal as a consequence of the mining process. This can be either as a result of narrow partings, which cannot be selectively mined, or from roof or floor rock which may also be mined due to the lower selectivity of a highly mechanised longwall operation. Nevertheless, the lower cost of mining using highly mechanised techniques means that more can be spent on cleaning processes and that lower quality coals can be mined. It is also the case that mining companies will wish to extract as much coal as possible from any particular deposit and will therefore attempt to reduce the amount that is left behind. As mechanical mining has lower levels of accuracy it is often necessary to over-extract and then remove waste rather than leave coal in the mine. In early times much of the processing of coal relied on the handpicking of waste from conveyor belts. Moreover, as much coal was mined on a piece-work basis, there was an incentive for the early miners to add extra weight through the addition of waste rock, which is normally more dense than coal. The other main processing technique was a basic crushing and screening process to produce a product to meet local needs. As most of these were domestic much of the coal supplied had to be of larger sizes, and it is only in recent years that demand for smaller sizes of coal has increased due to their use by electricity utilities. However, one of the additional factors that needs to be considered is that if the coal is reduced to too fine a particle size it may be more likely to be blown by wind, thereby causing storage problems. Small sizes will also provide a large surface area, increasing the likelihood of ignition, which is a particular problem with lignite. In view of this it is often necessary to keep coal sizes as large as possible ± especially when still within an underground mine where potential combustion causes additional problems. Longer conveyor belts have been developed for use underground as the longer the belt the fewer the transfer points at which the coal is likely to be reduced in size. The other advantage of using conveyor belts is that both the outward and return levels of the belt can be used to take coal out of the mine and bring in waste rock for backfilling, respectively. Such a system was introduced at Deutsche Stein Kohle's (DSK) Prosper Haniel coal complex in Germany in the mid-1980s. It requires that the belt is properly maintained and cleaned in order to ensure that dirt or

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Treatments and quality assurance

mud does not enter other parts of the conveyor system and disrupt production. Conveyor belts are also normally the location of sampling points during the mining process. This is important in order to check for fluctuations in the quality of the coal being mined so that corrective action can be taken rapidly. A blast of air or a rotating arm can be used to remove coal from the conveyor into a sample collection point at regular intervals. The sample will then be taken to the mine laboratory for analysis, which will concentrate on determining the energy and mineral content of the coal using the techniques outlined in Chapter 3. The techniques outlined here relate to the choice of method used for cleaning and otherwise processing the coal in order to prepare it for sale.

5.2.1

Sampling techniques

The mechanical cleaning of coal initially started over 100 years ago but it is only in recent years that the international market has started to expand and so product quality requirements have started to increase. As indicated above, the sampling process has to be undertaken carefully in view of the many changes that can occur across a deposit. This can be related either to local magmatic activity, which can increase the rank of the coal but can also lead to the introduction of sulphur or other contaminants in particular areas. Alternatively, the deposit may be located near an aquifer and in some areas may contain significantly more water than in others. The sampling process can also be extremely sensitive and, as indicated in Chapter 3, different sampling processes can yield different results for the same or similar coals. As a consequence, the sampling process needs to be carefully documented and all equipment should be detailed and carefully calibrated. After mining commences sampling is undertaken on a regular basis. This can either be through a set sample being taken from a conveyor belt at regular intervals or using static methods from drill cores or directly from the working face. The sampling is undertaken at the mine in order to determine what grade of coal is being produced and to ensure that it is placed on the correct stockpile. As a single seam can yield a number of different grades of coal, depending on location and treatments, this is an

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The coal industry

increasingly important part of the process. Nevertheless, mistakes do occur and sampling on behalf of the purchaser or consumer of the coal is becoming more widespread as the international trade in coal expands. This has seen the formation and expansion of a number of specialist analytical companies, which act as independent arbiters of the quality of coal in any individual shipment. The analytical technique used is not solely important for determining the differences between North American and British or Australian requirements, it is also important to ensure that the samples have been correctly taken. As an example, a sample from a 150 000 t consignment of coal delivered on a Capesize vessel would only be a few grams. However, those few grams have to be representative of the whole tonnage delivered and so sampling must be undertaken across the whole extent of the coal. It is not just sufficient to take samples at regular intervals across the bottom of the stockpile of coal formed after it has been unloaded from the ship in view of the physics of the settling process. This naturally means that the larger sizes of material will roll to the base of the pile, whilst the smaller sizes build to form the cone. The screens used to determine the relative size fractions must also be the same in order to achieve consistent results between the seller and the buyer. This is because screens with square holes but of ostensibly the same size as those with round holes will allow coal particles of up to 18% larger to pass through, thereby generating different results. As a consequence, sampling techniques and not just the act of sampling is extremely important across the industry. Specific companies involved in sampling coal include Inspectorate Griffith, SocieÂte GeÂneÂrale de Surveillance and TES Bretby. Size distribution Most electricity utilities require that coal is supplied on a consistent basis. In most cases it has to be supplied at a maximum size of around 2 inches or 5 cm as the utilities do not want to incur a large energy penalty crushing the coal to the grain size that is required for use in the generating plant. Nevertheless, larger sizes of coal are easier to handle and suffer reduced losses due to wind erosion. It is therefore important to determine the size distribution of the coal from a mine, but it may be that the distribution cannot be determined accurately until at least trial mining commences. This is

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Treatments and quality assurance

because different mining techniques could each have a specific effect on the coal and alter the size range of material produced. The size distribution of a particular coal is generally thought of conforming to the Rosin and Rammler model, which was developed in 1933. It states that: R = 100e-(x/k)

n

Where: R = the cumulative per cent of coal retained on size x; e = the natural logarithm or 2.718; k = the absolute size constant or size modulus; n = the size distribution count or dispersion modulus. The formula is able to predict the size distribution of a coal crushed to a nominated maximum size from that of a sample crushed to a smaller top size. The formula can be used on small samples of coal from drill cores and can then be scaled up to provide an indication of the particle distribution of a ROM coal. This can then be used to give an indication of the different capacity requirements of different circuits within the process plant. Hardness and Abrasiveness It is necessary to determine the hardness of a coal and its surrounding media in order to ensure that the process plant is able to break down the material effectively and thereby liberate the coal. The most widely accepted hardness test yields the Hardgrove Grindability Index (HGI) of a coal. It is derived by grinding a defined weight of coal, with a fixed particle size distribution, in a Hardgrove mill. This is a ring-ball mill and produces a finely powdered coal, which is then screened, and the HGI is calculated with reference to the mass of fine material produced. The higher the value of the index, the softer and easier to grind the material. Coals having an HGI of 50 or below often find little application for use in pulverised fuels. The abrasive nature of a coal, or more accurately any other minerals, such as quartz, that it contains may also need to be determined. This is because it can lead to undue wear of grinding mills if the coal is to be pulverised for use in power stations or as pulverised coal injection (PCI) material in blast furnaces. The abrasiveness of a coal, and its subsequent abrasion index (AI), is calculated as the loss of

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The coal industry

metal on four metal blades (in milligrams per kilogram of coal) which are spun at 1500 rpm for eight minutes in a sample of coal with a specified size distribution. Float±sink analysis Most cleaning operations in a coal-mining wash plant are based on the relative densities of the coal and the waste rock produced. It is therefore necessary to determine the relative densities of these materials in order to design the wash plant so that it operates effectively over the life of the mine. In this process it is necessary to simulate the initial phases of mineral processing in order to ensure that the testing process is of a similar material to that produced when the plant starts operation. This is particularly important as degradation of shale and coal can affect the performance of the float plants and significantly affect overall recoveries. As a general rule, the number of particles in a float±sink test should not be less than 2000, and not less than ten should represent any one size fraction. The test is undertaken through placing a sample in a container of organic liquid of the lowest relative density required. The material that sinks is then drained and placed in a container with a slightly higher density liquid and the process repeated until the highest density required under the testing programme has been reached and, theoretically, no coal is left in the sink material. The ash content of each density fraction is then determined, although other factors such as sulphur and swelling index may also be tested. The efficiency of separation also needs to be determined and whilst it can be presumed to be efficient under controlled laboratory conditions the actual efficiency is likely to be considerably lower in an operating plant. The overall performance of the wash plant is dependent on the process used and on the particle size distribution, and is less affected by the washability characteristics of the coal and waste. The efficiency is determined by calculating the amount of coal produced from the plant as a per cent of the amount of coal in the feed within any particular relative density range.

5.3 Processing techniques As indicated above, there is a range of techniques that can be

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used to separate and upgrade the coal into higher value products than its value as a combined material when it comes out of a mine. Some of this increase in value is related to the simple separation of larger sized and potentially more valuable domestic coals from smaller sized material more amenable for use in power stations. The choice of techniques is dependent upon the results of the sampling of the ROM material but also on the end product requirements outlined at the start of this chapter.

5.3.1

Crushing and screening

The first part of the processing procedure for coal following its extraction is normally a reduction in size necessary to allow easy handling of the material. As the rock mined will contain a full range of particle sizes not all of the rock needs to be crushed and so it will also be subject to a sizing process. It is also the case that some of the larger sizes of rock are likely to contain mixtures of coal and waste so a size reduction process should ease the separation of the two materials. This is particularly because of the differential density between coal and most waste rocks, which could otherwise reduce recoveries if density separation procedures are to be used in the later stages of the process plant. In general, most underground mines will produce rock at up to 30 cm in diameter, whilst open pit operations can produce rocks of over 1 m in diameter. Prior to any further processing these rocks must be reduced to a maximum size of about 15 cm, although in some instances a maximum size of 25 mm is required, depending on the results of the float±sink tests, described above. The more the coal is inter-banded with other rock types the finer the crushing process in order to ensure effective separation of the coal. Crushing takes place in a range of different machines that are appropriate for the type of coal produced and the hardness of both the coal and the adjacent rocks. The crushers used may include jaw crushers, gyratory crushers or roll crushers, although unlike the metallurgical industry there will be no finer milling of the coal ± even using autonomous milling techniques. The amount of crushing equipment required will depend on the size requirements of the subsequent stages of the process plant, together with the HGI and the AI of the coal.

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After crushing the coal will be screened into various size fractions using large mechanical sieves. The sizing process ensures both that the crushing process has been effective (with any oversize being returned to the crushing plant) and that the further separation processes can operate at optimal efficiency. This can be achieved because individual size fractions are likely to contain greater or lesser amounts of waste rock. Coal separation can also be carried out in a classifier. This is a machine that uses the principle that the larger the diameter or density of an object the greater its settling velocity in a fluid medium. Consequently, the technique can be used either for cleaning coal or for sizing the material, particularly for particles below about 0.5 mm in size. This process can be carried out in a tank, but cyclones are more normally used in coal plants, where they also find applications for cleaning coal.

5.3.2

Coal cleaning

As indicated above, the main methods of coal cleaning are through density separation. These methods separate the less dense coal from the normally more dense surrounding rocks that may be mined at the same time. Whilst the overall principle is the same, the methods are different and have different uses depending on the size fraction of the coal to which they are applied. The methods may employ water alone as the medium in which the process takes place or a water-solid suspension that mimics a heavier density medium. The size and shape of the coal may also affect the success of the separation process. Jigs Jigs used in coal cleaning processes are different from the jigs used in the metallurgical industry, which are effectively shaking tables. The coal jig is a tank of water, which is separated lengthways and has one half enclosed with the other open to the atmosphere. The pressure in the enclosed half can be increased or reduced back to atmospheric pressure, causing the water in the tank to move up and down around the central axis. The raw coal feed enters the tank at one end and moves to the other end, by which time the constant up±down movement of the

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Treatments and quality assurance

water has caused a stratification of the feed into high- and low-density fractions. The low-density fraction containing the coal forms the top layer and floats off the top of the jig whilst the higher density fraction falls to the bottom for removal using a screw conveyor or other techniques. The process is not very efficient and requires relative densities in excess of 1.45. Moreover, it is also size dependent with optimal sizes generally between 10 mm and 200 mm, although particles of around 100 mm are probably separated most efficiently. Fine fractions of coal restrict the capacity of the jig, particularly below 10 cm, although on average most jig machines are likely to be able to process 200 t/hour of raw coal feed. In order to improve the overall efficiency of the jigs a `Jigscan' controller has been developed that can analyse the different pressures and densities in different parts of the tank. This has led to a more accurate measurement of the physical separation process within a jig. The system has also resulted in an increase in residence time in the jigs thereby increasing their efficiency, and has enabled an improvement in yields of up to 10%. One of the first plants to use the Jigscan system was MIM's Newlands coal mine in central Queensland where it has been introduced on two 1200 t/hour air-pulsed jigs. Heavy medium baths A more efficient method of coal cleaning is the heavy medium bath. In most instances the fluid used for separation of the coal and the waste rock is a mixture of water and either fine-grained magnetite or other solids such as shale, sand or barite. The advantage of using magnetite is that it can be recovered easily using a magnetic separator and can therefore be re-used in the process. As with the jig process the baths are most efficient for coarse feed material of between 20 mm and 150 mm and essentially operate on the same principle as straightforward density separation across a liquid of known density. As with the jig machines, the separation process is most efficient if fines are excluded from the process due to the size constraints of the solid suspension. Indeed, the finer the material in suspension the finer the raw coal feed can be, except that a limiting factor is the ability to recover the magnetite, which is impaired if the magnetite is too finely ground.

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The coal industry

Cyclones Cyclones are widely used in the mining industry for the separation of samples on the basis of either size or density. A cyclone is a conically shaped tank with an angled inlet pointed towards the top, and two central outlets, one at the top and one at the bottom. The less dense and finer particles in a cyclone are drawn into a central helical vortex created by the angle of the inlet pipe and rise through the top of the tank. Those particles that are larger or denser fall to the sides and then the bottom of the tank to be extracted through the underflow. Whilst cyclones are often used as sizing apparatus instead of screens they also find applications as dense medium separators, being able to treat particles with sizes of between 0.5 mm and 30 mm. Improving efficiencies also mean that they can be effective at both larger and smaller sizes. The difference between the sizing cyclones and those used for density separation is the incorporation of a heavy medium, normally magnetite, in the liquid. This promotes the density separation effect of the cyclone. Although it is still possible to use just water, this reduces the overall efficiency of the machine. Nevertheless, in some instances the cyclones utilising a magnetite slurry may also suffer from poor efficiencies. This can occur if the magnetite is too finely ground, which tends to result in the magnetite being included in the overflow from the cyclone together with the recovered coal. Cyclones that use water with no additions are often used as two-staged units in order to improve efficiency. Froth flotation Whilst froth flotation is normally considered the preserve of the metalliferous mining industry it is used on occasion in the coal industry, particularly for the cleaning of finer particles of coal, normally for use in PCI. As a hydrophobic (or aerophilic) substance, finely ground coal normally floats in water. This propensity to float is enhanced in froth flotation cells, although the process can be aided further with the addition of reagents. The reagents are normally used to enhance the hydrophilic (aerophobic) nature of all of the waste material in the plant feed as coal is a naturally hydrophobic substance. The expense of the process, and relatively low value of steaming coal, means that it is not widely used for coal preparation, although it is gaining increasing acceptance in the coking coal industry where the

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value of the product is higher. Flotation is, however, widely used elsewhere in the mining industry and provides environmental advantages through the extraction of coal from waste dumps that might otherwise cause problems as a result of a high sulphur content and consequent acid drainage. Ironically, high sulphur coal is least desired by consumers in view of the additional environmental problems that it causes, but sulphur has been shown to enhance the flotation properties of the fuel. In froth flotation tanks, air and finely ground feed material are pumped in at the bottom. As the air rises to the top of the liquid in the tank it carries with it the hydrophobic coal, whereas the hydrophilic rock will sink to the bottom of the tank and can be removed using other methods. As in the metallurgical industry, the froth flotation process works best on small sized particles, generally below 0.5 mm. A new development in froth flotation is a column flotation process, designed by Microcel, to replace the tank flotation process that is more normally employed. The columns are 4 m in diameter and some 10 m tall, and each has a capacity of approximately 400 t/ hour of 0.5 mm feed, which is introduced about two-thirds of the way up the column. The hydrophobic coal is lifted by bubbles introduced at the bottom of the column, whilst ash is washed down through the deep froth zone that forms at the top. The deep froth zone allows the dirty process water to be replaced with clean water thereby improving the overall quality of the final product. Following flotation the coal is dewatered in a single stage cyclone and filtration plant. The columns have been shown to improve the overall efficiency of fine coal recovery by 4% at BHP's Peak Downs mine in Queensland (equivalent to 360 000 t/year of coking coal) and are now being introduced in a number of other mines in Australia. Other separation methods Other equipment can be installed to separate coal from the denser fractions. These include a Vorsyl Separator and a Dyna Whirlpool, which both work on the same principle as the cyclone. Other equipment includes the straightforward shaking table that is used in density separation of gold in many mines around the world. In coal mines, however, it is the less dense rather than the denser fraction that is recovered. Oil agglomerations were also once used in

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The coal industry

the coal industry, utilising the ability of oil to `wet' the surface of the coal and encourage separate particles to stick together. The larger agglomerates could then be separated from smaller sized waste rock through one of the sizing processes outlined above.

5.3.3

Dewatering

After the coal has been separated from the waste rock, it is necessary to remove any additional water in order to improve the quality of the final product. As the surface area of the coal increases, and its size reduces, so the cost of dewatering also tends to rise. Coal above about 10 mm in diameter is normally dewatered on a shaking screen, which removes the water through vibration. Smaller particles (0.5±10 mm) can be dewatered using centrifuges, where the solid particles coat the inside of the centrifuge and can be extracted using a screw conveyor. For even finer coal the material needs to be dewatered using a vacuum filter, although this normally leaves the water content relatively high at 17±25%. In some instances, heat is applied to dry the coal, although it is not a usual method. This may be due to the local environment, where high water contents could lead to the freezing of the coal in arctic conditions, or to reduce the inherent water content of the coal to comply with customer requirements and/or reduce transport costs.

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6 From mine to market 6.1

Transport logistics

6.2

Export ports 6.2.1 Australia New South Wales Queensland

6.2.2 South Africa 6.2.3 Russia Vostochny Ust-Luga 6.2.4 Indonesia 6.3

Shipping

6.4

Import ports 6.4.1 Rotterdam Stevedores European Massagoed-Overslagbedrijf European Bulk Services

6.4.2 Other European ports Amsterdam Sea-Invest Group Ovet

# Charles Kernot

6.1 Transport logistics Transport routes and the cost of the various forms of transport are becoming increasingly important in coal-mining and trading. The reason for this is the increasing construction of mine-mouth plants by Independent Power Producers (IPPs), which benefit from minimal transport costs and are therefore able to compete aggressively on the price of the electricity that they supply. It is also the case that a greater distance from mine to market exposes the consumer to a higher delivery risk. Conversely, construction of gas-fired Combined Cycle Gas Turbine (CCGT) plant may reduce delivery risk in developed countries in view of the highly efficient gas distribution network that has been constructed in these areas. Mine-mouth power stations may be economically efficient using conveyor belt systems for distances of up to 20±25km from the mine, but beyond this distance it is normally considered more efficient to truck the coal. Rail is more normally used for longer distances, as it tends to be the most cost-efficient method of long-distance land transport. In terms of economics the larger the train, the more economical the transport ± and given that transport costs may be a significant part of the delivered cost of the coal, any means of reducing these costs is utilised by the mining companies. Various alternatives must be considered for rail transport, and the compatibility of a system also needs to be taken into account if rail wagons are to be leased from a local railway company. Indeed, either bottom discharge or tippling wagons may be used and it is important to ensure that they are compatible with the system being installed. In some countries an own-your-own-wagon (OYOW) scheme has been introduced to overcome some problems. Loading of wagons is also important as it has to be carried out quickly and efficiently in order to ensure the most efficient use of the capital employed. It is also important as it may be that the track is only available to the mining company for the transport of coal at particular times and that if one slot is missed there may be a substantial delay until the next one becomes available. Train-loading speed through any form of rapid-loading system utilising silos will probably be most efficient but will also require additional capital investment. In some countries, such as the United Kingdom, other simpler loading systems such as a payloader or wheeled dozer are not allowed.

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In the United States, the coals of the Powder River Basin in Wyoming are normally transported by rail from the pit-head to the power station, wherever it is located, whilst coals mined in the Mississippi basin are often barged to the customer or an intermediate transfer point. In Wyoming the railway companies Burlington Northern (60% of total coal shipped) and Western Railroad Properties (34%, a joint venture between Union Pacific and the Chicago and Northwestern) are the two biggest transporters, whilst Union Pacific (6%) also moves coal on its own account from the southern Wyoming mines. The trains used in Wyoming are normally between 115 to 120 wagons long, with each wagon capable of carrying about 100 t of coal. The trains will carry 12 500 t of coal, have an axle weight of 16 500 t, be 1.25 miles in length and require three to five locomotives with a combined capacity of 10 000 to 15 000 horsepower. In Indonesia, the state coal-mining company PTBA transports coal first by rail from the mine at Tanjung Enim in Sumatra to the port at Tarahan and then by barge to the major PLN power station at Surabaya on the island of Java. Other coal mines in Indonesia are mainly located on the island of Borneo and are situated closer to the coast. Nevertheless, some need to truck or convey the coal substantial distances in order to reach water deep enough for Panamax or Capesize vessels. Indeed, whilst most coal is used internally within its country of origin, the discovery of major coal deposits that can be mined at lowcost, together with the development of a global bulk transport industry, has revolutionised the coal industry. This has seen the development of major export operations over the past 20±30 years and an increasing reliance amongst coal consumers on imports as domestic industries are allowed to fall into decline. The oil crises in the 1970s also provided impetus to countries to look for alternative fuel supplies and those that were particularly reliant on oil also moved to use coal (and later nuclear power) as primary sources of energy.

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From mine to market

6.2 Export ports 6.2.1

Australia

New South Wales In New South Wales the Gunnedah coalfield is located the greatest distance from a port or other centre. It is situated 320 km north-west from Newcastle, and this increases the overall cost of transporting the coal to market. In New South Wales road is generally used in the southern coalfield, where it is used for haulage to the local rail head or delivery to local domestic consumers. In total, however, rail is the most important method of transport in the state, with a rail network of over 1050 km and 29 rail loading terminals using balloon loops and rapid load-out bins. Trains range in size up to 84 wagon trains carrying 8000 t of coal. The state has three major coal export terminals, Port Waratah's Carrington Coal Terminal (CCT) and the Kooragang Coal Terminal (KCT), both at Newcastle, and the Port Kembla Coal Terminal. The Port Waratah terminals are operated as joint ventures between the local coal producers, each of which has a specific allocation of capacity. Total stockyard capacity at the two Newcastle ports is some 2.9 Mt, with three 2500 t/hour shiploaders at CCT and three shiploaders each with a rated capacity of 10 500 t/hour at KCT. The CCT has two berths and the recently expanded KCT has three berths, effectively allowing the port to load up to five vessels simultaneously. Total capacity at Newcastle is of the order of 66 Mt/year with the port able to cater for Capesize vessels. The Port Kembla Coal Terminal is located adjacent to Wollongong, 80 km south of Sydney and serves the south and western coalfields of New South Wales. The port is operated by the Port Kembla Coal Terminal Ltd, a consortium of five equal partners: BHP, Kembla Coal and Coke, Metropolitan Collieries, Oakbridge and Shell Coal(since taken over by Anglo American in May 2000), but is managed by BHP. The port has stockpile capacity of 800 000 t and can load Capesize vessels at a rate of up to 6600 t/hour.

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Port

Maximum vessel size LOA (m) Beam (m)

KCT CCT

Annual capacity (Mt)

Stockyard capacity (t)

Maximum loading rate (t/hour)

315 300

55 47.1

15.2 15.2

52 25

1 210 000 1 700 000

10 500 7500

±

±

±

77

2 910 000

18 000

290

45

15.2

16

850 000

6600

Total Newcastle Port Kembla

Channel depth (m)

Queensland Gladstone is the fifth largest port in Australia and the largest of the four coal export locations in Queensland, operating through two coal terminals: the RG Tanna terminal and the Barney Point terminal. The port is well situated for access to the central region of Queensland, with direct rail links to the coal-producing areas of the state. The nearest coal mine to the RG Tanna terminal is the Moura operation, which is 189 km distant, whilst the furthest is Gregory, which is 370 km away. The port is a government-owned corporation and acts as the operator of the terminals, and although debt is guaranteed by the state it is financed on an arms-length basis. The port is dredged to allow a minimum sailing draught of 17 m and up to 18 m during high tides. The RG Tanna terminal has two berths with a combined length of 699 m and can accommodate vessels of up to 220 000 t. The RG Tanna Coal Terminal exported 25.7 Mt of coal in the 1998/99 financial year, up from 22.6 Mt in 1997±98. The operation has consistently increased its throughput since the start of the 1990s, when throughput was about 17 Mt. Total throughput capacity is currently of the order of 30 Mt/year, although the terminal has plans that could double this to 60 Mt/year when required. Stockpile capacity is up to 3.9 Mt of coal in 14 separate piles ± equivalent to the number of mines supplying coal through the port. The proportion of blended coal has increased markedly with an expansion of the terminal's equipment to the extent that 11.8 Mt (46% of total throughput) was blended in 1998/99. The Barney Point coal terminal is smaller than the RG Tanna terminal with throughput of only 1.6 Mt in the 1998±99 financial year, against 3.2 Mt in 1997/98. The total design capacity of the terminal is

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From mine to market

about 5 Mt/year with a stockpile of 400 000 t, and there is no blending facility at the operation. The terminal can only take smaller vessels of up to 90 000 t fully loaded or up to 150 000 t partly loaded given the lower draught of 15 m in comparison with the RG Tanna terminal. The Abbot Point coal terminal is situated 25 km north of the town of Bowen and represents Australia's most northerly coal export operation. The terminal has an offshore berth catering for the Newlands and Collinsville mines, which are connected to the port via a direct rail link. Total throughput at the port in 1997/98 was just over 7 Mt against a rated capacity of up to 12 Mt/year. The port can accommodate ships of up to 166 000 t and has a notional departure draught of some 17.5 m. The Brisbane coal terminal is also a relatively small operation with an annual capacity of some 5 Mt and only capable of accommodating ships of up to 90 000 t with a 13 m draught. Like the Gladstone port, the Brisbane Port Authority is a governmentowned corporation, although it has moved to a more diversified operation in recent years. The port has a total of 28 separate berths, of which only one is used for coal. The Hay Point port includes both the Dalrymple Bay Coal Terminal (DBCT) and the Hay Point Coal Terminal (HPCT), both located 40 km south-east of the town of Mackay, Queensland. The DBCT is owned by the government, although it is operated by the mining companies that utilise its facilities on a `common user' basis. The HPCT is owned by Central Queensland Coal Associates (CQCA) and operated by BHP Australia Coal. Total throughput at the port was 51.2 Mt in 1997±98 and 53.8 Mt in 1998/99 and is set to see further growth as the DBCT expansion is completed. This expansion should lift capacity to 37.5 Mt/year from 33.5 Mt/year and will require the intallation of an additional stacker± reclaimer and associated works. The terminal can load at a maximum rate of 7200 t/hour and will accept vessels of up to 200 000 t, although the minimum approach channel depth is only 13.1 m at low water. The HPCT has an annual capacity of some 28 Mt/year following an expansion that was completed in June 1998. The terminal can accept two ships for simultaneous loading in separate berths with a maximum capacity of 230 000 t and maximum departure draught of 17.7 m, although as with DBCT the minimum approach channel depth is 13.1 m.

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6.2.2

South Africa

With the increasing consumption constraints in South Africa during the 1960s Anglo American Coal, together with other local coal companies, started to look to the international market. This led to a contract to supply 27.8 Mt to Japanese consumers over a 14 year period although, in order to secure the contract, the partners required the construction of a 570 km railway link and the development of a port and coal export terminal. The coal terminal was set up as a producers' cooperative and was originally shared along investment and export requirement lines. The railway line was constructed by COALlink, a division of Spoornet, the South African state railway company, whilst Portnet built the port infrastructure and dredged a channel deep enough for Capesize vessels. Since the latest expansion was completed in August 1999, the port has an export capacity of 66.5 Mt/year, making it the largest single coal export terminal in the world. Following this expansion, the coal terminal contains a 240 ha stockpile area with a maximum stockyard capacity of 6.5 Mt across 43 discrete grades of coal, and is capable of loading up to 750 ships per year. However, discussions are continuing over the cost of, and who should pay for, an incremental expansion to an export capacity of around 70 Mt/year. Not all of the partners in the terminal want to pay for the expansion as they would not be able to increase mine output sufficiently to make full use of the additional capacity. Nevertheless, previous disagreements over which companies should pay for past expansions have been overcome and expansion of the terminal is to be expected at some stage over the next few years, leading to a further increase in South African exports. The trains despatched from the coal mines to Richards Bay can contain up to 200 wagons, which hold either 58 t or 84 t of coal and can be up to 2.7 km long. The terminal can accommodate up to 3000 wagons per day and speeds unloading through the use of a tippling mechanism. In this instance the wagons, which are owned by COALlink, are secured on rotary couplings and so there is no need for uncoupling between tipplings, which could delay the process. Moreover, the system of four tandem tipplers allows for the unloading of two wagons at once, further speeding the process. Coal is despatched over a 58 km conveyor belt system that operates at a

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From mine to market

speed of up to 22 km/hour either to the stockpiles or directly to ship if it is in dock. If the coal is not sent directly to the ship, it will be placed on one of over 100 separate stockpiles and reclaimed at a later date using one of six bucketwheel stacker±reclaimers, or a separate reclaimer. The facility also has two other stackers and is computer controlled to ensure that coal sent from specific mines is loaded onto the correct stockpile and not mixed with coal from another source. Testing of coal on arrival and despatch is carried out by a completely independent testing organisation ± the South African Bureau of Standards. Finally, for shiploading, the facility has four shiploaders, two with a rated capacity of 10 000 t/hour and two rated at 8500 t/hour, with berth capacity for five ships. The peak loading rate achieved at the terminal over a 24 hour period has been 12 917 t/hour. With later takeovers, mergers and investments the stakes have changed over time and Anglo American currently holds a 26% interest in the terminal ± giving it a 26% share of its export capacity (Table 6.1). Table 6.1 Ownership of the Richards Bay Coal Terminal Company

Ownership (1996) (%)

(2000) (%)

Billiton Anglo Coal JCI Shell Duiker Total Sasol Gold Fields Coal Kangra

41.3 23.7 7.4 7.3 5.9 5.7 5.2 2.3 1.2

41.3 26.0 Ð Ð 20.6 5.7 5.2 Ð 1.2

Source: Author.

Given the potential for South Africa to find additional market demand for its coals there remains the potential for further export increases in the future. This is likely to be achieved either through an incremental expansion of Richards Bay Coal Terminal (RBCT), the construction of a new terminal at Richards Bay or through an upgrading of the existing railway line to Maputo and additional investment in the local port at Matalo. The proposal to build a second coal terminal at Richards Bay was

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originally called the Red Terminal project but has since changed its name to the South Dunes Coal Terminal (SDCT) and current plans envisage an annual capacity of some 12 Mt/year. This terminal would increase the use of the railway line between the port and the coalfields to around 79 Mt/year ± very close to its rated capacity of 80 Mt/year. Admittedly, further investment may be able to increase railway capacity further and it is to be expected that, as with the RBCT, the terminal would be expanded rapidly to improve capital efficiency should there be sufficient demand for the coal. The second, and potentially cheaper, option would involve the upgrading of the existing railway line between northern South Africa and Maputo in Mozambique. This represents a significantly shorter distance for the trains to travel and could therefore cut unit transport costs. There are various problems with such a plan, not least of which are the poor state of the Mozambique railways and the need to spend a large amount of capital upgrading the existing port facilities, which have a nominal capacity of 4.7 Mt/year against 1995 throughput of 1 Mt. Nevertheless, the development of the port may be aided by the construction of the Mozal aluminium smelter at Maputo. The smelter will need to use the Matalo port at Maputo to import its alumina and petcoke raw materials and export the finished aluminium produced. It will also lead to a redredging of the main channels in the port and the removal of ships scuttled in the harbour during Mozambique's civil war. As a consequence, some of the problems in Mozambique may be overcome with little cost to coal producers and this may encourage additional feasibilitiy studies into using the port. Both options are under investigation but, with expansion in internationally traded coal supplies elsewhere in the world, it may be that the projects remain on the drawing board until the outlook for the market becomes clearer. The only other important coal port in South Africa is at Durban, with a capacity of 2 Mt/year and potential to expand to 5 Mt/year.

6.2.3

Russia

In order to earn hard currency, Russia has been looking to increase its commodity exports. This has seen the country increase its exports of coal despite the long railway journey between many of the

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From mine to market

coalfields and the sea. Nevetherless, the cost structure of the industry is such that hard currency income more than offsets the internal cost of transport, which can often be covered with bartered coal or other commodities rather than paid for in cash. Vostochny The port of Vostochny was constructed 20 km east of the city of Nakhodka in the far east of Russia in 1970 and is now Russia's largest port serving the Pacific market. To encourage its development, the port and the city are designated as a `Free Economic Zone' so that it can be used for entrepoÃt purposes. The port is located in the Bay of Vrangel between the capes of Kamensky and Petrovsky. It is in a generally ice free zone with a monsoon climate between May and August benefiting from eastern and southeastern winds, whilst between October and March the prevailing winds are from the north and north-west with temperatures averaging ±5 ëC and the lowest temperatures in January reaching ±14 ëC. Vostochny is able to accommodate ships with a draught of up to 20 m and has a range of separate terminals with different operations. These include the import of raw materials, such as alumina, which are required for the country's metallurgical industry, and for exports of finished products, both as dry bulk and in containers. The first ship loaded at the Vostochny coal terminal was loaded on 28 December 1978 when the total volume of coal handling was of the order of 2 Mt/year. Now the operation has been expanded so that it is able to handle over 12 Mt/year, split across more than 25 different ranks of coal and sourced from Yakutugol, VossibUgol, Karboimpex and Dalintorg, amongst others. The total stockpile area at the port is approximately 680 000 t of coal and the operating capacity of the stacker-reclaimers is some 3000 t/hour. The port also has defrosting devices to enable the unloading of coal from the railway wagons in the depths of the Russian winter. The coal terminal has two wharves, which can each take vessels up to 360 m in length and a draught of 15 m. Each wharf is equipped with two loading machines, which means that four 18 000 t vessels can be loaded, or two vessels with up to 100 000 t capacity can be loaded, simultaneously. The shiploaders operate at a rate of 3000 t/hour and the port operates on a 24 hour basis, seven days a week.

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Ust-Luga The Ust-Luga port is located in the south-west part of the Gulf of Finland, 110 km from St Petersburg, and is a new enterprise in Russia, with the first delivery of coal taking place in 1999. The port has a nominal capacity of 8 Mt/year and has been constructed to boost the country's export earnings, with long-term contracts to supply German consumers with coal from Rosugol until 2005.

6.2.4

Indonesia

On the island of Borneo in Indonesia, PT Adaro moves coal up to 100 km by road from its mining operation to a local river, from where the coal is barged to the coast for transshipment to ocean-going vessels. This is likely to be an expensive process, but the absence of habitation means that there are normally few delays, except during the rainy season, which has caused some problems in recent years. Trucks are loaded with more difficulty than they are unloaded and this is also a factor in the calculation of the economics of the process. Conveyors are expensive and there is a continual requirement to ensure that spare parts of sufficient quality are available. A brokendown conveyor with no spare parts can be a serious problem. Nevertheless, a steel cord conveyor is used at the Kaltim Prima Coal operation, also in Borneo. The large throughput at the mine means that the very low operating cost more than offsets the relatively high capital cost of the equipment. The equipment also means that the mine is able to load ships directly with no requirement for additional handling of the coal except through stacker-reclaimer operations at the port, if required. Indonesia's main coal shiploading ports and terminals are shown in Table 6.2.

6.3 Shipping At high tonnages it is likely that a coal consumer will want to purchase coal on the basis of a free on board (FOB) contract as freight may then be optimised by the company. For smaller tonnages and for ease of contracting a cost, insurance and freight (CIF) contract may be more beneficial. Self-discharging vessels may be useful as they will mean that there is no requirement for a ship-unloader, although they

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From mine to market

Table 6.2 Indonesian coal ship loading ports and terminals Operator

Location

Open

Max vessel DWT

1997 Capacity (Mt/year)

2002 Capacity (Mt/year)

Kaltim Prima

Tanjung Barat, Kalimantan Tanah Merah, Kalimantan Balikpapan, Kalimantan South Pulau Laut, Kalimantan Tarahan, Teluk Bayur, Pulau Bali, Kalimantan

1991

180 000

12.0

15.0

1993

20 000

3.0

5.0

1995

65 000

3.0

5.0

1997 2000 1989 1991 1990 N/A

90 000 200 000 65 000 40 000 20 000

10.0

25.0

8.0 2.0 1.0 8.0

15.0 3.0 3.0 15.0

8.0

12.0

61.0

110.0

Kideco Jaya Agung Dermaga Prakasa Pratama Indonesia Bulk Terminal PTBA PTBA General port Self-loading vessels Floating cranes

East/South Kalimantan

N/A

Total capacity Source: Graeme Robertson, Swabara Group, CoalTrans Bali, 1997.

attract higher freight rates. As a commodity, shipping rates can fluctuate widely (see Fig. 6.1) and it is therefore necessary to ensure that contracts are fair and reasonable. What is often forgotten or unrecognised is that shipping availability is a commodity. In poor economic times global trade 2500

2000

1500

1000

500

0 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 6.1 Baltic Freight Index (source: Datastream).

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suffers and, as a result the amount of spare shipping capacity increases, forcing down prices. Conversely, when the global economy is active spare capacity diminishes rapidly, leading to a shortage and forcing up prices. Such a situation is difficult for all interested parties to manage in view of the relatively short-term nature of the global economic cycle and the long-term ship ownership required in order to earn a required return on capital. Indeed, it is sometimes said that ship owners make more money from buying ships during a recession to sell at the subsequent economic peak than they do out of managing and transporting cargo.

6.4 Import ports Rotterdam is one of the largest ports in Europe, and is the largest of ten ports stretching from Le Havre to Hamburg with a share of around 42% of the total tonnage of all types of cargo handled. Given its dry bulk handling ability it is also important from the perspective of coal imports into Europe, a factor aided by its good transport links inland into the continent. The tonnage handled by Rotterdam and the top ten ports in Europe is detailed in Fig. 6.2, but given that it includes

6.2 Major European port cargo throughput (source: Rotterdam Municipal Port Management).

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Genoa, London and Marseilles, the share attributable to Rotterdam was only 35% of the total in 1998.

6.4.1

Rotterdam

Given its importance in a European context, Rotterdam is also the major coal import terminal for coal in the continent, handling some 22.5 Mt of coal in 1998, or some 40% of the total. The port has a total of 220 hectares (ha) available for the transshipment of dry bulk goods, including coal, as well as the ability to import via rail or road. The import process is organised by a number of stevedores that operate in different areas of the port. Rotterdam's deep water channels mean that it is particularly well-suited to handle the largest bulk carriers with the Maasvlakte waterway (the closest part of the port to the sea) able to take ships with a maximum permitted draught of 22.5 m. Rotterdam's total throughput of coal, both imports and exports, since 1975 is detailed in Fig. 6.3, from which it can be seen that throughput has grown steadily over the period. The rate of growth is equivalent to an average annual rate of some 4.9% and Rotterdam is planning for further capacity expansions in the future. In terms of rail transport, the expansion of the port railway should enable an increase in the total rail freight tonnage of

6.3 Rotterdam coal throughput (source: Rotterdam Municipal Port Management).

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dry bulk goods, including coal, expanding from some 8.8 Mt in 1995 to 18 Mt in 2005 and 26 Mt by 2010. Indeed, the total tonnage of goods moved through Rotterdam grew from 287 Mt in 1990 to 297 Mt in 1995. This is expected to grow further to 318 Mt by 2000, 393 Mt by 2010 and 480 Mt by 2020, with large increases in all modes of transport. Within this overall figure the movement of dry bulk goods, including coal, should see an increase from 90 Mt in 1998 to 100 Mt by 2010 and 103 Mt by 2020. This represents a lower rate of growth than the overall figure as the port is expecting much of the increase in cargo to be in containers. Nevertheless, the closure of mines in Germany and the threat to the German nuclear programme may mean that this forecast is on the low side. The main source of coal for Rotterdam is from the main sea routes, although some coal arrives on other modes of transport. The incoming and outgoing methods of transport for the solid fuels classification of the port in 1996 (which may include other fuels) confirms this and indicates that the bulk of the outflow of coal is along inland waterways (see Table 6.3). Table 6.3 Incoming and outgoing methods of transport for solid fuels at Rotterdam port Method By sea from/to Europe Africa America Asia Oceania Total sea Inland waterway Railway Road Total

Incoming

Outgoing

Total

625 6 645 7 920 1 880 2 313

2 211 3 1 36 7

2 836 6 648 7 921 1 916 2 320

19 383

2 258

21 641

201 135 21

8 973 914 31

9 174 1 049 52

19 740

12 176

31 916

Source: Rotterdam Municipal Port Management.

Stevedores Within the port of Rotterdam there are five specific areas that can handle coal and other dry bulk goods, which are operated by different

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stevedores. The two major stevedores handling coal are Europees Massagoed-Overslagbedrijf (EMO) and European Bulk Services (EBS). A third stevedore is Ertsoverslagbedrijf Europort CV (EECV) which currently only handles iron ore for Thyssen Krupp, Mannesman and Hoesch. The company has plans to move into coking coal importing in view of the downscaling of coal-mining subsidies by the German government and an expectation of increasing German coking coal import requirements. The initial plan is that EECV will have capacity to import some 3 Mt/year, although this is expected to rise to 8 Mt/ year to 10 Mt/year in the final phase. Europees Massagoed-Overslagbedrijf The Coolsingel or `coal canal' is the location for EMO's operations. It has a discharge capacity of around 38 Mt/year of coal and iron ore, of which approximately 20 Mt/year is coal. The stevedore has 24 km of conveyor belt on its 168 hectare property, which operates 24 hours per day. EMO is 43% owned by a consortium including Thyssen Stahl, Ruhrkohle, SHV and Shell. The HES Group of Rotterdam owns 31% and Manufrance, a subsidiary of the French state coal purchasing company holds the remaining 26%. EMO is the best located of the three stevedores, with its terminal based at the most seaward end of the port, and is able to handle ships with the maximum draught of 22.5 m permitted by the harbour authorities. Moreover, other ports in the region, including Amsterdam (15 m) and Antwerp (16 m) are unable to unload large ships of over 340 000 t for iron ore and 180 000 t for coal. It should be noted that most coal loading ports are unable to load ships of greater than 180 000 t and so these are the maximum size of ship for EMO to unload. Richards Bay in South Africa, 23 days distant by sea, is the most important port for EMO supplying some 35% of the coal that the stevedore handles. Australia comes second with 32% followed by Colombia (10%), the United States (8%) and Indonesia (6%). The remaining 9% is supplied by a range of other countries, including Poland, China, Canada and Norway. The coal is then distributed to Dutch electricity generators (45%), Germany (28%), France (5%) and the United Kingdom (2%), with a host of smaller customers making up the balance. Some 17% of the total is transported to the local power station, 75% is distributed to coal consumers by barge, 6% is reexported by ocean-going vessels and 1% is loaded onto trucks.

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The coal industry

A 150 000 t ship can be loaded in a day but will take three days to unload, although EMO is able to unload three ships at any one time given the scale of its operations. The operation also maintains a large number of stockpiles for its various customers with coal loaded and unloaded with a stacker±reclaimer operation. With the time from Richards Bay to Rotterdam and then unloading the coal and reloading it onto a barge it is likely to be at least a month from the time the coal leaves the mine to the time it reaches its final destination. One of the reasons for EMO's success in the coal import market is its acquisition of Frans Swarttouw's Amazonehaven coal terminal in January 1991 and its ten year contract to supply coal to the joint coal bureau for the electricity companies (GKE). This contract included the blending of coal for the GKE as well as all transshipment requirements and now means that EMO handles all coal destined for Dutch power stations with the exception of Amsterdam and Borssele, which can be handled locally. In order to blend the coal to meet the GKE's requirements, EMO constructed a new blending plant and upgraded its other coal handling facilities at a cost of NLG250 m in 1992. The stevedore also has a 750 000 t/year washplant to reduce the ash content of the coal, also a by-product of the blending process. The company, finally, is able to sieve coal to required size ranges for specific customers. This is in 0±6 mm, 6±12 mm and 1, 2 and 3 nut sizes, which represent 12±25 mm, 25±50 mm and 50±100 mm ranges for domestic fires. European Bulk Services European Bulk Services (EBS), the other large coal stevedore, came into being at the end of 1993 as a result of the merger between Koninklijke Frans Swarttouw, Graan Elevator Maatschappij (GEM) and Interstevedoring. The group is a subsidiary of the HES Beheer holding company and suffered losses in the early 1990s, which inspired a major restructuring programme. In effect EBS has acted as an overflow port for EMO when the arrival of ships is concentrated in a short period of time. Much of EBS's work still concentrates on the movement of agribulk cargoes, although the company is handling an increasing amount of ores and other dry bulk cargoes such as coal. In order to improve its coal handling credentials, EBS has recently acquired new facilities for

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From mine to market

6.4 Coal throughput of north-west European ports (source: Rotterdam Municipal Port Management).

the manufacture of special coal briquettes in the Botlek area that were originally part of Interstevedoring.

6.4.2

Other European ports

As a matter of comparison, it is also possible to look at the relative amount of coal throughput from Le Havre to Hamburg, which is detailed in Fig. 6.4. Here, again, it is possible to see that Rotterdam is by far the largest port for coal in the whole of north-west Europe. Amsterdam Unlike Rotterdam, which can accommodate fully laden Capesize vessels, the port at Amsterdam is only able to handle ships with a maximum draught of about 16.5 m, equivalent to approximately 150 000 t, by means of a lightening service that reduces the draught of the ships to less than 14 m. The port is served by four different stevedores and processing companies that provide different services to coal suppliers and consumers. The Overslag Bedrijf Amsterdam (OBA) Bulk Terminal at the port has the facility to transship coal outside the locks so that Capesize

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The coal industry

vessels can be partially unloaded and their draught reduced, but this will add to the overall cost of the process as it will involve some delay. Nevertheless, after lightening, up to three ships can be accommodated in an 800 m quay that has five discharge units to achieve a maximum discharge rate of 80 000 t/day. The terminal covers a total area of 65 ha and has stockpile capacity of 2.5 Mt. It has a range of different loading facilities which can load barges at a rate of up to 3000 t/hour, whilst a slewing stacker has increased the unloading capacity to some 4200 t/hour. OBA also operates two longitudinal stockpiles, which can be used for blending coal at 2400 t/hour and has two 1200 t/hour reclaimers, which feed directly to the local power plant. Rietlanden Stevedores has a stockpile capacity of 2 Mt on its 16.2 ha site and can simultaneously accommodate three ships with a draught of up to 45 feet on its 980 m quay. Unloading is carried out by two 36 t floating cranes and one 20 t crane, which have a capacity of up to 25 000 t/day, and throughput capacity onto barges is of the order of 3000 t/hour. The total throughput at the site was 3.5 Mt in 1997, with 2.0 Mt in the first six months of 1998. The operation also has a 1.5 Mt/year coal washplant and direct rail linkage, which can handle about 1 Mt/year. The Cargill Coal Parcel Service is a new operation, having only started in 1998 at the IGMA terminal in anticipation of an upturn in German import requirements. This terminal is equipped with seven floating cranes, and Cargill offers a comprehensive logistics service from despatch port to consumer. Finally, Amsterdam Coal Processing operates a small coal processing plant that includes a dense medium washplant (150 t/ hour) and facilities for dry screening (300 t/hour), wet screening (150 t/hour), crushing (from 250 mm down at 150 t/hour) and blending of coal. The infrastructure is situated on a 5.3 ha site and has a 180 m quay for soft-loading finished product. Sea-Invest Group The Sea-Invest Group has bulk handling operations in the ports of Antwerp, Ghent and Zeebrugge, all of which are capable of handling coal. The organisation also operates the Ghent Coal Terminal, which has a range of handling, storing, dry screening, crushing and blending facilities. The terminal also has a coal preparation plant, which has

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conventional washing, cyclone washing, wet screening and crushing facilities. Ovet The Ovet group has operations at the ports of Flushing (Vlissingen) and Terneuzen, both of which benefit from the lowest port costs in the Amsterdam/Rotterdam/Antwerp (ARA) range. The company operates four floating cranes with 25 t capacity and 1000 t/ hour unloading rates and has crushing, blending and screening facilities at both of its terminals. In Terneuzen, the company can accommodate ships of up to 264 m length overall (LOA) by 34 m beam and 12.25 m draft, which is the constraining size of the lock on the Ghent±Terneuzen canal. The terminal at Terneuzen has a stockpile capacity of 600 000 t and an average discharge rate of up to 30 000 t/ day. In Flushing there is no lock and so the terminal can accommodate ships with a draught of up to 15.2 m and 310 m LOA. The company can also handle ships of larger size by means of an unloading facility, using the floating cranes, which it can operate for vessels of up to 16 m draft at a maximum capacity of 70 000 t/day. The stockpile capacity at Flushing is 900 000 t and the 1000 m of quay enables an average discharge rate of 40 000 t/day.

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7

Coal, electricity and the environment

7.1

Who uses coal?

7.2

How a power plant works 7.2.1 Independent power producers

7.3

Coal and the environment

7.4

Flue gas desulphurisation

7.5

Clean coal technology

7.6

Competition

7.7

Renewable competition 7.7.1 Wind 7.7.2 Biomass 7.7.3 Geothermal 7.7.4 Hydro

# Charles Kernot

7.1 Who uses coal? Almost every country in the world that can afford to uses coal as a primary source of energy. Given the decline in the domestic consumption of coal, this is mainly in the generation of electricity, which is then sent down power lines and more effectively distributed to the population. The major limiting factor in most of the world is the source of the coal and the resultant cost of its supply to the consumer. This has also to be compared with the relative cost of other sources of energy and their cost of transport from supplier to consumer. Nevertheless, coal use in electricity generation now dwarfs its consumption in any other application. Fig 7.1 shows the use of coal in the United Kingdom. This is an indication of its role elsewhere in the world, which has declined markedly since the end of the Second World War. The main reason for this is the increasing availability and economic advantages of other sources of power. More recently, the decline has been related to the `dash for gas' following the privatisation of and move to increase competition in the electricity generating industry. A gas-fired electricity generating plant was cheaper and easier to construct, was more efficient, and was less likely to be reliant on a militant workforce that could threaten supplies.

7.1 United Kingdom primary energy sources (million tonnes oil equivalent) (source: Department of Trade and Industry).

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The coal industry

7.2 How a power plant works Electricity was an important discovery of the latter half of the nineteenth century. The first public generators were built in the 1880s and commercial generation started at Godalming, which, in 1888, became the first town to be illuminated by electricity. Coal-fired electricity generating plants work on a relatively simple basis. Essentially, coal is burned in air and the heat produced is used to boil water and produce steam. This conversion to steam occurs in an enclosed vessel and the greater volume that steam occupies in comparison with water leads to an increase in pressure. This high pressure steam is then piped into a steam turbine, forcing the blades of the turbine to spin, and turning the shaft into which the blades are set. The electricity generation unit is located at the other end of the turbine shaft. This comprises tightly wound wire coils attached to the shaft, set within a strong magnetic field. As the shaft and wire coils rotate, the changing magnetic field leads to the generation of electricity, which is tapped to an electricity substation and passed into the electricity grid. Finally, the steam is recondensed before reinjection into the boiler, thereby conserving some heat energy within the system. The efficiency of coal-fired power stations is a major issue in view of the global climate debate, and many improvements to the operation of electricity generating plants have been made in recent years. These improvements have seen coal-fired plants change from burning lump coal on grates that had to be continually raked in order to remove ash and ensure combustion, through travelling grates that could be fed with coal at one end and allowed for complete combustion of the coal at the other end where the ash would be removed, to the pulverised fuel systems that now account for 97% of all electricity generated using coal. In the pulverised fuel system, coal is pulverised so that 80% is less than 75mm in size, and it is then blown into the combustion chamber with air. In more modern systems, the coal±air mixture oscillates in order to enhance combustion, which takes place at temperatures of up to 1400 ëC. The fine grinding of the coal also increases its surface area and helps promote complete combustion, whilst blowing in air with the coal ensures a sufficient supply of oxygen to prevent the formation of carbon monoxide.

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Power plants that operate on the basis of converting heat into steam need to operate on a continuous basis in order to obtain the best efficiency ratings. This is because heat energy will dissipate if the plant is not required to generate electricity and the turbine needs to be disconnected from the generator. Over an extended shut-down, coal would cease to be burned and the temperature in the boiler would decline. In order to maintain the readiness of the plant to supply electricity on any upturn in demand, oil is normally burned to prevent the temperature declining too far. Nevertheless, more coal would have to be burned to return the water to boiling temperature and enable the build-up of steam to the pressure required for operation of the turbine. Unfortunately, increasing competition in the electricity generation and supply industry, and the new entrants with high capital costs and debt to service, means that plants that are more efficiently run on base load are normally operated as mid-merit stations on consequently much lower levels of efficiency.

7.2.1

Independent power producers

Since the late 1980s, the spread of IPP projects around the world has gathered pace. The reason behind this is the increasing demand for electricity in the developing countries and the ambition for growth inspired in electricity generating companies by the capitalist system. Most of these projects are organised under a build-own-operate (BOO) system where the IPP takes on the risk of construction and project returns rather than building a plant for a government. In such instances the IPPs are often built by a consortium including power generating equipment manufacturers and companies that already have significant generating experience. In setting up an IPP project a wide range of factors has to be considered. Not least of these is the type and source of the fuel consumed. In the case of IPPs, the fuel used tends to be coal. This is largely related to the location of IPPs in developing countries, which often means the absence of an integrated gas distribution network. As a result, new IPPs are more dependent on solid fuel supplies, which are also more secure and less likely to be disrupted ± especially if the IPP is situated close to an existing coal mine or by the coast with a dedicated port.

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Chapter 7/page 3

The coal industry

An IPP will want to sign a long-term contract with its fuel supplier in order to ensure that it is able to meet any contractual requirements imposed by the authorities where the power station is constructed. If the fuel consumed is coal, the IPP will therefore want to ensure that the mining company has sufficient reserves of a sufficient quality to match the requirements of the generating plant. Moreover, it will be necessary to ensure that the coal is not contractually tied to another consumer, and will therefore be available for use by the IPP. The IPP will purchase and construct a boiler able to accept coal of a specified quality. This may be one with a specific level of moisture or heat generation capacity, sulphur or fluorine content or a mixture of these factors. It is therefore necessary for the IPP to be satisfied that the mine will be able to supply coal of a consistent quality over an expected boiler life of up to 30 years, and in order to ensure a profitable return on capital. Any treatment or cleaning of the coal may also have to be undertaken within specified parameters in order to ensure that the required coal specifications are met. In an IPP project the energy, in the shape of coal and then electricity, flows in one direction and the money in the shape of electricity consumers' payments to the distributor, generator or wholesaler flows in the other. These funds then have to cover coal transport costs and trader's profits before passing to the coal-mining company to be distributed to its employees, shareholders, banks and the state in the form of any royalties or taxes payable. At each link between one type of company and the next there is a chance that the system will break down, and it is therefore necessary for a coal-mining company to be certain about the other links of the chain. In some instances a generator will be constructed adjacent to the coal mine that supplies the fuel. Such mine-mouth power stations benefit from negligible fuel transport costs and so have a number of benefits. Admittedly, the additional capital cost of building transmission lines over longer distances, and the loss of energy on transmission may be a limiting factor if the deposit is situated in an out-of-theway location. As the generator will be tied to one supplier of coal, it will be dependent on the performance of the mining company and may require performance guarantees in order to ensure that it is able to maintain a constant supply of electricity to its customers. Coal

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Coal, electricity and the environment

supplies from distant locations, whether from sources within a country or from external sources, have an increasing level of risk as they are dependent on the availability and the cost of transport. Furthermore, there remains a need to contract long-term supplies in order to ensure a minimum degree of coal quality ± especially in an increasingly environmentally aware age. Production risk at the mine is also a concern for the IPP. The generator will not just want to satisfy itself that the mine has sufficient reserves but that it has the staff and capital to exploit them profitably. If the mining company has overborrowed, then it is possible that the mine will be unable to develop reserves and ensure long-term supply, or that it is unable to invest in new mining equipment in order to ensure that it can continue extraction at the required rate of output. Any possibility of expansion of generation capacity, in order to reduce unit capital costs and improve profitability, would also need to be investigated with the mining company as there may be insufficient scope within the mining plan to expand output to meet such an increase in demand. The choice of mining method may also be important, whether it is an open pit or an underground operation, as either could lead to a large amount of capital expenditure before the mine is brought to production and revenue starts to be generated. This is a risk both in that the company may be inadequately financed and also in that delays in the development of the mine may delay the start-up of the IPP project, which may lead to a mining company incurring penalties as it is not able to supply sufficient coal at the required time. The definition of reserves and resources has been discussed in Chapter 4, but a generator will require access to a mining company's reserve statement and will want to satisfy itself that the statement has been drawn up to international standards. Moreover, as each coal deposit is different and can be subject to different geological environments, a generator will also want to confirm that sufficient work has been undertaken on the deposit to ensure that all geological features have been fully understood. In coal, this can include washouts and other sedimentary features as well as the larger geological features such as faults and metamorphism. Risks of failure are also important in the mining operation ± whether of the mining equipment (as the failure of a main dragline can close a whole mine until it is repaired), or in the failure to take

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Chapter 7/page 5

The coal industry

account of changing geology, which means that bucket-wheel excavators are less able to change to a new mining technique than truck and shovel operations. This type of risk is often dissipated through the purchase of coal from a company with a range of mines ± as is the case in both India and the United Kingdom. The effect of a single mine failing, such as the brand new Asfordby Colliery in the United Kingdom, which was forced to close after only six months of operation, did not upset the generation of electricity in the country as coal supplies were able to be sourced from other collieries within the RJB Mining group. There will also be a requirement for a mine to stockpile coal to cover various events. One of these could be the move to a new face in an underground operation, which could take a longwall shearer out of action for two weeks, or an increase in local demand that could lead to a power station operating at 100% capacity, say during a period of extremely hot weather that increases demand for air-conditioning in a temperate country, rather than the 80±85% capacity that would more normally be the case. Moreover, if such an increase in demand was sustained, the mine may have to increase production markedly over a short period of time only to see it drop back again sharply soon afterwards. A high degree of flexibility and accurate mine planning would therefore be required of the mine operator.

7.3 Coal and the environment The environmental cost of using coal as a source of energy is gaining international recognition. This cost is significant because coal generates both carbon dioxide (CO2), a suspected greenhouse gas, and sulphur dioxide (SO2), which is the prime source of acid rain. Moreover, because almost all of the energy released through burning the carbon in coal comes from the generation of CO2, whereas it is only 44.2% from methane (as the hydrogen in methane also releases energy on combustion forming steam or water), coal is considered a more polluting fuel than methane. It is also the case that methane-burning CCGT plants are more energy efficient than coal-fired plants. This is because they convert around 50% of the contained energy into electricity, in comparison with only around 35% for a conventional coal-fired station. It must

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Coal, electricity and the environment

also be recognised that retrofitting FGD equipment reduces a coal plant's efficiency further, resulting in the generation of more CO2 ± even if less SO2 is released into the atmosphere.

7.4 Flue gas desulphurisation Most coal mined around the world contains sulphur, which can range from as little as 0.1% to levels above 7% or 8%. On combustion, the sulphur within the coal oxidises to form sulphur dioxide, and on emission into the air the SO2 combines with water and oxygen to form sulphuric acid. Whilst there was initially a state of denial within the electricity generating industry, scientific evidence eventually confirmed the link between power station SO2 emissions and the acidification of lakes and destruction of forests. Other studies have also pointed to combustion of other organic compounds and acid drainage of deforested areas as sources of some of the damage. However, this tends to indicate the need for more environmental precautions in other areas, rather than any alleviation of those imposed on the electricity generating industry. In the steam coal market low sulphur coals are now starting to command premium prices over high sulphur material. This is not easily determinable as far as the pricing of coal on the international market is concerned as most internationally traded coals are of low sulphur and low ash content, otherwise they would not be in demand. However, increasingly stringent emission control legislation introduced in the United States as a 1990 amendment to the Clean Air Act has led to higher demand and prices for low sulphur coals. The legislation set limits on the level of SO2 emissions allowed across the country and led to the creation of a market in emissions. The allowance offers them strict limits on the amount of SO2 that they can produce in any one year. Those generating utilities that purchase low sulphur coal, and thereby stay within their allowance, are able to sell their additional allowance to other generators that have contracts to purchase high sulphur coal and cannot afford to retrofit FGD equipment. This legislation ensures that the United States, as a whole, will not exceed a set sulphur emission level, although it will mean that some areas of the country will be significantly cleaner than others. In view of the increasing need for environmental compliance,

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many of the world's governments are encouraging generators to fit FGD equipment. The reason for this is the increasing concern about acid rain and the destruction that this has caused to European and American forests. In the FGD process, the gases produced when coal is burned are collected and pumped through pulverised limestone. The limestone collects between 90% and 97% of the SO2 contained in the gas and changes its chemical composition from calcium carbonate to calcium sulphate or calcium sulphite depending on the amount of oxygen in the system. This product takes the form of a sludge, which, in some plants, is further oxidised to produce synthetic gypsum for the building industry. However, in most plants the sludge is disposed of as a damp filter cake that is often thixotropic and requires stabilisation before it can be deposited. Consequently, it is sometimes difficult to dump although it is easier to move using bulldozers when it has been extracted from the dump trucks.

7.5 Clean coal technology On its formation some 4.6 billion years ago, the earth's atmosphere contained a range of gases that would make the planet inhospitable if they were still present in the same concentrations today. One of the early gases was CO2, which was present in relatively high concentrations. However, following the development of life some 3 billion years ago, anaerobic bacteria and subsequently plants started to fix the carbon through photosynthesis, releasing oxygen back into the atmosphere. As this process continued, CO2 concentrations declined to around 280 ppm and oxygen concentrations increased to 21%, enabling the development of aerobic life. Over the past two hundred years, CO2 concentrations have increased by 28% to 358 ppm as the industrial age has led to increasing energy consumption around the world. In 1896 the Swedish scientist Arrhenius predicted that a doubling of the amount of CO2 in the air would increase the global surface temperature by between 5 ëC and 6 ëC. More recently, work has suggested that the temperature rise would be in the range of 1±3 ëC, still sufficient to lead to a marked deterioration of the polar ice caps and raise sea levels around the world. As a consequence of these

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scientific conclusions and the assumption that electricity demand, and hence generation, would continue to increase, there have been moves to reduce the amount of CO2 emitted for each unit of electricity produced. This strategy was given further impetus by the 1990 Kyoto summit on world climate change and the recognition that CO2 provides 55% of the enhanced greenhouse gas effect each year (see Table 7.1). Table 7.1 Annual contribution of greenhouse gases to global warming CO2 ± 55% CH4 ± 15% Nox ± 6% CFCs ± 24%. Source: World Coal Institute.

Average CO2 emissions in the OECD countries were 12 t/person in 1990. If the world is to ensure that increasing energy demand does not lead to excessive CO2 generation, and the potential global warming concerns that this arouses, then much of the projected increase in coal-fired electricity generation will have to be developed using clean coal technologies. These technologies are not, currently, commercially viable, but could become so with the introduction of energy, carbon or other fossil-fuel or non-renewable related taxation. Nevertheless, a potential market in excess of US$700 bn for clean coal plants has been projected over the decade to 2010. As with most energy projections, the lead time is likely to be greater than anticipated, but there is still considerable potential for increasing demand for the new technology. It must also be recognised that, although the average efficiency of a coal-fired electricity generating plant is of the order of 35±38% in the developed world, the average is only some 25% across the world, as a whole. These figures are also before taking account of energy consumption in mining and transport, which are also likely to be more significant in the case of coal in comparison with gas. Coal-fired electricity generating plants would emit about 45% less CO2 if all existing plants reached an efficiency of 47%, whilst increasing efficiency to the 55% projected under a current study would reduce emissions by a further 15%, also reducing emissions of SO2, nitrous oxides (NOx), and dust.

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Two new clean coal systems have recently been developed using conventional pulverised coal (PF), which is already utilised in 97% of all existing coal-fired plants. The first plant is already in operation and has an energy efficiency of 45%, whilst the other, which is at an advanced planning stage, has a projected fuel efficiency of 55%. The first plant is a new unit at the North Jutland power station at Limfjorden near Aalborg in Denmark. The unit came on stream at the end of 1998 and generates 410 MW together with supplying heating to two local heating companies. The combined heat and power (CHP) offered by the plant is unusual in that it is generated by a coal station, whereas most of the developments to date have been associated with new gas-fired CCGT plant. An additional benefit to the plant's overall fuel efficiency is probably that the flue gas cleaning of NOx and dust, in addition to SO2, was specifically designed and constructed with the plant rather than being retrofitted, as is normally the case. At full capacity, the plant is expected to consume 1 Mt of bituminous coal and operate on a net fuel efficiency of 47%, a figure enhanced by between 1% and 1.5% through the use of sea water as a coolant. If the CHP project is included in the calculations then this increases total efficiency to around 90%. One of the keys to the increased efficiency is the development of a 9% chromium steel that was incorporated into supercritical plants by ELSAM, the Danish electricity utility, in the 1990s. The material is also used in VIAG's new 800±900 MW lignite-fired plants in Germany. ELSAM has already tested the material at its Esbjerg unit, achieving an energy efficiency of 45% over 7500 hours of operation. The other important factor required to enhance the efficiency of the operation is the use of motors and fans to pump air and steam through the plant. This process was also aided by a design that only allows a minimal pressure drop across the plant. The next advance is expected to be the development of higher temperature operations for steam generation. This will necessitate the introduction of new technologies and metals used in the construction of the boilers and other parts of the plant, together with the use of advanced steam turbines. The temperatures in the new plants are expected to be up to 700 ëC, compared with just under 600 ëC for what is currently considered best practice. It is this increase in temperature that is behind the anticipated increase in efficiency to above 55%.

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A project to demonstrate the viability of such a plant has been initiated under the auspices of the European Commission's Department of Energy THERMIE programme. The project is expected to last for up to 17 years and involve the construction of both a demonstration and a fully operational plant. The initial six years of the project should enable the design, construction and testing of a test plant expected to cost in the region of =C 21 m, of which the EC has granted 40%. The remainder of the funding comes from Switzerland and a range of European engineering companies. If the project then moves on to the second stage it is expected that it will cost some =C 500 m. The Shell group of companies has long been investigating the potential of new and significantly cleaner coal-fired power station technology. This was at least partly related to its interests in coalmining, which were acquired following the first oil shock in the early 1970s. Nevertheless, the company was aware of gasification technology that could be developed to improve considerably the efficiency of coal-fired electricity generation. One of the other advantages of coal gasification technology is that it can be used on all coals, including lignite and, as it is specifically designed with environmental considerations in mind, it is considerably more efficient than utilising retrofitted technology on existing plants. Coal gasification converts coal into a synthetic gas that can be further converted into electricity or other chemical products such as fertilisers. The Shell Coal Gasification Process (SCGP) relies on integrated plants that do not emit any of the usual solid or liquid residues from coal-fired electricity generating plants. Water is fully recycled in the plant, ash is converted into glass beads that can be blended into concrete, and sulphur is trapped in its elemental form for use in fertilisers. Moreover, the increased efficiency of the plant means that CO2 emissions are 15% lower than for the conventional coal-fired plant. Within the SCGP plant, coal is mixed with oxygen and steam to produce the synthetic gas, or syngas. The syngas mainly comprises carbon monoxide and hydrogen together with other minor constituents (see Table 7.2). The use of pure oxygen in the process increases the heating value of the gas considerably to about 50% of that of natural gas, in comparison with only about 20% for air-blown systems. The use of syngas considerably improves the efficiency of electricity generation in a gas turbine because the conversion of

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Table 7.2 Composition of syngas produced by SCGP or other processes Compound

SGP (weight %)

Other processes (weight %)

Hydrogen (H2) Carbon monoxide (CO) Carbon dioxide (CO2) Methane (CH4) Hydrogen sulphide (H2S) Nitrogen (N2) Argon (Ar) Steam (H2O)

26.7 63.3 1.5 0.0 1.3 4.1 1.1 2.0

30.3 39.7 10.8 0.1 1.0 0.7 0.9 16.5

Source: Shell.

either solid or liquid fuels to a gaseous state improves contact with oxygen and therefore aids the combustion process. The further advantage of the process is that the heat from the gasification process and that from burning the syngas can both be used in electricity generation in a combined cycle process, or integrated gasification combined cycle (IGCC). Shell's first pilot plant was built in Hamburg in 1979, processing 150 t/day, and this led in 1985 to the construction of the Deer Park demonstration plant in Houston, Texas, consuming 250 t/day. In 1993, a commercial operation combining gasification and combined cycle generation was built in Buggenum, Holland. This plant has a rated capacity of 253 MW and consumes 2000 t/day of coal at an overall efficiency of 43.2%. The Buggenum plant first grinds and dries the raw coal before it is transported on a nitrogen bed into storage vessels and then mixed with oxygen and steam in the gasifier. The combination of the coal, oxygen and steam takes place at between 1400 ëC and 1600 ëC, which melts any ash in the coal, transforming it into a vitreous slag. The temperature also prevents the formation of toxic by-products such as phenols and polyaromatic hydrocarbons. After formation, the syngas is partly cooled by quenching with recycled syngas before it enters a syngas cooler for further temperature reduction. This cooler produces the high pressure steam which powers the steam turbine side of the combined cycle plant. Any ash and un-gasified coal particles that are held in suspension in the gas are removed by cyclone or ceramic filter and returned to the gasifier module. Overall, this gas retains some 80±83% of the original energy content of the coal, whilst the steam from the gasifier and the

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gas cooling plant contains a further 14±16%. After cooling, the syngas is then burned in a gas turbine to produce electricity with additional heat being recovered for use in the steam turbine plant.

7.6 Competition The competitive market in energy supplies is shown in Fig. 7.2, which shows the relative costs of electricity generation in sterling per tonne of oil equivalent. These show that the price of coal used in electricity generation in the United Kingdom has remained relatively stable over the past eight years, and has, at times, been helped by fluctuations in the exchange rate. Nevertheless, the declining cost of heavy fuel oil has made coal much less competitive in the cogeneration market, although natural gas has remained more expensive on a tonnes of oil equivalent basis. In fact, the cheapest form of electricity generation in the United Kingdom has been imported coal, with CIS coal at US$49.16/t (equivalent to around £28/t) the cheapest. Whilst the security of CIS supplies may be brought into question, the low cost of Australian imports has provided a more secure alternative. A 1999 report by WEFA Ltd on `The Role of Coal in a Liberalised European Power Market' concluded that existing coal-fired electricity generating plant was cheaper than natural gas CCGT plant on both a variable cost and a full cost basis to 2020. The report also suggested that by 2010 the full cost of modern coal plant could be on a par with

7.2 Fuel input prices for electricity generation 1978±98 (source: OECD; Department of Trade and Industry).

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gas CCGT, especially if coal plant utilisation rates could be increased to 65%. Nevertheless, coal still faces a number of problems and uncertainties that tend to deter potential users. Not least of these are: efficiency and CO2 emissions together with the potential for associated carbon taxes; longer lead times (double those of a new CCGT plant), which can affect potential market penetration; and potential liberalisation of the European gas market. This last factor could be important given the potential for lower gas prices, which could take more of the market away from coal. To secure a long-term future, the report suggests that the coal producers should move downstream ± as the gas suppliers have already done ± and forge closer links with the ultimate consumers of their energy supply. Figures used in the study were based on low coal prices but average gas prices of US$60/toe and US$149/toe. However, if a lower long-term gas price of US$112/toe is used, together with a lower capital cost then gas CCGT is less expensive than new coal, although it remains more costly than old coal. Another study has looked at the relative costs of energy in the United States. This also shows that an existing coal-fired plant is less expensive than any other source of electricity, the statistics are presented in Fig. 7.3.

7.3 Relative energy costs in the United States, 1997 (source: Ecoal, Volume 29, March 1999).

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7.7 Renewable competition 7.7.1

Wind

In early 1999, installed wind turbine capacity was of the order of 9600 MW, a massive 2100MW of which was installed in 1998. To provide 20% of the total United States electricity demand would require 0.6% of the land area of 48 states. One of the main problems with wind energy is that the supply of wind is not always predictable and that calms may coincide with peak periods of demand. A Regenesys system being developed by National Power in the United Kingdom may help in this regard by being able to store energy during periods of windy weather for later release. The system should be cheaper and more flexible to operate than conventional lead-acid batteries, and by-pass the environmental constraints of other electricity storage systems such as pumped hydro-power. The system is based on a reversible chemical reaction between sodium bromide and sodium polysulphide in an electrochemical cell and is not necessarily restricted to a wind energy system. Indeed, National Power constructed a pilot plant operation at the Aberthaw power station in South Wales during the early 1990s and now plans to build a demonstration plant by 2001. The plant should be capable of storing 120 MWh of electricity with peak output of 14 MW and will be located at the Didcot power station in Oxfordshire. Clearly, as well as its benefits in other applications, the plant will be able to store electricity produced during overnight periods of low demand, supplying power when demand peaks in the morning and electricity prices rise.

7.7.2

Biomass

Biomass plants usually burn products in the same way that a coal-fired station burns coal, although it is also possible to gasify the feed for use in a turbine generator (see earlier). Nevertheless, the size of the feed is often a problem and restricts the size of these plants to around 5 MW, and up to a maximum of 15MW. In a new initiative, Scottish Power in the United Kingdom has announced plans to install CHP gas generators at five sewage works along the south coast of England. The works are located at Budds

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Farm, which serves Portsmouth and Havant; Weatherlees Hill in Kent; Bexhill near Hastings; Portobello near Brighton; and Fors which serves Littlehampton and Bognor. They were acquired when Scottish Power purchased Southern Water in August 1996 and treat effluent produced by some 2.5 m people. The plants will utilise bacteria to break down the raw sewage and generate a gas containing methane (65%) and CO2 (35%). The methane will then be used to power the generating plant, whilst the remaining solids will be centrifuged and then dried before being pelletised for use as a fertiliser. The plants have been designed with efficiency in mind, and the exhaust gases from the turbine will be utilised in drying the sewage sludge and then returned to the combustion chamber as hot air, reducing the loss of efficiency that occurs when cold air is introduced into the system. Not only does this reduce costs, it should also reduce the emission of unpleasant smells into the environment. The combined capacity of the plants is expected to be in the region of 8 MW, sufficent to supply about 5000 homes ± clearly much fewer than supply the plants with their raw material. The plants will cost a total of £9 m and should generate a return of 13±14% on invested capital, before depreciation, but have other benefits to the company, not least of which is the conversion of sewage sludge which will no longer need to be dumped at sea. This programme is similar to one announced by Thames Water in March 1999, which involves the generation of electricity at 20 sewage works in the Thames region. As a joint venture with the Renewable Energy Company, the plants should have a combined capacity of some 24 MW, and electricity generated will be used internally by Thames Water or sold, initially, to local business customers. Domestic customers may be able to purchase the electricity in 2000. Planning and other permissions required for these plants benefited from the United Kingdom government's aim to increase generation from renewable sources to 10% of the total requirement by 2010.

7.7.3

Geothermal

Geothermal electricity is not a widely used alternative to coal as it requires amenable geology, and even this may not be sufficient to

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make geothermal energy a commercial success. Geothermal investigation was carried out in Cornwall over a long-term programme but was never economically successful even though the high temperatures of the granites in the region could heat the water pumped down deep boreholes and turn it to steam. The main problem was the capacity of the system, which meant that substantially more water, was pumped into the borehole than was recovered. Given that Cornwall is naturally short of water, the environmental problem of lack of water tended to outweigh any environmental benefit from generating steam without the emission of carbon dioxide. Nevertheless, about 5% of California's electricity is produced from geothermal sources.

7.7.4

Hydro

Hydroelectricity only accounts for about 3% of the world's primary energy supply. Whilst ostensibly environmentally friendly, the technology is not without problems, as exhibited by the massive international outcry over China's Three Gorges Dam project on the Yangtze river. Table 7.3 details the supply of renewable electricity in the European Union and emphasises the dependence on hydroelectricity Table 7.3 Electricity generated from renewable sources as a proportion of total consumption (1996) Country

Including large hydro (%)

Excluding large hydro (%)

Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Sweden United Kingdom

66.0 1.1 6.3 24.1 15.5 4.4 10.0 4.0 16.5 1.6 2.8 44.6 23.8 38.2 1.6

8.7 0.9 6.3 9.2 2.2 2.3 0.4 1.1 4.7 1.6 2.7 4.7 4.0 5.3 0.7

Total/Average

13.5

3.0

Source: Eurostat.

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in this area. Moreover, the requirements of amenable geography are also important in the provision of both mountains and valleys, together with low densities of population.

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8 Coking, industrial and domestic coal 8.1

Coking coal 8.1.1 What makes a good coking coal? 8.1.2 Coke-making

8.2

Iron-making

8.3

Other metallurgical coal uses 8.3.1 Pelletising 8.3.2 Sintering 8.3.3 Briquetting 8.3.4 Other uses

8.4

Industrial and domestic uses 8.4.1 Smokeless fuel 8.4.2 Town gas

8.5

Other industrial applications

# Charles Kernot

8.1 Coking coal The greater abundance of steam coal in comparison with its coking cousin is most clearly shown by the higher price awarded to coking coals. This relative scarcity is because the use to which coking coal is put is dependent on the coal's chemical and physical composition. It is not simply burned to produce heat but is used primarily as a reducing agent. It therefore requires defined chemical and physical properties in order to ensure that the process for which it is used remains within tight chemical parameters as these can affect its performance. The physical properties of the coal are also important when it is to be used in blast furnaces or in other applications where strength can be an important factor. Specifically, the use of low sulphur coals is necessary in the manufacture of iron as shown by Abraham Darby at Coalbrookdale. He had moved his ironworks to this location in the late seventeenth century because the town is situated on the river Severn, so transport was readily available, and it is in the Shropshire coalfield, in an area where limestone for flux was present and where there was sufficient water power to work the bellows of the blast furnace. Indeed, a 700 feet deep shaft in an old mine passes through four seams of coal, two of fireclay and one of iron ore before it reaches the bottom. Moreover, Darby's choice of location was especially fortuitous because the coal produced in the vicinity could be used in a blast furnace for smelting iron, in place of the previously used charcoal. Following the success of his experiments, Darby constructed a new ironworks, utilising his process, which opened in 1709. The local advantage that led to his discovery was that coal produced in the local area of Shropshire had a low sulphur content and was, therefore, particularly suited to iron-making. The coal at this location has now been worked out and the technology for the manufacture of iron has advanced considerably with in-furnace chemical analysis. Nevertheless, the chemical composition of coal for metallurgical uses remains an important consideration for consumers. Darby and his successors (there were three Abraham Darbys) continued working and experimenting to improve the iron- and steelmaking process. Eventually, in 1735, they successfully smelted iron ore in a blast furnace with coke, rather than the previously used charcoal,

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8.1 Pig iron and coal production in the United Kingdom 1770±1920 (source: Mitchell & Deane).

to produce pig iron. In 1740 Benjamin Huntsman was able to produce steel in a small crucible. However, a great bottleneck still existed with the refining of the pig iron into iron and steel, and the lack of iron was the major constraint on the advance of the industrial revolution. This was not overcome until 1784 when Henry Cort developed a puddling process which, like Abraham Darby's discovery 75 years before, enabled coal to be used in place of charcoal. Following this discovery, all new sites for the production of iron relied on their proximity to deposits of coal, iron ore and limestone. British output of pig iron and coal is shown in Fig. 8.1. This clearly demonstrates the link between an increase in coal supply and demand and the rise in the production of iron. Nevertheless, the biggest advance in the manufacture of steel occurred three-quarters of a century later, in 1855, when Henry Bessemer invented his `converter'. Subsequent advances and developments of allied processes include the open hearth furnace (almost all open hearths have now ceased operation in view of the large amount of pollution that they generated), which was developed by the Martin brothers in 1864, and the Siemens-Martin Open Hearth in 1866. Both the converter and the open hearth meant that steel could be produced much more effectively and cheaply than previously and that

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it was economic to use it in place of iron on railway tracks. This was desirable because the steel was more resistant to erosion and corrosion so the track did not have to be repaired so frequently. These advances led to a four-fold increase in the production of steel between 1875 and 1895 as it not only replaced iron rails but also found applications as mild steel plates and girders in ships. Various chemical changes, including the 1940 use of pure oxygen, rather than air, in converters, pioneered by Linz and Donawitz in Austria, and S G Thomas's use of phosphorus absorbent linings to improve the purity of iron are also important. Electric and electric arc furnaces were developed by William Siemens in 1880 and HeÂrout in 1890, respectively.

8.1.1

What makes a good coking coal?

In steel-making, the important chemical constituent of coal is the carbon that makes up the bulk of the material and acts as a reducing agent, converting iron oxides to iron and the coal to carbon dioxide. As discussed in Chapter 3, coal also contains moisture and a mixture of metal oxides and silicates, which are generally unreactive and remain as ash after coal is burned. Ash contents are important as they add to the weight of the coal but, as they tend not to generate heat, they provide no economic value. Furthermore, when a coal is burned the bulk of the ash normally remains as a residue in the furnace and is consequently often considered as a burden in view of the additional need for environmentally sound disposal at a cost to the coal consumer. In addition to ash, most coals contain sulphur in one of two distinct phases. The first is the more recognisable iron sulphide or pyrite that is often associated with coal. The second is as organic compounds closely associated with the carbon molecules in the rock. In either form the sulphur is considered harmful either as a potential pollutant that needs to be trapped, or as a potential contaminant of any metal produced in the metallurgical process. Specifically, the sulphur tends to collect around crystal edges as the steel cools, with the result that the metal becomes relatively brittle. It is possible to overcome this problem using other metals, such as manganese, to alloy with the iron but as this represents an additional expense it is in most steel producers' interests to keep sulphur contents as low as possible.

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During the coke-making process about 33% of the initial sulphur content of the coal will be expelled in the volatile gases, with the remaining 67% retained in the coke. Following the process the coke will weigh around 67% of the weight of the original coal and this means that the resultant sulphur content will be about the same as that in the original coal. It is not the case that the sulphur content can be reduced in the coke-making process and it is still necessary to keep sulphur contents below 1% wherever possible. One of the important factors to consider, as mentioned above, is that not all coals are suitable for coke manufacture. In some instances the expulsion of the volatile materials may weaken the structure of the coal to such an extent that it loses its strength and is easily pulverised or powdered. Coking coals are so-named because of their ability to cake or fuse when heated (caking rather than coking coals). This means that they initially become slightly fluid when heated and, on further heating, and after the volatile gases are expelled, they will revert to a solid state. The original composition of the coal will influence the final strength of the coke and could still restrict its use in specific applications ± or in areas where necessary crushing equipment is not available. Nevertheless, it is often possible to blend different coals together in order to obtain a coke of the required strength. Specifically, for use in a blast furnace a coke with a relatively high level of strength will be required, although a low strength material may be required in other metallurgical processes. Perhaps peculiarly, the only form of carbon that is stable at atmospheric pressure is graphite, whilst the stable hydrocarbons are methane and ethane (although their stability is more temperature dependent). All other carbons and hydrocarbons, including coal and all living organisms (including humans), are thermodynamically unstable at room temperature and pressure and have a tendency to decompose to simpler molecules. The process is, however, particularly slow. Above 500 ëC, carbon will combine with oxygen to form CO2, and at higher temperatures carbon monoxide (CO) will be formed. Any hydrogen in the system could also combine with oxygen to form water, or if there is sulphur and a lack of oxygen, hydrogen sulphide could be formed. A final alternative is that the sulphur could be retained as an inorganic metal sulphide.

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8.1.2

Coke-making

For use in the steel-making industry, coking coal is converted into coke in a series of coke ovens or coke batteries. Within these batteries is a series of vertical retorts or chambers that are generally around 5 m tall and 10 m long. The chambers are heated from the outside and this means that widths have to be kept to a maximum of around 0.5 m in order to ensure uniform heating. The time taken is dependent on the width of individual chambers but is normally of the order of 15 to 20 hours for each charge. This process occurs in an oxygen-free environment and can occur either in a high temperature process, during which the coal is heated to a temperature in excess of 1000 ëC, or a low temperature process, which is carried out at temperatures of up to 500 ëC. The heat can be supplied from a mixture of different fuel types, including the volatile gases driven off during the coke-making process. The resulting coke is then quenched and screened to ensure a consistently sized product. In the low temperature process the coke `char' will still contain relatively large amounts of hydrogen as the temperature will not have been high enough to ensure that all of the volatile constituents have been expelled. The gas produced from the low temperature cokemaking process will be relatively rich in hydrocarbons and tar but will contain little free hydrogen. Coke produced in this way is used as a smokeless fuel and as a reducing agent in some ferrosilicon operations but is not generally considered to be of metallurgical interest. At the temperatures of around 1000 ëC used in the high temperature coke-making process the hydrocarbon gases and tars break down to their constituent methane and hydrogen. Any oxygen in the system will also combine with the carbon to form CO and any other gaseous compounds that can be driven out of the coal are likely to be expelled, thereby reducing the volatile constituents to only 1±2% by weight. This loss of volatiles improves the quality of the coke and means that it finds a ready application in the metallurgical industry.

8.2 Iron-making In the blast furnace the iron ore, pellets, sinter or other main feed (which can also include iron scrap) is fed into the top of the furnace

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together with coke and limestone or other fluxing material. The hot gases from the earlier feed heat the later additions in a reducing environment and the process is maintained by blowing or pumping hot air into the bottom of the furnace. This heats the contained coke to temperatures of over 2000 ëC. At this temperature the oxygen in the iron ore combines with the carbon in the coke to form carbon monoxide or carbon dioxide, and the resulting molten iron collects in the bottom of the furnace. Other impurities in the iron are collected in the flux material, which tends to be less dense than the iron and therefore floats on the surface. Both products can be tapped from the bottom of the furnace with the pig iron either being cast and cooled for transport or moved in a ladle or large bucket to the steel-making part of the plant. In order to ensure maximum efficiency, blast furnaces operate on a continuous basis and the feed constantly needs to be charged into the furnace. In total, 600 Mt of coal feed is required annually to produce around 790 Mt/year of pig iron or crude steel. The process has developed over the years and does not rely solely on the use of coke in the blast furnace as a reducing agent. In recent years the use of PCI coal ± a pulverised coal injected into the blast furnace in much the same way that pulverised coal is used in electricity generating plants ± has been developed. The PCI development still requires the use of coking coal at a rate of 350±400 kg of coke for one tonne of steel (made from about 525±600 kg of coking coal) together with 100±200 kg of PCI material. Even though the total amount of coal consumed is similar to that used when only using coking coal, the increased use of cheaper non-coking coal reduces the overall cost of iron and steel manufacture. Pig iron can also be produced by the recently developed direct reduction process generating direct reduced iron (DRI), two variations of which have been developed by Midrex and HYL. In these processes, lump iron ore, or pellets, are fed into a furnace or reactor with the feed heated by natural gas or sometimes coal. In a similar process to that seen in the blast furnace the oxygen in the iron ore combines with the carbon in the gas or coal leaving molten iron in the furnace. This process produces sponge iron rather than pig iron, which contains about 82% iron, with the rest being mainly carbon or other impurities in the original iron ore. Whilst it contains some impurities, the DRI sponge is normally low in other metal residues that can impair or otherwise affect the

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Coking, industrial and domestic coal

performance of the resultant steel. For this reason it is a useful substitute for steel scrap in the manufacture of speciality steels, which have low impurity tolerances. As the process is energy-intensive, coal is often too expensive for DRI, and it is necessary to utilise natural gas that might otherwise be flared off from oil wells and can, therefore, be purchased cheaply. Consequently, DRI plants are often located close to oil- or gas-producing areas. Finally, the COREX process has recently been developed to manufacture pig iron. It was developed in South Africa in order to eliminate the requirement to use high grade coking coal in the steelmaking process. The process starts in the same way as the DRI process to manufacture sponge iron. After this, the sponge is transferred to a melter/gasifier where it is reduced by gas produced from the gasification of `lumpy' coal. In the same chemical process as that of the blast furnace the carbon and carbon monoxide produced at temperatures of around 1000 ëC reduces the remaining iron oxides and forms CO2 and molten iron, which can be tapped from the bottom of the reaction vessel. The presence of carbon in the coal or coke used in the making of pig iron is still important in the conversion of the pig iron into steel. This is particularly the case in the basic oxygen furnace. In this reactor the molten pig iron (80%) and steel scrap (20%) has pure oxygen blown through it in order to oxidise the carbon and carbon monoxide that it contains. This leads to a rapid rise in temperature and leads to the foaming of the lime, fluorspar and magnesite added as fluxing materials. The flux traps most of the remaining impurities (various oxides, silicates and phosphates, etc.), apart from the CO2 gas that escapes with the fumes. After blowing for about 15 minutes, the steel can be poured into a ladle for casting into the required shape.

8.3 Other metallurgical coal uses Coal is not just utilised to make coke for the steel-making process, but can also be used at the start of the plant in one of the three processes that can be used to turn iron ore fines into a feed suitable for use in a blast furnace. The processes are: pelletising, sintering and briquetting ± although pelletising and sintering are the two most widely used.

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The coal industry

8.3.1

Pelletising

In making pellets, the iron ore fines are mixed with coal dust, which does not need to be derived from coking coal, and binders (often a hydrated lime or a clay such as bentonite). A small amount of water is added to the mix to encourage the fines, the coal and the clay to agglomerate and it is then fed into a pelletising drum. This is a large rotating cylinder, up to 1 m in diameter and around 4 m long, which is set at an angle of about 10 ë to the horizontal. As the cylinder rotates, the mixture agglomerates to form small balls or pellets up to 5 cm in diameter. On exiting the cylinder the pellets are sized and the oversize and undersize fractions are returned to the crusher or drum respectively. The pellets are then fired at high temperature in a sintering furnace. The requirement is that the pellets will be strong enough to hold up the material in the furnace leaving gaps that can act as vents for oxygen and heat. This is necessary in order to ensure that all of the material reaches the required temperature for reduction from iron oxide to iron metal.

8.3.2

Sintering

Rather than coal, it is necessary to use coke in the sintering process. In this plant iron ore fines are mixed with powdered coke at about 5%, water at between 5% and 10% and, sometimes, a limestone flux. The resulting mixture is then placed above a grate within the sinter plant to a depth of around 30 cm and the top of the mixture ignited with a burner. A pressure differential of around 1 atmosphere is then created between the top and the bottom of the sinter mixture and due to the suction the combustion zone moves down through the mixture until it reaches the grate. As the process continues, the lower part of the mixture will remain moist but will be preheated by the hot gases sucked down from above. The middle of the bed will be dried as the temperature increases to that of coke powder ignition. When this occurs the coke will burn rapidly at temperatures of up to 1200 ëC to 1300 ëC ± the maximum temperature of the sintering zone. Above this zone the sintered material will remain at a high temperature and the FeO and Fe3O4 that was reduced in the sinter zone will re-oxidise to Fe2O3 with the continuing high temperature environment.

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Coking, industrial and domestic coal

In the highest temperature zone the sinter plant effectively heats the mixture to a level sufficient to bind it into a porous cake. This is caused partially by crystal growth and recrystallisation and partly by the formation of small parts of molten material. A low melting, but very strong, iron silicate can also be formed if the ore contains any silica, but may be a problem as it can reduce the reactivity of the sinter during reduction in a blast furnace. This is then cooled and crushed to the size required for use in the blast furnace. Generally, a balance will have to be struck between the reducibility of the sinter and its overall strength ± another important factor to consider. This is for much the same reason that it is necessary to ensure the strength of the coke utilised in blast furnaces so that sufficient porosity of the feed enables the reduction to proceed unhindered. The addition of limestone as a fluxing agent can also affect the strength of the sinter that can lead to the generation of lime silicates ± possibly even allowing for the creation of a self-fluxing sinter, which also tends to have a high level of reducibility. The sintering process also requires a degree of porosity in the mix ± requiring that the iron ore feed is at least 100 mesh, and if it is finer than 200 mesh it may require pre-pelletising. The size of the coke grains is also important for similar reasons, although it can also affect the reactivity of the coke. However, if the powder is too fine grained then it might be too reactive and the sinter zone may travel too quickly through the mixture, not allowing for proper recrystallisation of the iron ore mix. Water can also affect the porosity of the mix and an optimal content is normally found to be of the order of 10%. The moisture enables the grains of concentrate to stick to each other and form bridges between which the air can travel. However, at high water contents the grains become covered in water and the individual bridges collapse. Higher water contents also dampen the heating of the mixture ensuring that the sinter zone is narrower and often at a higher temperature ± perversely a higher water content can therefore reduce the fuel requirement of the process.

8.3.3

Briquetting

Whilst briquettes are now mainly the preserve of the brown coal industry ± finding applications because of a lower likelihood of

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The coal industry

spontaneous combustion ± they do find some uses in the metallurgical industry. Specifically, in some instances, coking coal fines can be mixed with non-coking coal fines and binders, such as clay, before firing in coke ovens. The formation of briquettes reduces the requirement to use coking coals as up to 20% of the coal used can be of the non-coking variety. As coking coal is more costly, it is sometimes possible to save money by utilising a briquetting process.

8.3.4

Other uses

Coal is an important component of a range of other metallurgical refining processes. Some of these require the use of coking coal and others require coal solely for its heating and/or reducing properties. In the zinc industry, coal has long been used as a heat source in order to promote the oxidisation of the zinc sulphides present in the ore. These sulphides were oxidised by burning or roasting the material with coal to produce zinc oxide as a sinter product. This process has since been developed from a basic batch process in a hearth to a continuous flash process in a fluidised bed roaster. This is now the main technique used in the zinc industry for the generation of zinc oxides, which are then amenable to electrolytic refining. As a development of the coking industry, vertical retorts also became used in other parts of the metallurgical industry. In the 1920s the New Jersey Zinc Company of Palmerton in Pennsylvania developed large-scale retorts to distil zinc. In order to control the high temperatures necessary to reduce the zinc oxide, the company developed a silicon carbide brick to line eight 12 m high retorts that were used in the reduction process. The retorts were charged with a form of coked briquette containing a mixture of sintered zinc oxide and bituminous coal that was bound together with ball clay and sulphite lye. The briquettes were first coked in an oven to remove volatile matter and the resulting off-gases were burned to provide heat for the ovens. The briquettes were then fed into the top of the retorts, which had been heated to a temperature of some 1300 ëC with a mixture of natural gas and off-gas (largely CO). Zinc vapour was then drawn through a splash condenser where it was tapped for casting, whilst the other reaction gases were cleaned and returned to the retorts. Spent briquettes could be drawn from the bottom of the furnace for disposal.

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Coking, industrial and domestic coal

The process was, however, relatively intolerant of iron content in the zinc sulphide feed. Moreover, it still depended on a supply of bituminous coal of the required quality and, together with relatively high capital costs, it became generally uneconomic after the 1950s, although two plants are still in operation. Another process for the production of zinc, which is still in use today, is the St Joseph Electrothermic Process. This was developed by the St Joseph Lead Company of Missouri. The process consists of passing an electric current through carbon electrodes to heat a vertical furnace continuously filled with zinc oxide and coke in equal quantities. Process gases are cleaned and returned to the process for heating, whilst the spent coke and zinc oxide is removed by a rotating table at the base of the furnace. Some of the spent material still contains unreacted zinc and coke and this is reworked and returned to the top of the furnace for further processing. The Imperial Smelting Furnace is also still in use in some areas of the world. In this process sinter and metallurgical coke are top-fed into a furnace, whilst preheated air at 1000 ëC is blown into the bottom. The hot air reacts with the coke to form CO and this, in turn, reduces the zinc oxide to zinc vapour and lead metal. The zinc vapour escapes with the other gases through the top of the furnace. These gases are then scrubbed in a hot lead bath and the molten lead is finally cooled with the zinc separating out of solution.

8.4 Industrial and domestic uses Smelting iron was not the only use that increased the consumption of coal in the eighteenth and nineteenth centuries. The industrial use of coal took off with the industrial revolution, but it should not be forgotten that there were many other industries that became dependent on coal as a fuel before the revolution began in earnest. In particular, the glass and salt industries burned coal to provide the heat needed to make their products; and in Scotland, during the eighteenth century, salt-pans and coal mines were normally under the same control. Additionally, other industries needed to be close to the area where the iron and steel used in the manufacture of their factories was produced. Indeed, the great industrial advance across all sectors of the economy was important, as was the United Kingdom's position as the

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The coal industry

linchpin of an expanding empire. The growth of world trade meant that the colonies came to depend on the United Kingdom as the central hub of global trade for most of their imports. This was particularly true following the 1805 defeat of the French at Trafalgar, which confirmed the United Kingdom as the most powerful sea-faring nation until Germany started to build up its naval capability after 1898. The two-way trade in finished goods and raw materials was also enhanced because legislation required that many of the colonists' goods had to be made in the United Kingdom rather than produced locally. This meant an increase in British demand, not just for the iron necessary to make all types of tools and implements, but also most importantly for textiles. The concentration of the textile industry in the north of England and Wales was initially so that the new mechanical looms could be water powered. It was only later that looms worked by steam engines powered by coal became important. Coal and coke had also been used for a long time in blacksmiths' shops, well before they had been used in refining. For instance, Ambrose Crowley, probably the largest ironmonger in Europe at the start of the eighteenth century, situated his nail factory close to his bar iron plant in Sunderland because of the proximity of cheap coal and agricultural produce. Other areas where coal started to be used instead of wood included the manufacture of bricks and the brewing industry. It was also used in the production of paper and in sugar refining, whilst the expansion of the armaments industry led to an increase in the demand for the production of ever higher quality metals. It is, however, strange to think that, despite all of this expansion in the industrial use of coal and its cost of transport away from the place that it was mined, some two-thirds of all coal dug in the United Kingdom was still used in the home as recently as 1842. The total output of coal between 1760 and 1840 had increased from 6 Mt to around 30 Mt but the increase in production as the pace of progress quickened during the rest of the nineteenth century was considerably greater (see Fig. 8.2). Most of this increase was for use in industry rather than for domestic consumption, which had been the main area of demand until the middle of the nineteenth century. This was directly related to the use of coal in making iron, as one tonne of iron required four tonnes of coal. With the output of iron quadrupling, the output of coal also had to increase.

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Coking, industrial and domestic coal

8.2 Coal production in the United Kingdom 1800±1913 (source: Kernot, 1993).

While textiles were initially made in a cottage industry, the inventions of larger, mechanical looms meant that individuals could no longer compete with larger organisations. This led to the start of the large-scale milling industry in the north of England. The location here, especially in the Lancashire coalfield, seems to have been as much to do with the proximity of the port of Liverpool (which handled the imports of the raw cotton and then the re-exports of the finished materials to the colonies) as it was related to the need, initially, for water power to work the looms. It was only by accident that the mills were constructed close to the northern coalfields as the first steam powered mill was not built until 1785 at Papplewick in Nottinghamshire. Indeed, the cost of power was not a significant amount of the total cost of operating a mill and, if required, mills could still have been operated using water power instead of steam. Indeed, as all of the early milling machines were made of wood they were unable to take the strain of steam power. This advance had to wait for looms to be made from the much more resilient iron and steel and was only achieved because of the need for advances in metallurgy and manufacturing techniques necessary to increase the fighting strength of the army. Between 1785 and 1838 some 80% of the mills in the United Kingdom had converted to run on steam power or had closed down if they were unable to obtain coal and were seemingly inefficient. The move to Lancashire was just as staggering as by the same year

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The coal industry

three-quarters of the 1600 mills in the country were situated in this county. The move to steam continued apace and by 1850 around 90% of the mills were using steam power. This level was effectively a maximum as the use of water continued for many years in local districts and the mills were later converted to electricity. The actual number of mills, however, only tells half the story as the growth of the industrial base, and expanding exports, called for larger and more efficient mills to be built. The numbers of looms within the industry showed a phenomenal rise between 1813 when there were only an estimated 2400 power looms in the United Kingdom, compared with the 224 000 that had been brought into operation in 1850. The slow acceptance of coal and hence steam engines to work textile factories is an example of the time lag that occurred between the invention and the widespread application of coal and steam power in many industries. Whilst the use of coke to smelt iron was first shown to be feasible in 1709, it was not until the 1760s (and the start of the industrial revolution) that the technique became widespread. Before this discovery it was actually the case in the late seventeenth and early eighteenth centuries that the production of iron was falling. Problems with the spread of information and inventions also affected James Watt's design of the rotary steam engine, which he perfected in the 1780s. However, it was not until 1800 that his patent expired and use of the invention diffused throughout the country (see Table 8.1). Table 8.1 The use of different types of steam pumping and winding engines in coalmines during the eighteenth century Year

Area

Type

Use

Number

1750

West Riding Derbyshire

Atmospheric Atmospheric

Pumping Pumping

8 3

1769

Newcastle-on-Tyne

Newcomen

Pumping

100

1798

West Riding West Riding

Atmospheric Boulton & Watt

Winding Pumping

1 2

1800

West Riding Derbyshire Derbyshire Derbyshire Scotland

Atmospheric Atmospheric Atmospheric Boulton & Watt

Pumping Pumping Winding Pumping

53 14 1 1 77

Source: Kernot, 1993.

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Coking, industrial and domestic coal

8.4.1

Smokeless fuel

Smokeless fuel or coke used domestically is generally manufactured in coke ovens using the low temperature process at temperatures of up to 500 ëC. This process is essentially the same as that used for high temperature or metallurgical coke production described in Section 8.1.2.

8.4.2

Town gas

That the incomplete combustion of coal, both from underground explosions and from the production of coke, led to the generation of a flammable gas had been known for some time. William Murdoch, Matthew Boulton and James Watt all carried out experiments at the Soho works in Birmingham towards the end of the eighteenth century, and Murdoch showed that it was feasible to use gas for lighting in 1792. It was, however, not until the start of the nineteenth century that the use and piping of gas was recognised and the first public gas works was authorised by an Act of Parliament in 1810. This industry further increased demand for coal and for the iron required to make the pipes that had to be laid in a network from the gas stations. The gas used in this application was essentially CO, which was generated from coal in massive coke ovens. In order to gasify the coal, it was necessary to allow partial combustion of the fuel to the extent that it formed CO rather than CO2. In order to increase the calorific value of the gas it was also possible to combine the air blown into the coke oven with steam and allow the breakdown of the water to form hydrogen and CO. Such a gas is often described as water gas in order to differentiate it from town gas.

8.5 Other industrial applications Industrial applications of coal remained limited for the majority of the period 1765±1900, and in many respects still do today. The use of coal as a source of heat for the manufacture of bricks and beer was acknowledged before the revolution began. Coke manufacture had also begun with the need for coke to fire the pig iron manufacturing process invented by Abraham Darby at Coalbrookdale. The use of coal in the chemical industry, even today, remains

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The coal industry

relatively limited, despite the advances made by Sasol in South Africa. The Sasol operations were set up during the years of trade sanctions imposed on the country as a result of its apartheid policies. The capital cost of the plant and equipment is generally considered prohibitive and it was only as a result of the South African government's isolation and consequent funding of the operation that it was constructed. Given that the construction cost now counts as a sunk expense, the company is able to compete internationally in the manufacture and supply of synthetic fuels and chemicals for a wide range of uses. Elsewhere in South Africa in the late nineteenth century the area around the Vereeniging Estates coal mine became an industrial heartland. The company itself entered the brick, tile and refractory industries to make use of the clays that had to be mined in order to expose the coal, whilst other industries developed locally in view of the ready supply of relatively cheap energy. However, the first real investigations into the use of coal in the manufacture of chemicals were carried out in Scotland by the Ninth Earl of Dundonald, Alexander Cochrane. He experimented with the coal on his estate and proved it as a potential source of tar and varnish. This success prompted him to set up his own manufacturing plant at Culross in 1792, but a lack of capital and problems with the Admiralty led to a series of losses. It was then up to John Loudon Macadam to develop the idea, from which he reaped the rewards and left his name to posterity.

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9 World supply 9.1 9.2

Introduction World producers 9.2.1 Australia

9.2.2 9.2.3 9.2.4 9.2.5 9.2.6

New South Wales Billiton Cumnock Coal Rio Tinto BHP Other projects Queensland BHP Billiton MIM Rio Tinto Botswana

Brazil Bulgaria Canada China Yanzhou Coal Other coal-producing companies

9.2.7 9.2.8 9.2.9 9.2.10 9.2.11 9.2.12 9.2.13 9.2.14 9.2.15 9.2.16 9.2.17 9.2.18 9.2.19 9.2.20 9.2.21 9.2.22 9.2.23

Colombia Czech Republic Germany Hungary India Indonesia Kazakhstan Kyrgyzstan Mexico Mongolia Mozambique Myanmar North Korea Philippines Poland Romania Russia

# Charles Kernot

9.2.24 9.2.25 9.2.26 9.2.27

South Africa Ukraine United Kingdom United States Illinois Pennsylvania Wyoming Zeigler Coal Peabody Coal A T Massey Pittston Coal

9.2.28 9.2.29 9.2.30 9.2.31 9.2.32

Uzbekistan Venezuela Vietnam Zambia Zimbabwe

# Charles Kernot

9.1 Introduction The United Kingdom is one of the few countries that is actually closing down its coal industry with the intention of reducing output. The coal producers in Asia, Australasia, South Africa, Latin America and North America are all opening up new mines and increasing output rather than closing existing operations. The major advantages of the countries that are increasing output is that their coal deposits are only recently discovered, and thereby relatively easy to exploit, and that they benefit from improving international infrastructure, which means that the coal finds a ready global market as it is not lumbered with excessive transport costs. It is also the case that the mines in most of these regions are owned and managed by private companies. This, in turn, means that they employ strict financial evaluation techniques in order to assess the potential profitability of an operation. Conversely, many of the coal-mining operations of the CIS still suffer from a host of problems associated with the financial turmoil in the region and the decaying infrastructure that increases the cost and reduces the ability to move products around the region. Most international producers will only continue to produce coal if they can sell it at a profit, whilst CIS producers can only generate profits when they sell their output at artificially inflated prices. These higher prices are related to both the large amount of bartering that is currently endemic across the region (whilst taking big discounts if coal is paid for with cash) and to the absence of effective competition. This is due to an absence of imports (which would also have to be paid for with cash) and an inability to switch easily between different sources of energy. Indeed, notwithstanding the abundant supplies of oil and gas across Russia, the bulk of the country's electricity is still produced from coal. Most of the new mines that are opening up around the world are open pit operations, whereas many of those closing down, whether in Europe, the CIS or Japan, are underground operations, which require larger amounts of capital investment and tend to suffer from higher operating costs. In some countries, open pit mining has been constrained by government policy, which has often been strongly in favour of underground mines, and by environmental and heritage objections. This is despite the fact that open pit mining can actually

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The coal industry

enhance the environment as it offers scope for the rehabilitation of old mine sites and waste dumps that would otherwise scar the landscape. Furthermore, the ability (and sometimes the requirement) to blend coals from surface and deep sources in order to balance or reduce chlorine, fluorine or sulphur contents and emissions may also help to reduce power station pollution. As far as the future supply of coal is concerned, the developing countries are likely to become more important in the export market. This is simply because these countries have low labour costs and, unfortunately, the need for work forces the population into employment that may not be as safe as that available in more advanced economies. For instance, coal producers in both the United Kingdom and Australia give clear indications about the mortality rates of their employees in the mining industry, but these details are not readily apparent in developing countries.

9.2 World producers By far the largest coal producer in the world, some 200 Mt greater than its nearest rival, is China. The United States stands in second place, followed by the CIS in third place. Russia and the Ukraine make up the largest part of the CIS with mines in two vast coal basins in the two countries. The world's major coal-producing countries in 1998 are shown in Table 9.1, together with their recent output and the distribution of production between hard coal and lignite or brown coal, where appropriate.

9.2.1

Australia

Australia is one of the key countries in the international coal market. This is not solely related to its resource base but also to the proximity of the main coal-mining districts to the coast, thereby aiding economic production and export of the fuel. Indeed, the country is the largest exporter of both steam and coking coal in the world. Moreover, there are further developments, with potential output capacity of 90 Mt/year, that should enable it to retain this position, although low coal prices may force some projects to be deferred. Consequently, Australia's global market share may reduce,

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World supply

especially in view of the new mines that are being developed in countries like Colombia and Venezuela. New South Wales At 107.7 Mt in 1997/98 (versus 99.5 Mt in 1996/97) New South Wales accounts for 48% of Australia's total saleable coal production. In June 1998 there were 66 coal mines operating in the state, with 41 underground and 25 open pit mining operations. This represents a decline of six collieries since 1996, five of which were underground operations. Most of the closures will have been caused by sustained low coal prices, leading to continuing losses. The underground and open pit mines in New South Wales produce approximately 58 Mt and 76 Mt of raw coal annually, and 50 Mt and 58 Mt of saleable coal, respectively. Recoverable reserves in the state are currently estimated to be some 7810 Mt, which would be sufficient to sustain production at existing rates for nearly 60 years. About 69% of production from the state is destined for the export market, 22% for domestic electricity generation, 7% for iron- and steel-making, and other uses account for the remaining 2%. Billiton In late 1998, there were 18 new and expanding coal projects in New South Wales, representing a total investment of around A$2.5 bn. The largest project was Billiton's Mount Arthur North development which will cost A$500 m and could produce up to 6 Mt/year, employing 300 people. The advantage of the project to Billiton is that the group could combine it with the adjacent Bayswater 3 operation to create a combined mining complex producing up to 15 Mt/year. With a total of 685 Mt of in situ coal reserves, the operation has a long potential life following the projected start-up in 2003. The further advantage is that the strip ratio is expected to remain constant at 4 bcm/t over the life of the mine, helping to keep costs of production under control. Elsewhere in Australia, Billiton also owns the rights to a 1 bn tonne resource at Wyong. It has been exploring in this region for a number of years but currently projects that the first coal from the deposit is unlikely to be mined before 2005 in view of the oversupply in the international coal market in the late 1990s. The company has a similar strategy at its Togara deposit, where a feasibility study is currently under consideration (see below under Queensland). Two

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The coal industry

Table 9.1 Coal production by country (1980±98) World bituminous coal production, 1980±1998 (Million tonnes) Country

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

Canada

30.69

33.29

35.32

37.02

47.48

51.07

49.53

51.19

58.50

59.70

Mexico

3.63

3.58

4.30

5.46

5.95

6.11

6.61

8.03

7.17

7.70

United States

704.42 696.43 708.61 652.86 751.77 731.65 734.52 759.11 781.64 808.25

North America

738.74 733.29 748.23 695.34 805.21 788.82 790.66 818.33 847.31 875.65

Argentina

0.39

0.50

0.52

0.49

0.51

0.40

0.36

0.37

0.51

0.52

Brazil

5.24

5.69

6.35

6.74

7.52

7.71

7.39

6.88

7.33

6.67

Chile

0.97

1.10

0.99

0.99

1.18

1.29

1.63

1.57

1.93

1.95

Colombia

4.11

4.33

4.42

5.19

6.63

8.86

10.64

13.46

15.07

18.33

Peru

0.05

0.10

0.08

0.10

0.11

0.14

0.16

0.12

0.13

0.14

Venezuela

0.04

0.05

0.05

0.04

0.05

0.04

0.06

0.24

1.07

2.13

10.08

11.76

12.39

13.54

16.01

18.44

20.25

22.64

26.04

29.73

Central and South America Belgium

6.32

6.14

6.54

6.10

6.30

6.21

5.63

4.37

2.49

1.89

France

18.98

17.46

16.13

16.04

15.72

14.88

14.19

14.18

11.22

10.70

West Germany

87.44

88.45

89.71

84.14

79.58

83.35

81.85

77.39

74.55

72.96

Germany

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Greece

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Ireland

0.06

0.07

0.06

0.08

0.07

0.06

0.05

0.05

0.04

0.04

Italy

0.00

0.00

0.00

0.00

0.01

0.02

0.01

0.01

0.04

0.07

Norway

0.29

0.41

0.44

0.50

0.45

0.51

0.44

0.40

0.26

0.36

Portugal

0.18

0.18

0.18

0.19

0.19

0.24

0.24

0.26

0.23

0.26

20.49

22.35

23.61

23.86

23.08

23.64

23.87

20.60

21.40

19.87

Sweden

0.02

0.03

0.01

0.01

0.01

0.01

0.01

0.03

0.03

0.02

Turkey

3.60

3.97

4.01

3.54

3.63

3.61

3.53

3.46

3.26

3.04

127.02 124.50 122.60 116.60

50.00

92.30 105.94 102.31 102.06

99.10

Spain

United Kingdom Yugoslavia

7.61

9.56

10.07

10.94

11.98

12.87

13.51

12.51

12.24

12.33

Croatia

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Serbia and Montenegro 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Slovenia

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Western Europe

0.00

272.01 273.12 273.35 261.99 191.03 237.69 249.25 235.57 227.81 220.65

Bulgaria

5.91

5.73

6.30

6.33

6.32

5.53

5.25

5.35

4.89

4.73

Czech Republic

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Former Czechoslovakia Former U.S.S.R.

120.73 119.14 120.74 123.51 125.31 124.86 124.79 124.08 121.86 115.99 479.90 471.68 481.03 479.69 488.35 498.00 516.30 523.40 527.60 508.80

Georgia

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Hungary

17.22

1.57

1.57

15.16

14.95

16.66

16.15

15.62

15.24

14.15

Kazakhstan

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Kyrgyzstan

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Moldova

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Poland

193.12 163.02 189.31 191.09 191.59 191.64 192.08 193.01 193.02 177.63

Romania

8.71

9.14

9.38

11.03

10.96

9.44

9.51

9.95

10.00

9.14

Russia

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Chapter 9/page 4

# Charles Kernot

World supply

1990

1991

1992

1993

1994

1995

1996

1997

1998

Canada

58.95

62.15

55.58

58.98

62.14

64.30

64.96

67.04

63.59

Mexico

7.79

7.09

6.57

7.11

8.90

8.89

9.16

9.34

10.00

United States

850.47 821.93 820.10 772.53 853.48 854.38 880.92 906.19 934.20

North America

917.21 891.17 882.25 838.63 924.52 927.56 955.04 982.57 1007.79

Argentina

0.28

0.29

0.20

0.17

0.35

0.31

0.31

0.32

0.24

Brazil

4.60

5.19

4.73

4.60

4.45

4.15

3.83

4.42

5.60

Chile

2.18

2.21

1.63

1.36

1.18

1.00

1.08

1.06

0.60

20.47

23.60

23.78

21.22

22.67

25.74

30.07

32.59

34.00

Peru

0.11

0.06

0.08

0.09

0.07

0.13

0.05

0.06

0.00

Venezuela

2.19

2.56

3.07

3.89

4.74

4.64

3.49

5.55

6.80

29.82

33.91

33.49

31.32

33.45

35.97

38.83

44.01

47.24

Belgium

2.36

2.11

1.20

0.97

0.75

0.64

0.58

0.40

0.00

France

9.88

9.55

9.02

7.82

7.05

6.14

6.80

5.53

5.30

71.69

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Germany

0.00

66.20

65.31

58.14

52.15

50.92

48.37

46.60

41.30

Greece

0.00

0.00

0.00

0.02

0.07

0.07

0.00

0.00

0.00

Ireland

0.03

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Italy

0.06

0.02

0.11

0.01

0.01

0.00

0.00

0.00

0.00

Norway

0.30

0.33

0.36

0.27

0.30

0.29

0.23

0.25

0.33

Portugal

0.28

0.27

0.22

0.20

0.15

0.14

0.00

0.00

0.00

12.51

11.23

11.43

11.12

11.14

10.73

11.85

12.06

12.40

Sweden

0.01

0.03

0.04

0.00

0.00

0.00

0.00

0.00

0.00

Turkey

3.02

2.90

3.04

2.88

2.84

2.25

2.43

2.57

2.00

United Kingdom

92.65

93.19

83.34

67.19

47.97

46.55

49.53

48.06

41.30

Yugoslavia

11.75

10.26

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.10

0.10

0.08

0.06

0.05

0.00

Serbia and Montenegro 0.00

0.00

0.00

0.07

0.08

0.07

0.06

0.06

0.10

Slovenia

0.00

1.32

1.20

1.08

0.97

0.95

0.78

0.00

Colombia

Central and South America

West Germany

Spain

Croatia

Western Europe

0.00

204.54 196.08 175.49 149.99 123.69 118.84 120.86 116.36 102.73

Bulgaria

3.80

3.42

3.71

3.55

3.48

3.31

3.37

3.04

0.12

Czech Republic

0.00

0.00

0.00

68.77

73.44

70.28

68.67

64.27

75.70

103.28

96.04

90.64

0.00

0.00

0.00

0.00

0.00

0.00

580.80 428.80

0.00

0.00

0.00

0.00

0.00

0.00

0.00 0.00

Former Czechoslovakia Former U.S.S.R. Georgia

0.00

0.00

0.20

0.12

0.03

0.04

0.02

0.02

Hungary

12.11

11.65

10.87

10.02

9.67

9.44

10.33

10.73

6.88

79.52

73.03

69.23

65.70

Kazakhstan

0.00

0.00 122.39 107.20 104.63

Kyrgyzstan

0.00

0.00

2.09

1.82

1.95

1.32

1.06

1.21

0.30

Moldova

0.00

0.00

0.26

0.18

0.11

0.03

0.04

0.03

0.00

Poland

147.74 140.38 131.62 129.90 132.90 135.91 136.81 136.53 116.71

Romania

5.09

4.38

Russia

0.00

0.00 216.10 194.60 168.10 163.20 166.50 159.53 149.00

# Charles Kernot

5.23

3.97

4.52

4.22

4.33

3.53

4.00

Chapter 9/page 5

The coal industry

Table 9.1 Coal production by country (1980±98) cont'd World bituminous coal production, 1980±1998 (Million tonnes) Country

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

Slovakia

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Ukraine

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Uzbekistan

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Eastern Europe & Former U.S.S.R

825.59 770.28 808.33 826.81 837.49 846.12 864.07 871.41 872.62 830.44

Iran

0.90

0.70

1.12

1.03

1.24

1.25

1.26

1.24

1.26

1.20

Middle East

0.90

0.70

1.12

1.03

1.24

1.25

1.26

1.24

1.26

1.20

Algeria

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.02

Botswana

0.37

0.38

0.41

0.40

0.39

0.44

0.50

0.58

0.61

0.63

Cameroon

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Congo (Kinshasa)

0.14

0.14

0.12

0.11

0.12

0.12

0.12

0.12

0.15

0.11

Egypt

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Malawi

0.00

0.00

0.00

0.00

0.00

0.00

0.02

0.02

0.03

0.03

Mozambique

0.21

0.33

0.20

0.06

0.04

0.04

0.04

0.04

0.05

0.04

Niger

0.02

0.03

0.05

0.13

0.15

0.15

0.12

0.16

0.16

0.17

Nigeria

0.18

0.10

0.06

0.05

0.08

0.14

0.14

0.12

0.08

0.08

South Africa

116.04 132.78 136.91 143.40 159.70 168.60 171.70 171.30 176.41 172.21

Swaziland

0.11

0.10

0.10

0.06

0.08

0.10

0.11

0.10

0.10

0.10

Tanzania

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Zambia

0.58

0.51

0.60

0.45

0.51

0.51

0.56

0.46

0.63

0.40

Zimbabwe

3.13

2.87

2.77

3.33

3.11

3.11

4.05

4.84

5.07

5.11

Africa

120.78 137.25 141.23 148.00 164.20 173.23 177.37 177.76 183.28 178.91

Afghanistan

0.12

0.13

0.15

72.39

85.83

89.45

Bhutan

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Burma

0.01

0.02

0.03

0.04

0.04

0.04

0.04

0.04

0.03

0.04

Australia

0.15

0.15

0.15

0.16

0.17

0.14

0.13

98.27 104.58 117.50 133.38 147.72 134.81 147.78

China

466.86 467.14 502.31 535.77 589.40 657.78 677.27 702.42 740.56 793.39

India

109.15 123.10 128.50 134.78 159.69 164.53 179.45 179.90 182.02 188.25

Indonesia

0.57

0.69

0.60

0.67

1.53

2.11

2.79

3.22

4.21

8.39

Japan

19.92

18.80

17.81

17.16

16.99

16.65

13.27

12.73

12.14

11.09

Laos

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Malaysia

0.00

0.00

0.00

0.00

0.00

0.00

0.02

0.09

0.09

0.11

Mongolia

0.39

0.35

0.40

0.41

0.46

0.48

0.50

0.66

0.69

0.69

New Zealand

1.77

1.80

1.99

2.12

2.18

2.10

2.08

2.31

2.26

2.64

Pakistan

1.73

1.71

1.95

1.77

1.93

2.17

2.11

2.16

2.73

2.62

Philippines

0.33

0.33

0.56

1.02

1.22

1.26

1.24

1.19

1.34

1.23

Taiwan

2.57

2.45

2.38

2.24

2.01

1.86

1.73

1.50

1.23

0.78

Thailand

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Asia/Australasia World Total

675.82 702.35 746.13 794.39 880.19 966.64 1014.03 1054.11 1082.24 1157.14 2644.65 2628.75 2730.80 2741.10 2895.35 3032.19 3116.90 3181.06 3240.55 3293.71

Chapter 9/page 6

# Charles Kernot

World supply

1990

1991

1992

1993

1994

1995

1996

1997

1998

Slovakia

0.00

0.00

0.00

2.29

2.16

1.91

1.82

1.71

0.00

Ukraine

0.00

0.00

99.21

87.13

71.60

63.45

54.99

59.66

59.40

Uzbekistan

0.00

0.00

0.18

0.16

0.14

0.12

0.07

0.08

0.00

Eastern Europe & Former U.S.S.R

852.82 684.66 682.50 609.71 572.75 532.76 521.05 509.58 477.80

Iran

1.10

0.99

0.97

0.97

1.29

1.14

1.14

1.20

1.80

Middle East

1.10

0.99

0.97

0.97

1.29

1.14

1.14

1.20

1.80

Algeria

0.01

0.02

0.02

0.02

0.02

0.02

0.02

0.02

0.00

Botswana

0.79

0.80

0.90

0.89

0.83

0.82

0.77

0.88

0.80

Cameroon

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Congo (Kinshasa)

0.08

0.08

0.09

0.09

0.09

0.10

0.10

0.10

0.00

Egypt

0.00

0.00

0.00

0.00

0.00

0.00

0.10

0.35

0.20

Malawi

0.04

0.05

0.05

0.05

0.05

0.05

0.06

0.06

0.00

Mozambique

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.14

Niger

0.17

0.17

0.17

0.17

0.17

0.17

0.17

0.17

0.15

Nigeria

0.08

0.14

0.09

0.04

0.05

0.05

0.05

0.05

0.09

South Africa

171.59 175.51 179.18 183.51 191.52 202.35 202.83 216.43 222.30

Swaziland

0.10

0.08

0.06

0.03

0.11

0.11

0.08

0.03

0.41

Tanzania

0.00

0.00

0.00

0.00

0.00

0.01

0.01

0.01

0.10

Zambia

0.38

0.38

0.40

0.40

0.38

0.36

0.35

0.35

0.15

Zimbabwe

5.50

5.62

5.55

5.29

5.47

5.53

5.25

5.25

5.05

Africa Afghanistan Australia

178.79 182.89 186.54 190.54 198.75 209.60 209.81 223.73 229.39 0.11

0.09

0.01

0.01

0.01

0.01

0.00

0.00

0.23

158.83 164.64 175.13 176.96 176.65 191.06 193.39 207.49 213.00

Bhutan

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Burma

0.03

0.04

0.03

0.03

0.03

0.04

0.03

0.03

0.00

China

821.53 825.12 846.32 897.49 967.09 1061.33 1061.55 1071.11 1030.00

India

197.62 213.31 229.35 238.51 246.36 254.08 285.52 275.86 300.00

Indonesia

8.02

12.77

21.97

27.57

31.01

41.42

50.33

54.80

60.99

Japan

10.04

8.47

7.60

7.00

7.14

6.26

6.48

4.27

3.60

Laos

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Malaysia

0.11

0.18

0.18

038

0.13

0.11

0.08

0.11

0.35

Mongolia

0.69

0.68

0.64

0.63

0.65

0.65

0.68

0.70

2.00

New Zealand

2.43

2.50

2.77

2.93

2.75

2.96

2.86

2.73

3.10

Pakistan

2.75

2.89

3.07

3.07

3.21

3.01

3.64

3.74

3.10

Philippines

1.24

1.26

1.66

1.58

1.45

1.32

1.12

1.15

1.00

Taiwan

0.47

0.40

0.33

0.33

0.29

0.24

0.15

0.10

0.50

Thailand

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

4.70

Asia/Australasia

1203.88 1232.36 1289.07 1356.48 1436.77 1562.49 1605.85 1622.09 1622.57

World Total

3388.15 3222.06 3250.31 3177.64 3291.22 3388.36 3452.58 3499.53 3489.32

# Charles Kernot

Chapter 9/page 7

The coal industry

Table 9.1 Coal production by country (1980±98) cont'd World lignite production, 1980±1998 (Million tonnes) Country

1980

Canada

1981

1982

1983

1984

1985

1986

1987

1988

1989

5.97

6.80

7.49

7.76

9.92

9.67

8.28

10.02

12.15

10.82

United States

42.78

45.97

47.55

52.93

57.22

65.70

69.27

71.15

77.20

78.42

North America

48.75

52.77

55.04

60.69

67.13

75.37

77.55

81.17

89.35

89.23

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

Austria

2.87

3.06

3.30

3.04

2.93

3.08

2.97

2.79

2.13

2.07

France

2.56

2.94

3.06

2.59

2.43

1.84

2.14

2.06

1.65

2.17

Chile Central and South America

East Germany

258.10 266.73 276.04 277.97 296.34 312.16 311.26 308.98 310.31 301.06

West Germany

129.86 130.65 127.35 124.37 126.70 120.72 114.36 108.85 108.62 109.88

Germany Greece

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

23.20

27.32

27.40

30.59

32.50

35.89

38.10

44.61

48.32

51.87

Italy

1.29

1.21

1.91

1.75

1.78

1.89

1.01

0.96

1.00

1.00

Spain

11.42

14.65

17.45

17.29

17.41

17.29

16.53

15.63

12.96

17.28

Turkey

14.47

16.48

17.80

20.96

26.12

35.87

42.28

42.90

35.34

48.76

Yugoslavia

33.70

42.36

44.60

48.46

53.09

57.00

56.35

58.95

60.34

62.27

Bosnia and 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Croatia

Herzegovina

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Macedonia

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Serbia and Montenegro 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Slovenia

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Western Europe

0.00

477.45 505.40 518.90 527.01 559.29 585.73 585.00 585.71 580.67 596.34

Albania

1.42

1.54

1.70

1.85

2.01

2.10

2.17

2.13

2.18

2.19

Bulgaria

24.15

23.43

25.83

25.97

25.96

25.27

29.90

31.40

29.19

29.51

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Former Czechoslovakia 3.78

3.10

3.68

4.91

5.90

3.55

3.20

3.68

3.61

3.64

Czech Republic Former U.S.S.R.

163.42 156.49 159.33 154.77 152.30 157.10 163.51 164.94 172.40 163.52

Hungary

8.48

7.55

7.60

7.39

7.41

7.39

6.98

7.22

5.63

5.88

Kazakhstan

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Kyrgyzstan

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.000

0.00

0.00

Poland

36.87

35.54

37.65

42.53

50.38

50.38

67.26

73.19

73.49

71.82

Romania

26.46

27.78

28.48

33.50

33.31

37.14

38.01

41.60

48.79

51.09

Russia

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Slovakia

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Tajikistan

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Ukraine

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Uzbekistan

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Eastern Europe & Former U.S.S.R. Australia

264.56 255.43 264.27 270.92 277.27 290.30 311.02 324.17 335.29 327.65 32.89

32.10

37.57

34.69

34.50

38.38

36.08

41.80

43.40

Burma

0.03

0.04

0.04

0.04

0.04

0.04

0.05

0.04

0.04

0.04

China

24.31

23.39

24.97

26.90

30.11

32.22

32.02

33.20

36.70

42.78

Chapter 9/page 8

# Charles Kernot

48.29

World supply

Country Canada

1990

1991

1992

1993

1994

1995

1996

1997

1998

9.41

8.98

10.03

10.05

10.69

10.74

10.85

11.65

11.79

United States

79.91

78.48

81.70

81.24

79.91

78.47

79.88

78.33

80.00

North America

89.32

87.46

91.73

91.28

90.59

89.21

90.74

89.98

91.79

0.04

0.04

0.06

0.04

0.04

0.04

0.04

0.04

0.00

0.04

0.04

0.06

0.04

0.04

0.04

0.04

0.04

0.00

Austria

2.45

2.08

1.77

1.69

1.14

1.30

1.11

1.10

1.00

France

2.33

1.97

1.58

1.67

1.50

1.41

0.80

0.65

0.80

East Germany

280.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

West Germany

107.59

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Chile Central and South America

Germany Greece

0.00 279.58 241.81 221.80 207.08 191.96 187.24 177.16 166.20 51.90

52.70

55.05

54.82

56.67

57.66

59.78

60.08

0.96

0.94

0.71

0.62

0.27

0.38

0.30

0.21

0.08

Spain

16.37

15.52

14.78

13.35

11.36

10.78

9.60

8.46

13.70

Turkey

44.41

43.21

48.39

45.69

51.53

52.76

53.89

54.00

52.00

Yugoslavia

64.09

60.53

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Italy

60.40

Bosnia and 0.00

0.00

6.28

5.03

2.94

2.84

1.64

1.54

2.00

Croatia

Herzegovina

0.00

0.00

0.00

0.01

0.01

0.01

0.00

0.00

0.00

Macedonia

0.00

0.00

6.47

6.92

6.86

7.25

7.15

6.50

6.50

Serbia and Montenegro 0.00

0.00

42.21

36.80

36.48

39.94

38.37

36.04

43.10

Slovenia

0.00

4.23

3.92

3.78

3.92

3.81

3.92

5.20

Western Europe

0.00

570.10 456.52 423.29 392.31 379.61 370.19 363.68 349.65 350.98

Albania

2.07

1.09

0.37

0.22

0.17

0.12

0.10

0.09

0.00

Bulgaria

27.83

25.00

26.55

25.41

25.23

24.87

25.34

22.86

31.00

0.00

0.00

0.00

1.24

1.08

1.02

0.96

0.75

0.00

Former Czechoslovakia 3.30

3.09

1.80

0.00

0.00

0.00

0.00

0.00

0.00

156.59 152.03

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Czech Republic Former U.S.S.R. Hungary

5.47

5.33

4.96

4.59

4.43

4.35

7.58

8.13

7.61

Kazakhstan

0.00

0.00

4.15

4.67

4.18

3.33

3.57

3.00

3.00

Kyrgyzstan

0.00

0.00

1.11

0.99

0.45

0.28

0.27

0.31

0.00

Poland

67.58

69.41

66.85

68.11

66.77

63.55

63.85

63.17

63.00

Romania

33.74

28.03

33.03

34.86

36.60

35.62

41.55

33.82

29.00

Russia

0.00

0.00 126.83 112.78 102.20

98.40

90.20

83.00

83.00

Slovakia

0.00

0.00

0.00

0.94

0.80

0.75

0.71

0.67

0.00

Tajikistan

0.00

0.00

0.26

0.18

0.11

0.03

0.03

0.03

0.00

Ukraine

0.00

0.00

5.78

4.15

3.10

3.00

4.30

2.00

2.00

Uzbekistan

0.00

0.00

4.53

3.64

3.65

2.96

2.76

3.13

3.00

Eastern Europe & Former U.S.S.R. Australia

296.58 283.96 276.23 261.76 248.76 238.27 241.22 220.96 221.61 45.99

49.39

50.72

47.65

48.75

50.75

53.60

58.16

Burma

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.00

China

45.50

44.79

47.27

57.30

60.74

63.66

65.77

66.36

50.00

# Charles Kernot

65.80

Chapter 9/page 9

The coal industry

Table 9.1 Coal production by country (1980±98) cont'd World lignite production, 1980±1998 (Million tonnes) cont'd Country

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

India

5.01

6.58

7.00

8.09

8.43

8.57

8.71

9.37

12.58

12.64

Indonesia

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Japan

0.03

0.03

0.03

0.01

0.01

0.02

0.01

0.01

0.01

0.01

10.00

10.00

10.50

11.00

12.00

13.00

14.00

15.00

18.00

20.00

Mongolia

4.39

4.36

4.98

5.03

4.97

6.04

6.57

7.11

7.91

7.35

Nepal

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

New Zealand

0.21

0.21

0.22

0.24

0.24

0.25

0.20

0.09

0.17

0.16

Philippines

0.00

0.01

0.01

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Thailand

1.47

1.67

2.11

2.00

2.36

5.19

5.48

6.90

7.26

8.90

78.35

78.39

87.43

88.00

Korea, North

Asia/Australia World Total

92.67 103.72 103.11 113.52 126.09 140.18

869.16 892.03 925.68 946.66 996.40 1055.16 1076.71 1104.61 1131.43 1153.44

World anthracite production, 1980±1998 (Million tonnes) Country

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

United States

5.49

4.92

4.16

3.71

3.78

4.27

3.89

3.23

3.22

3.04

North America

5.49

4.92

4.16

3.71

3.78

4.27

3.89

3.23

3.22

3.04

Peru

0.00

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.00

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

Belgium

0.00

4.43

4.46

3.80

4.07

4.13

3.54

2.34

0.73

0.65

France

1.21

2.84

2.63

2.61

2.56

2.22

2.12

2.12

1.68

1.60

West Germany

7.45

7.42

7.69

7.62

7.83

7.88

7.79

7.49

7.20

6.64

Germany

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Spain

5.21

6.12

6.45

6.78

7.00

7.58

7.15

6.69

6.54

6.80

Turkey

0.22

0.35

0.40

0.41

0.43

0.41

0.45

0.46

0.60

0.43

United Kingdom

3.40

3.31

2.32

2.98

1.20

1.70

2.16

2.09

2.04

2.00

17.49

24.46

23.93

24.20

23.09

23.92

23.22

21.18

18.78

18.10

Central and South America

Western Europe Bulgaria

0.10

0.09

0.09

0.09

0.08

0.08

0.08

0.07

0.07

0.06

73.10

72.90

72.40

72.10

71.80

71.30

71.40

71.50

72.30

68.00

Poland

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Russia

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Ukraine

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

73.20

72.99

72.49

72.19

71.88

71.38

71.48

71.57

72.37

68.06

Morocco

0.68

0.70

0.74

0.75

0.84

0.78

0.78

0.63

0.64

0.50

South Africa

3.66

2.69

3.35

2.23

3.23

4.91

4.99

5.25

4.95

4.21

Swaziland

0.07

0.06

0.06

0.04

0.05

0.07

0.07

0.06

0.06

0.06

Africa

4.41

3.46

4.14

3.02

4.12

5.75

5.83

5.95

5.65

4.78

Former U.S.S.R.

Eastern Europe & Former U.S.S.R.

China Japan

128.97 131.11 139.05 151.86 169.72 182.28 184.75 192.34 202.61 217.93 0.45

Chapter 9/page 10

0.40

0.44

0.63

0.61

0.60

0.58

0.44

0.35

# Charles Kernot

0.28

World supply

Country

1990

1991

1992

1993

1994

1995

1996

1997

1998

India

14.11

15.97

15.81

16.62

18.01

19.26

22.54

23.05

23.00

Indonesia

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Japan

0.02

0.02

0.02

0.02

0.02

0.02

0.02

0.01

0.00

22.00

23.00

24.00

27.00

26.50

26.60

25.50

21.00

15.00

Mongolia

6.56

4.84

4.29

4.04

3.66

3.58

3.73

3.50

3.20

Nepal

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.00

New Zealand

0.16

0.17

0.18

0.18

0.25

0.21

0.32

0.23

0.20

Philippines

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

12.42

14.69

15.34

15.53

17.08

18.42

21.69

23.44

20.16

Korea, North

Thailand Asia/Australia World Total

146.81 152.91 157.68 168.39 175.07 182.54 193.22 195.81 177.36 1102.85 980.90 948.99 913.78 894.06 880.26 888.90 856.44 841.74

Country

1990

1991

1992

1993

1994

1995

1996

1997

1998

United States

3.18

3.13

3.16

3.91

4.19

4.25

4.31

4.26

North America

3.18

3.13

3.16

3.91

4.19

4.25

4.31

4.26

Peru

0.02

0.01

0.08

0.03

0.03

0.02

0.01

0.01

0.02

0.01

0.08

0.03

0.03

0.02

0.01

0.01

Belgium

0.09

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

France

1.82

1.60

1.43

1.35

0.95

0.84

0.88

0.75

0.00

West Germany

6.76

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Germany

0.00

6.55

6.85

6.03

5.47

5.04

4.78

4.61

Spain

7.07

6.81

7.27

7.12

7.13

6.87

5.84

5.94

Turkey

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

United Kingdom

1.75

1.73

1.55

1.01

0.95

1.06

0.67

0.49

17.48

16.68

17.10

15.51

14.50

13.80

12.16

11.79

Central and South America

Western Europe Bulgaria

0.04

0.04

0.08

0.07

0.08

0.11

0.11

0.10

62.60

55.70

0.00

0.00

0.00

0.00

0.00

0.00

Poland

0.00

0.00

0.00

0.16

0.22

0.28

0.28

0.29

Russia

0.00

0.00

25.25

22.87

20.31

19.66

19.15

18.34

Ukraine

0.00

0.00

28.14

24.57

20.20

17.90

15.51

16.83

62.64

55.74

53.47

47.67

40.80

37.94

35.05

35.56

Morocco

0.53

0.55

0.58

0.60

0.63

0.65

0.50

0.52

South Africa

3.66

2.69

4.87

4.70

4.28

3.86

3.53

3.65

Swaziland

0.06

0.05

0.04

0.02

0.07

0.06

0.05

0.02

Africa

4.25

3.29

5.48

5.32

4.98

4.57

4.08

4.19

Former U.S.S.R.

0.00

Eastern Europe & Former U.S.S.R.

China Japan

# Charles Kernot

212.85 217.50 220.96 227.75 245.41 269.32 269.38 271.80 0.22

0.22

0.22

0.20

0.17

0.19

0.17

220.0

0.11

Chapter 9/page 11

The coal industry

Table 9.1 Coal production by country (1980±98) cont'd World anthracite production, 1980±1998 (Million tonnes) cont'd Country

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

Korea, North

36.00

36.00

36.50

38.00

41.00

40.95

41.00

41.50

42.00

42.70

Korea, South

18.62

19.87

20.12

19.86

21.37

22.54

24.25

24.27

24.30

20.79

New Zealand

0.30

0.33

0.27

0.29

0.29

0.33

0.24

0.18

0.13

0.09

Thailand

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.01

0.01

0.01

Vietnam

5.30

6.00

6.10

6.24

4.90

5.33

6.45

6.82

6.96

3.83

Asia/Australasia

189.64 193.70 202.47 216.89 237.89 252.04 257.28 265.56 276.35 285.63

World Total

290.23 299.54 307.21 320.01 340.76 357.38 361.71 367.50 376.38 379.62

other coal projects of interest are the A$370 m Mount Pleasant and the A$60 m Kayuga developments, both situated north of Muswellbrook. Cumnock Coal One of the smaller producers in Australia is Cumnock Coal, which was formed in October 1991 when the Liddell state mine was purchased from the local authority, Power Coal. The company now operates a 5 Mt/year mine in New South Wales and also acquired 160 Mt of reserves adjacent to its existing operations in 1996 with the intention of duplicating its existing open cast, to be followed by longwall underground, operation. Output from the mine is split broadly evenly between steam coal and semi-soft coking coal, some of which is sold as pulverised coal. The company aims to complete long term contracts for about 70% of its production, a factor that could be aided by its major shareholders (see Table 9.2). Table 9.2 Major shareholders of Cumnock Coal Organisation

Business

City Energy Glencore Itochu Shenzen

Taiwanese power company International coal trader Japanese trading house Chinese power company

Shareholding 11.0% 22.9% 10.4% 12.0%

Source: Cumnock Coal.

Rio Tinto Rio Tinto, through its 71% owned Coal and Allied Industries subsidiary, is Australia's largest semi-soft coking coal producer. The

Chapter 9/page 12

# Charles Kernot

World supply

Country

1990

1991

1992

1993

1994

1995

1996

1997

Korea, North

42.70

43.00

43.00

43.50

44.00

44.22

45.86

40.35

Korea, South

17.22

15.06

11.97

9.44

7.44

5.72

4.95

4.51

New Zealand

0.09

0.13

0.18

0.15

0.14

0.14

0.13

0.13

Thailand

0.02

0.02

0.02

0.02

0.01

0.01

0.01

0.01

Vietnam

4.63

4.33

4.79

5.90

5.69

8.35

9.82

10.08

Asia/Australasia

277.73 280.26 281.14 286.96 302.86 327.94 330.31 326.99

World Total

365.30 359.10 360.42 359.40 367.36 388.52 385.93 382.79

1998

Source: Paribas

company has been disappointed for many years with the performance of the mining operations, particularly those in the Hunter Valley region. As a consequence, it has been working hard to improve the profitability of its coal-mining operations through both restructuring and rationalisation and through the disposal of mines where others could extract enhanced operating synergies. As part of this strategy, Rio Tinto withdrew from all of its mining operations in the southern coalfield of New South Wales in early 1991, with the sale of the West Cliff colliery to BHP. BHP's Appin mine is located adjacent to the West Cliff colliery, and the company hoped that operating synergies from combining the two mines would justify the purchase. Rio Tinto also sold its Tahmoor colliery to Austral Coal for A$25 m in 1996. BHP From BHP's perspective, the West Cliff colliery owns its own washplant, which gave it access to the plant enabling it to send washed coal to its Port Kembla steelworks. Both mines operate single longwalls and use continuous miners for development purposes. They employ 400 and 300 individuals and produced 2.25 Mt and 1.52 Mt, respectively, in 1996. The combination of the two collieries also provides easier access to some Appin reserves, whilst also providing scope for an increase in output at West Cliff. BHP is one of the largest coal producers in Australia with 17 mines in the Hunter Valley and Illawarra regions of New South Wales and in the Bowen Basin of Queensland. BHP has maintained coalmining operations in the major Sydney basin since 1925 when it

# Charles Kernot

Chapter 9/page 13

The coal industry

opened its first mine, John Darling, at Belmont, just south of Newcastle. In April 1995 the company acquired 100% of the Mount Owen open pit mine in the Hunter Valley, with a new preparation plant commencing operations in 1996. The move to the Illawarra region occurred in 1962 with the opening of the Appin colliery, followed by the Tower and Cordeaux collieries in the 1970s and the Elouera colliery in February 1993. All of these four collieries are wholly owned by BHP and are located within 40 km of Port Kembla. They produce premium quality hard coking coal together with thermal coal utilising longwall techniques. The coal from these collieries is now supplied to BHP's Port Kembla, Newcastle and Whyalla, South Australia, steelworks as well as being sold into the export market Other Projects In the Hunter Valley of New South Wales, a number of new projects are planned that should lead to an expansion of potential coal production over the course of the next 20 years, together with capital investment to maintain output at existing operations. The local Department of Mineral Resources recently detailed a range of new mining operations and potential production that could lead to an additional 23 Mt/year of output at a capital cost of around A$1150 m, as detailed in Table 9.3. Table 9.3 Recent and proposed expansion projects in New South Wales Mine

Capital cost (A$m)

Production ( Mt/y)

Start-up

370 N/A 25 60 370 200 60 N/A 65

6.0 1.5 2.5 1.5 Up to 8.0 3.0 ± 5.0 Maintain at 6.0 N/A Maintain at 1.5

1998 1997 1997 1998 2000 1998 1998 2002 N/A

Bengala Cumnock expansion Glendell Kayuga Mount Pleasant Nardell Ravensworth West Saddlers Creek Sandy Creek Source: Mining Magazine, June 1997

Chapter 9/page 14

# Charles Kernot

World supply

Queensland BHP Recognising the potential for a major increase in global production of steel in the late 1950s, BHP started an exploration programme for coking coal in central Queensland. This led to the development of the Moura open pit mine by BHP Mitsui Coal (then Thiess Peabody Mitsui but now 80% BHP) in 1961 and the Blackwater mine in the Bowen Basin in 1967 (by Utah Development Company before it was purchased by BHP in April 1984). The Central Queensland Associates (CQCA) joint venture, including BHP with 47.62%, was then formed and now operates the Goonyella, Peak Downs, Saraji and Norwich Park mines, together with the Hay Point Coal Terminal (see Chapter 6). The Gregory joint venture (BHP 58.62%) was formed to operate the Gregory mine that was commissioned in 1979, whilst BHP Mitsui developed the Riverside mine in 1983. There was then little activity by the company opening new operations until the Crinim mine (the only underground mine BHP operates in Queensland) started producing coal in October 1994 and the South Walker Creek mine opened in April 1996. Billiton In 1996 Gencor (now replaced by Billiton) announced a longterm plan to develop the Togara South project in Queensland. The project has since been deferred as a result of low coal prices but has an in situ reserve of 496 Mt within an indicated in situ resource of 1 bn tonnes. The reserves are split into north and south blocks with 190 Mt in the Pollux seam in the north block and 210 Mt in the same seam in the south block. The south block also contains 96 Mt in the Castor seam. Washing the coal should reduce ash to 8% on an air dried basis and gives a CV of 29.5GJ/t, volatile matter of 30.3% and sulphur of 0.33%. The seams are found at depths of 120 m to 300 m and will therefore be mined using underground techniques at an expected rate of 3 Mt/year to 6 Mt/year. MIM It is often the case that mines and power stations are constructed in concert and this is the case with MIM's proposal to develop a 3 Mt/ year coal mine at Wandoan, 350 km north of Brisbane in Queensland.

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The adjacent 700 MW power station will be built by Entergy under a build, own and operate scheme, with first commercial production anticipated in late 2001. The joint development proposal could also lead to wider development of the resources in the Surat Basin/Dawson Valley area as the coal in the region is particularly amenable to liquefaction or coal-to-oil transformation. Rio Tinto In Queensland, Rio Tinto owns 57% of the Blair Athol mine (see Table 9.4), Australia's single largest export coal mine. The mine is also 31% owned by Arco, and 12% owned by the Japanese Electric Power Development Corp and the Japan Coal Department; organisations that procure coal for the public and private power producers in the country, respectively. The mine had a projected ten year life in 1998 and in 2005/6 Rio Tinto is likely to consider developing the Clermont deposit, situated 14 km from Blair Athol, in order to maintain production. The coal seam at Clermont is thinner than that at Blair Athol but, overall, it is a similar deposit with a similar 3 bcm/t strip ratio and a significant resource base. Table 9.4 Major coal mines in Queensland Name

Operator

Owner

Type

Coal

Production Exports (Mt)

(Mt)

Goonyella/ BHP Coal

CQCA

Open Pit

Coking

10.8

7.1

Blair Athol

Riverside

Rio Tinto

Rio Tinto (57%)

Open Pit

Thermal

10.6

10.0

Peak Downs

BHP

CQCA

Open Pit

Coking

7.4

7.1

Tarong

Rio Tinto

Rio Tinto

Open Pit

Thermal

5.3

0.0

Norwich Park

BHP

CQCA

Open Pit

Coking and thermal 5.1

4.8

Saraji

BHP

CQCA

Open Pit

Coking

4.9

4.6

Blackwater

BHP

CQCA

Open Pit

Coking and thermal 4.8

3.2

Newlands

Newlands

Newlands JV

Open Pit and

Thermal

4.6

4.7

Open Pit

Thermal and coking 4.1

1.5

Underground

Coking and thermal 3.6

3.6

Underground Curragh

Arco

Gordonstone

Gordonstone Gordonstone

Arco joint venture

Source: Queensland Department of Mineral Resources.

Rio Tinto also owns the Tarong mine that supplies coal to an adjacent mine-mouth power station. Production from the operation should last for a further 14 years at current rates of output, based on

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mineable reserves of approximately 180 Mt. The mine suffers from a relatively high ash content of 35% ROM, which is washed to 28% before it is conveyed the 2 km to the power station. The Kunioon deposit is situated 15 km from Tarong and also has an estimated resource base of 180 Mt, of which some 70 Mt is recoverable. The deposit may be exploited after the exhaustion of the Tarong reserves or it may be developed more quickly if there is an earlier expansion of the capacity at the power station.

9.2.2

Botswana

Botswana is a small developing country that has a slowly emergent economy. Botswana's hard coal production in 1997 was only 880 000 t, and there is no lignite production in the country. All of this production came from Anglo American's 93% owned Morupule mine at Palapye, which has a capacity to produce at a rate of up to 1 Mt/year. However, Botswana has reserves of up to a massive 12 bn tonnes situated in two separate coalfields: the Morupule Field with reserves of 6±8 bn tonnes, and the Mamabula Field with reserves of around 4 bn tonnes. In the future, Botswana hopes to increase its coal production, and a mining project proposed by Makgadikgadi Investments may help to achieve this goal. At the end of 1996, the company applied for a mining lease covering a 450 Mt coal deposit near Mahalapye with the aim of selling production into South Africa and other export markets. The South African steel and metallurgical companies Iscor and Consolidated Metallurgical Industries expressed an interest in the potential production given its low phosphorus content, as did Eskom. Unfortunately, the lack of significant infrastructure suggests that the project will have to wait for the construction of an upgraded rail link or a locally dedicated power station. Eventually, however, there can be little doubt that Botswana's coal resources will be more actively exploited.

9.2.3

Brazil

Washed coal production in Brazil has increased from 4.7 Mt in 1996 to about 5.6 Mt in 1998, with ROM output of 8.6 Mt in the latter year. Copelmi is the largest producer in the country (see Table 9.5).

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Table 9.5 Run-of-mine coal production in Brazil, 1998 Organisation

Production (ROM tonnes)

Copelmi CRM Metropolitana CCV Criciuma Others

2.2 1.7 1.3 1.0 1.0 1.4

Total

8.6

Source: Mining Journal

9.2.4

Bulgaria

The Bulgarian authorities understand that there is a need for the restructuring of the Bulgarian coal industry as production costs remain unsustainably high at some mining operations, many of which were developed over 50 years ago. Furthermore, other mines are faced with deteriorating geological conditions, declining reserves and also environmental problems. Between 1987 and 1997 coal production costs increased markedly from BGL19.4/t to BGL10 766/t whereas the price of coal rose from BGL13/t to BGL10 639/t. The coal mines have remained unprofitable, but costs of production have increased at a slower rate than the price of coal as a consequence of the concentration on lowcost open pit mining. Indeed, notwithstanding these figures, the Bulgarian coal industry reported revenues of BGL350 bn in 1997 and expenses of BGL313 bn, yielding an operating profit of BGL37 bn. Overall the government is hoping to meet domestic demand for power through an upgrading of energy supply systems, which should lead to an increase in operating efficiency. An increase in industrial energy efficiency is also seen as an important factor in the process, together with the introduction of a market-oriented price and tariff policy and an adjustment of the regulatory framework to promote national priorities. To achieve this goal, the country's coal mines were ranked on a relative basis using a range of performance and other indicators. This included: 1. 2.

the calorific value of the coal the fixed cost ratio (BGL/output)

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3. 4. 5. 6. 7.

extraction or recovery ratios labour productivity available reserves technical condition of the operating equipment the potential for the operation to cut production costs.

Of the 23 mines covered in this ranking only five failed to reach the cut-off point and would therefore be liquidated. The closure of these mines should be offset by a corresponding increase in production at the remaining operations so that total output is maintained at around 30 Mt/year. Some of this increase should come from additional investment in the collieries, which is expected to be provided by a range of sources. In total, the mines are expected to receive US$215 m between 1998 and 2001, of which US$19 m is set to come from the state; US$142 m from mining company funding; and US$54 m from foreign investment. One of the largest mining complexes, the Maritza Iztok open pit operations, is to receive BGL64 bn in order to improve its performance, whilst there will also be a continuous re-evaluation of the performance of the remaining operations. As well as being fed by the Belli Breg and Stanjansti mines the three Maritza Iztok power plants are fuelled from three local open pit mines, which also provide feed for a 1.5 Mt/year briquette facility. In the locality briquettes supply 72% of total domestic heating needs. In total, the complex employs some 20 000 people and the three mines, Trojanovo 1, 3 and North represent Bulgaria's main energy source. The operations cover an area of some 240 km2 and feed the power plants and briquette plant directly by conveyor. The operation started production in 1959 and has so far extracted over 700 Mt of lignite, although remaining reserves are set at about 1.8 bn tonnes. The future of the operation is also dependent on the potential to improve profitability, through reducing the energy consumption of the briquette plant and attempting to increase the demand for briquettes, which has been falling as a consequence of low electricity prices. The Belli Breg mine is located 60 km west from Sofia. In total, the operation produces about 0.5 Mt/year of brown coal or lignite 93% of which is hauled 330 km to the Maritza Iztok power complex. The remaining 7% of the mine's output is sold to the local population for

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60% of the production cost. The high costs of transporting the lignite to Maritza Iztok mean that the operation is unlikely to be turned into profit and it is therefore expected to close. The Stanjansti mine is located close to the border with Serbia and produces some 0.5 Mt/year of lignite from two seams with a total thickness of 20 m. The mine employs 350 individuals, many of whom are employed in pre-stripping operations as the mine suffers from a strip ratio of 5:1. At the current rate of output, remaining reserves of 16 Mt should be sufficient to last for 32 years, although some 200 Mt is thought to lie across the border in Serbia. Border control requirements led to the felling of many of the trees surrounding the mine site and this now means that there is a large flow of water into the open pit. This has also destabilised the pit walls and means that the pit-wall slope is only about 15 ë, increasing the need for stripping. The trucks at the mine are insufficient to cover all of the mining and stripping requirements with the result that the shovels are only operating at their maximum capacity for some 30% of the time available. The lignite is mined with the same shovels, although it is passed directly to an in-pit crusher and transported out of the pit on a conveyor belt. Most of the production from this operation is also railed to Maritza Iztok, which is 340 km distant, and as a consequence this operation is also set to close. The Bobov Dol Mines group operates five underground mines (Babino, Ivan Russev, Minyor and two Mlamolovos), one open pit mine (Hristo Botev) and a central washery together with a nitrogen/ oxygen plant and other service operations. Babino is the only mechanised underground mine and uses longwall equipment from Westfalia (DBT) and Eickhoff. The company also hopes to mechanise the larger of the Mlamolovos collieries when sufficient funds are available. The remaining operations are relatively small and are nearing exhaustion. The group is suffering from low fixed prices for its coal production and the slow erosion of the domestic market as consumers switch to electricity or gas for heating. The coal produced from the operations has a relatively high energy content and is low in suplhur, but the seams are thin and deep, and extraction costs are consequently high. With a total workforce of 7502 in 1993, the number of accidents at 217 was also high and may be one of the reasons behind the high level of absenteeism. In order to improve its

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profitability, Bobov Dol intends to close the Ivan Russev, Minyor and the smallest of the Mlamolovos collieries, together with the Hristo Botev open pit and invest in two new longwall operations at the Babino and larger Mlamolovos collieries.

9.2.5

Canada

Canada produces between 70 Mt and 80 Mt of coal annually, with output mainly concentrated in the west of the country in Alberta and British Columbia (see Table 9.6). About 30 Mt of total production is of metallurgical coal, of which almost all is exported, making Canada the world's third largest exporter of this type of coal. Indeed, about 80% of total coal exports of 36.5 Mt in 1997 was destined for metallurgical applications, whilst the proportion rose to about 83% in 1998 due to lower thermal coal demand. Total coal reserves and resources within Canada are estimated at some 9 bn tonnes and should therefore underwrite a long future for the country's coal-mining industry. Table 9.6 Canada's recent coal production (Mt)

Total

1994

1995

1996

1997

1998

72.8

74.9

75.9

78.7

74.4

Source: Natural Resources, Canada.

In Alberta, a joint venture between Luscar and Consolidation Coal, operating as Cardinal River Coal, plans to construct a new C$250 m coal-mining operation near the town of Hinton. The new operation, to be called the Cheviot mine, is situated 30 km south from the 2.7 Mt/year Luscar metallurgical coal mine, itself 50 km south of Hinton, and is viewed as a replacement operation for Luscar, where reserves are expected to be exhausted by 2003. Luscar itself originally started operation as a steam coalmine in 1921, producing coal for the local railways using underground techniques. Production of coal peaked during the Second World War, but the decline thereafter was rapid as the railways moved to diesel engines for fuel following the discovery of oil in Alberta in 1947. The colliery found a second lease of life in 1969, when it was reopened as an open pit coking coal mine. If approvals are forthcoming, the Cheviot mine would preserve the 450 mining jobs in the district, together with an additional

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450 indirect jobs. The operation would therefore help allay employment fears in Hinton, which has a population of 10 000. However, the development has run into opposition from the Smallboy Cree, a local aboriginal group, and a consortium of environmental pressure groups led by the Sierra Legal Defense Fund. Part of the reason for this is that the Luscar mine is situated 3 km from the Jasper National Park and the Cheviot site is also situated close to the national park. In its defence, Cardinal River Coal has noted that the Cheviot deposit is on Crown Land zoned for coal-mining under all government land-use regulations and that the first leases in the Coal Branch area were granted to the Mountain Park coal mine in 1910. Mining commenced on the property in 1913 using underground techniques but, as with Luscar, it was forced to close in 1950 following the move to diesel engines on the railways. In total, the site covers 7100 ha and contains an estimated resource of 70 Mt, which should be sufficient to support a 20 year life at a projected rate of output of 3.2 Mt/year. Mining will be from a series of open pits using trucks and shovels with some pits mined simultaneously with others. The mine will concentrate on the extraction of the Jewel seam, the same horizon mined at Luscar, which has an average thickness of between 10 m and 12 m, although localised folding has increased the thickness to produce 40 m pods in some places. Coal to be produced from the operation will be separated into four size fractions that will then be washed in either a heavy media bath, heavy media cyclones, a hydrocyclone or combined hydrocyclone/spiral, or froth flotation. A thermal dryer, which is able to generate 40 t/hour of water, is also included in the design plans. Finally, the process plant will have a storage facility capable of holding 48 000 t and the clean coal facility 50 000 t, with a batch weight loadout facility capable of loading 4 550 t/hour. Manalta Coal was purchased by Luscar in 1998, increasing the production of the combined entity to some 41 Mt, or 55% of Canada's 1998 output. Total reserves and resources of the group are estimated at over 1.6 bn tonnes. Prior to the takeover, Manalta Coal was investigating the economic potential of a new open pit coal mine at Telkwa in northern British Columbia, between Prince George and Prince Rupert, which should operate at a rate of some 1.5 Mt/year. The plan envisaged that the mine would be managed as a truck

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and shovel operation and have an associated washplant, which should mean that a high BTU, low ash and 1% sulphur bituminous coal could be produced from reserves of 46 Mt. Production of the coal was anticipated from May 2000 at a cost of C$90 m, of which C$45.8 m was for infrastructure and C$44.1 m for equipment. If the company can move some equipment from its Gregg River mine, then the total capital cost should be reduced to about C$73.2 m. Teck Corporation, the diversified mining group, operates three coal mines in British Columbia. The Quintette operation, located near Tumbler Ridge, is the largest of these with output of 2.9 Mt of high quality coking coal in 1998. Given the structural complexity of the deposit production is sourced from three open pits and then conveyed 13 km to a wash plant. The mine has suffered considerably from high costs and low profitability from when it was first opened by a consortium of Japanese steel producers in 1984. These problems came to a head in 1991 when the company was forced to seek protection from its creditors and, as part of the restructuring, Teck took over management and then acquired a 45% interest in 1992. Unfortunately, the mine was unable to repay its debts during the 1990s, leaving it financially exposed for a second time. In this instance the decline in the Japanese benchmark coking coal price for the 2000±01 contract year from US$41.90/t to US$39.75/t proved the catalyst for Teck to announce an early closure of the operation in August 2000, even though it had contracts to supply coal that lasted until 2003. The immediate problem for Quintette was losses estimated to exceed C$1.0m/month even though recoverable coal at the end of 1998 was estimated at 18 Mt. The closure of the mine will lead to the loss of 500 jobs and may also jeopardise the future of the 1.5 Mt/year Bullmoose mine which shares railway infrastructure with Quintette and may face increased charges from BC rail. Output from Bullmoose is sold to a consortium of Japanese customers on a contract that extends to 2003. Teck's third coal mine is at Elkview, near Sparwood in the southeast of British Coumbia, and produces about 3 Mt/year of metallurgical coal from reserves that are sufficient to cover a 30 year life. Mining is by truck and shovel from 11 seams that vary in thickness between 2 m and 15 m and are exposed in a number of open pits. The coal is then crushed and washed before export through the Roberts Bank coal terminal in Vancouver.

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The Willow Creek joint venture was set up to undertake feasibility studies and environmental impact assessments into potential deposits in the north-east of British Columbia. Production was expected in the first quarter of 1998. The members of the joint venture are Pine Valley Coal, Globaltex and BC Rail, whilst Mitsui Matsushima will have worldwide marketing rights for the production over the life of the project. In total, the operation has reserves of 27 Mt of metallurgical and thermal coal, with additional potential for more reserves in the future. The property is situated 45 km west of Chetwynd and is to be mined using open pit techniques to extract the coal from eight separate seams at a rate of 600 000 t/year. Quinsam Coal is expanding its operation on Vancouver Island. This mine is jointly owned by Hillsborough Resources and Marubeni Coal Canada. Production is expected to increase to some 1.5 Mt/year of clean coal in comparison with previous output of about 590 000t/ year. Finally, Fording Coal, a subsidiary of Canadian Pacific produces at a rate of around 15 Mt/year from its British Columbia operations but also produces coal in Alberta, giving total production of over 20 Mt/year of both thermal and metallurgical coal. The company exported some 14.4 Mt in 1997, to a wide range of customers spread around the Pacific. The company's largest operation is the Fording River mine in Elkford, British Columbia, where it also owns the Greenhills mine. It is expanding its Coal Mountain mine at Sparwood in the south-east of the province to around 2.5 Mt/year from the previous rate of 1.8 Mt/year.

9.2.6

China

Chinese coal mines now employ fewer people than in the past, following an ongoing restructuring programme as the industry prepares for privatisation. Indeed, the total workforce in the industry is estimated to have fallen by 840 000 between 1993 and 1998, whilst production continued to grow due to the investment in large and more efficient mining operations. Nevertheless, in 1996, a total of 38 out of the 93 major state-owned coal mines reported losses indicating that further restructuring is required. China has huge reserves of the commodity and output is broadly

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in balance with demand, although a lack of sufficient energy supplies has been one of the reasons why the country's industrial growth rate has slowed in the past. Recent Chinese coal production, which reached 1.33 bn tonnes in 1997 and slipped to 1.3 bn tonnes in 1998, is shown in Fig 9.1. In 1997 China's Ministry of the Coal Industry recommended 11 coal projects for foreign investment, most of which involved the expansion and redevelopment of existing coal-mining operations in Anhui, Shanxi, Shandong, Henan, Hebei and Guizhou provinces. Foreign investors were also interested in investing in the Jungar coalfield of Inner Mongolia and third phase of the Pingshou coalfield in Shanxi, the Huqiao mine in Anhui and the Xiangshui mine in Guizhou. The listing of the Yanzhou Coal operations was ultimately achieved in early 1998, whilst a 720 km pipeline to move liquefied lignite at a cost of US$450 m remains on the drawing-board. As part of the reform of the public sector, China dissolved the Ministry of the Coal Industry in March 1998 and replaced it with the National Coal Industry Bureau. The Bureau and the State Economic and Trade Committee are now jointly responsible for the planning, regulation and administration of China's coal industry, although there is now no direct management of coal enterprises under the jurisdiction of the Bureau. These moves should provide a greater autonomy to the coal industry that could enhance future profitability within a freer market.

9.1 Chinese coal production 1990±99 (source: China Coal Industry Yearbooks; Author)

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Private and collectively controlled mines increased production at a compound rate of 11% per year between 1979 and 1993, whereas state mines increased output by only around 2%, and local authority controlled mines by a meagre 1.1% over the same period. Washing of coal is increasing within China due to the need to produce a higher quality product, particularly for the export market. A total of 300 Mt is now washed annually with plans to increase this to 500 Mt by 2000. Raw coal production by province and ownership of operation is shown in Table 9.7. All coal producers in China will be affected by the downturn in the domestic economy in 1999 and will be more dependent on the outlook for the longer-term future of the country and the prospects for the international market. The Chinese government also intends to close down 25 800 small and mostly inefficient mines out of a total of some 75 000 operations in township and rural areas. These closures were expected to cost some 400 000 jobs and lead to a reduction in coal production in China of around 250 Mt/year by the end of 1999. Yanzhou Coal Yanzhou Coal is China's most profitable coal-mining company. In 1998, it generated net sales of RMB3.7 bn (US$445 m) and net income after tax of RMB817 m (US$99 m). Its raw coal production during the year was 20.69 Mt, with sales of 20.28 Mt, an increase of 33.9% over 1997 sales of 15.15 Mt. The company owns and operates five mines: Nantun, Xinglongzhuang, Baodian, Dongtan and Jining II. They are currently operating well above their combined designcapacity of 16.4 Mt and have total proven and probable reserves of 1957 Mt ± sufficient to maintain output at current rates for almost 100 years. The coal produced from the company's operations is generally prime quality low-sulphur coal. One of the products from the mines is a low-ash coal, which can be reduced to as low as 6% if required by customers. Yanzhou produces both coking and thermal coal for use in metallurgical and heating applications, respectively. Customers for Yanzhou Coal include local power generators within China. These are mainly located in the east of the country in view of the concentration of industry in the region and the ease of transport. Major internal customers are Shanghai Baoshan Iron and Steel, and Zouxian Electric Power, whilst major overseas customers are Tokyo Electric Power and Nippon Steel.

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Table 9.7 China ± Raw coal output by province and operation (1991, Mt) Province

State mines

Collective mines

Other mines

Total

Shanxi Henan Heilongjiang Sichuan Hebei Shandong Liaoning Inner Mongolia Guizhou Hunan Shaanxi Anhui Jilin Jiangsu Yunnan Jiangxi Xinjiang Other Provinces

113.8 41.3 50.3 17.9 38.9 33.4 39.3 27.6 10.9 3.0 14.3 22.9 13.1 17.2 2.6 6.8 0.4 26.9

132.0 29.1 22.7 31.5 9.9 11.3 9.9 11.1 8.5 14.0 13.6 3.4 7.8 3.1 10.8 0.7 7.1 29.4

42.8 19.3 12.1 19.6 12.6 15.8 3.1 10.5 17.8 16.1 5.0 4.5 4.7 4.4 8.5 13.7 13.6 23.7

288.6 89.7 85.1 69.0 61.4 60.5 52.3 49.2 37.2 33.1 32.9 30.8 25.6 24.7 21.9 21.2 21.1 80.0

Total

480.6

355.9

247.8

1084.3

Source: Mining Magazine.

In recent years Yanzhou has seen a dramatic increase in its coal production and this has enabled it to reduce its unit costs of production and weather the economic typhoon that has swept through the Asian Pacific Rim. Whilst the typhoon led to a fall of around 15.3% in the average unit price received for the company's coal, the decline was more than offset by improved productivity and cost reduction. During 1998, Yanzhou reduced the amounts spent on materials and electricity. The increase in the VAT export rebate rate from 3% to 9% also helped to reduce costs as the country attempted to encourage exports. Despite lower sales prices, Yanzhou remained a strong cash generator ± and saw a cash inflow from operations of RMB1.5 bn in 1998 (US$184 m). An equity issue during the year raised an additional RMB2.4 bn, which was broadly similar to the RMB 2.3 bn applied to the acquisition of the Jining II coalmine. As a consequence, Yanzhou was able to repay borrowings of RMB1.2 bn during 1998. In order to offset low prices, Yanzhou Coal is planning to maintain its commitment to its three core strategies. These are:

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1. 2. 3.

the continuing increase in production in order to attempt to reduce unit production costs a concerted attempt to reduce unit costs over and above that achieved through production increases expansion through acquisitive rather than organic growth.

The method of cost reduction will be reliant on a number of factors, not least further reductions in the workforce as productivity improvements are implemented and achieved. The company also hopes to reduce its material and electricity costs through the purchase of more efficient mining equipment. In addition to the potential for domestic acquisitions, Yanzhou Coal is also scouting the world looking for overseas opportunities. Any purchases will be looked at in terms of the potential return on investment that they could generate. In 1999, total coal production from the company is expected to increase further as a result of the continuing build-up of output at the Jining II operation. Here production should reach 3.2 Mt, in comparison with the 1.8 Mt mined in 1998. Output from the company's other four mines is also expected to improve as further productivity gains are achieved. In total, the company has signed sales contracts for 24.98 Mt over the year with a mix of domestic power generators and export customers taking the bulk of the increase. Sales volumes should also increase as a result of: 1. 2.

a strengthening and expansion of the sales force in eastern China the construction of coal blending plants in major coalconsuming areas such as Shanghai, Xiaoshan and Zibo in order to ensure that coal supplied to customers more accurately meets their requirements.

The need to concentrate on domestic sales is indicated by the large fall in domestic sales of No 2 Clean Coal for thermal use in 1998 in comparison with 1997. The company also intends to improve its export sales allocations and strategies in order to ensure that it maintains its customer base in the region. The fall in No 2 Clean Coal sales came about as a result of the switch to lower quality products that was made by Yanzhou's customers and is shown by the large increase in the level of sales of

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Screened Raw Coal. The significantly lower sales price of RMB159.54/t for Screened Raw Coal in comparison with the price of RMB232.65/t for No 2 Clean Coal on the domestic market indicates why this switch occurred. Moreover, the No 2 Clean Coal price compares with a level of RMB274.73/t achieved in 1997. At the same time as the switch to lower quality coals, the company suffered as the rate of economic growth in China slowed and led to a corresponding decline in demand for coal. The increased competition led to a decline in coal prices as producers attempted to attract customers. In the export market, Yanzhou suffered as a result of the decline in international coal prices. This was also compounded by the move to sell more export material on the spot market where prices are generally lower than those that can be achieved with longterm contracts. The sales split achieved by the company is detailed in Table 9.8. Domestically, the company sells the bulk of its output to electricity generating stations, with metallurgical coal accounting for the next most important part of its business. The company also sells a large proportion of its output to intermediaries ± fuel trading companies Table 9.8 Yanzhou Coal production and sales Year end 31 December

1992

1993

1994

1995

1996

1997

1998

1999E

2000E

Nantun

2.41

2.62

2.89

3.59

3.95

3.91

3.91

3.91

3.91

Xinglongzhuang

2.97

3.11

3.85

3.83

4.03

4.11

4.11

4.11

4.11

Baodian

2.43

2.72

3.33

3.6

4.08

3.97

3.97

3.97

3.97

Dongtan

1.98

2.46

3.51

3.84

4.73

4.89

4.89

4.89

4.89

Jining II

0.00

0.00

0.00

0.20

0.40

0.80

1.80

3.20

4.00

Jining III

0.00

0.00

0.00

0.00

0.00

0.00

0.00

1.00

3.00

Total production

9.79

10.91

13.58

15.06

17.19

17.68

18.68

21.08

23.88

No 1 clean coal

0

0

373

804

578

342

324

422

478

No 2 clean coal

0

0

2741

4972

5560

7298

8121

9591

10865

Screened raw coal

0

0

6926

7418

7359

5209

10398

9486

10746

Mixed coal and others

0

0

1053

1398

1953

2298

1438

1581

1791

7862

11256

11091

14593

15449

15146

20282

21080

23880

Production (mt)

Output sold (000t)

Total sales

Source: Yanzhou Coal and Paribas estimates.

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and other markets, and some of these sales may be destined for the international market. Exports of coal, however, account for the single largest area of sales by the company, although this includes coals used in different applications. In terms of the geographic split, the bulk of Yanzhou's coal is sold into eastern China, with Shandong Province (where thecompany is located) accounting for the largest proportion of sales ± even ahead of the export market. Finally, a relatively small proportion of the company's sales is made into the south of the country. Other coal-producing companies Yitai Coal is China's second quoted coal-producing company, but is much smaller than Yanzhou in terms of production. Total output in 1997 was only 0.5 Mt from the company's mines in Inner Mongolia, although sales were 2.6 Mt as it also purchases coal from small local producers for re-sale. In 1998/99 the company planned to increase production to 1.5 Mt. Finally the Pingdingshan Coal Group operates 12 coal mines which produced 20.8 Mt of coal in 1995, of which 3.7 Mt was washed. The coalfield where the company is based has reserves and resources of 7.6 bn tonnes, which includes good quality coking coal.

9.2.7

Colombia

Total coal reserves and resources in Colombia are thought to exceed 20 000 Mt. In 1995, Colombia produced 20 Mt of coal, up from 17 Mt in 1994, with coal providing the third largest source of foreign exchange income after oil and coffee. A massive 50% increase to 30 Mt was achieved in 1996, of which some 25 Mt was exported, and further production expansion to some 50 Mt/year is anticipated by 2005. The increase in production is set to come from investments by Drummond Coal and a three-way joint venture between Anglo American, Glencore and Billiton. This joint venture was formed following a number of separate transactions and is a further example of the global consolidation of the industry. The deal is the first coal-mining acquisition that Anglo American is making outside South Africa and covers the CerrejoÂn project in the Guajira region of northern Colombia. The first transaction resulted in Minorco and Anglo Coal acquiring a 25% interest in the CerrejoÂn Centrale open cast coalmine. The joint venture partner in this

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transaction was Glencore with a 50% interest. The cost of the initial purchase was US$230 m and a further US$30 m was estimated as the cost of upgrading the existing infrastructure between the mine and the port. The second deal led to the merger of the CerrejoÂn Centrale and Oreganal coalmines, the latter being wholly owned by Rio Tinto. As a consequence, Glencore, Rio Tinto and Anglo Coal owned a one-third stake in the joint venture, with Anglo Coal acting as operator although Rio Tinto's interest was purchased by Billiton in May 2000. In 1997, Colombia, through the state coal-mining company Ecocarbon, awarded a contract to develop the CerrejoÂn South block of coal to the joint venture partners. The 30 year contract formed part of the government's plan to privatise the industry and required that the winning consortium undertake geological investigations in order to outline a significant coal reserve. The CerrejoÂn South block adjoins the CerrejoÂn Centrale and Oreganal blocks, which the consortium members already controlled, and the deal therefore represented a further consolidation of coal-mining activities in the region. Combined coal reserves at the CerrejoÂn Centrale and Oreganal properties are of the order of 485 Mt to a depth of 200 m, although the coal continues at greater depth. Additionally, the CerrejoÂn South property contains an estimated resource of 300 Mt. The potential profitability of these operations has been enhanced by the agreement in early 1999 on third party access to the existing rail infrastructure between the mine site and Puerto Bolivar. As a consequence of the deal, the partners will save on the cost of trucking export coal 300 km to the port at Santa Marta. The US$152 m fee for providing rail access was reached with CerrejoÂn Norte's 50% owner and operator, Exxon and the Colombian government, which owns the other 50% through Carbocol, the Colombian government's coalmining organisation. It is Colombia's largest coal mine and produced 15.4 Mt in 1998, in comparison with 13.8 Mt in 1997. The joint venture partners completed a pre-feasibility study into the construction of a 16 Mt/year mine at the first two properties in October 1998. However, with the addition of the CerrejoÂn South property the longer-term plans will almost certainly include a major increase in output. Nevertheless, in view of the uncertainty in the international coal market, they are taking time to develop the operation and are now undertaking a study to expand output from the current 1 Mt/year to between 7 Mt/year and 10 Mt/year by 2003.

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Ecocarbon has also awarded licences to the Guaimaral and El Descanso properties to Drummond Coal of the United States. Drummond already has operations at La Loma in the northern Cesar Province of the country and produced 4.1 Mt of coal in 1996, which then rose to 6 Mt in 1998 from reserves of 450 Mt. Further investment, which would take the total spent by the company in Colombia to US$1 bn is expected to increase output further to 10 Mt/ year by 2000 and has a final target of 12 Mt/year.

9.2.8

Czech Republic

The Severoceske Doly (SD) coal-mining company in Chomutov mined 21.6 Mt of coal in 1995 in comparison with 21.2 Mt in 1994 and generated profits of US$28 m during the year. The coal is produced from two mines, Doly Bilina and Doly Nastup Tusimice and a workforce of 9000. The productivity of the combined operation is therefore 2400 t/man-year. The company's largest customer is the state power company, CEZ, which buys over 75% of SD's output. Future demand is therefore likely to be closely related to the health of the Czech economy.

9.2.9

Germany

Due to union militancy, German coal is very heavily subsidised by the German government. In the early 1990s, the level of subsidies equated to a German cost of production of some US$285/t compared with a cost of some US$65/t in the United Kingdom, which was Europe's other major coal producer at the time. German coal industry subsidies are shown in Table 9.9. In the future, the level of subsidies on German coal is set to fall and this is expected to lead to a marked reduction in the country's deep mined production of hard coal from the 1998 level of 42 Mt to only 30 Mt in 2005. The subsidy was DM9 bn (US$4.7 bn) in 1997 and supported an industry that employed some 90 000 people. After 2005, Table 9.9 Subsidies for the German coal industry Year

1980 1986 1990 1992

1994 1995 1996 1997 1998 1999 2005E

Subsidy (DMm) 4470 4563 8599 8401 14679 9165 10455 10470 6263 9193 5300 Source: Financial Times; Paribas

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the subsidy is set to fall to the equivalent of DM3.8 bn (US$2 bn) but this outraged IG Bergbau, the main coal-mining union, which countered with a request for DM6.5 bn ± sufficient for 12 collieries, employing 50 000 people. Ruhrkohle, or RAG, is 37.1% owned by Veba, the German electricity generating conglomerate, 21.95% owned by VEW Energie and 12.7% owned by Thyssen. Rheinbraun is Germany's major lignite producer and is a wholly owned division of RWE, also an electricity generating company. In 1993, the German government subsidy to the indigenous coal industry accounted for 70% of the US$9.5 bn paid by various governments to support local energy producers. In 1997, the government subsidy was equivalent to DM130 000/employee. In 1996, Rurhkohle purchased the German government's 76% stake in Saarbergwerke, which was said to be worth DM1.00. The efficacy of combining the two mining companies was enhanced by the potential ability to cut costs of production by DM40 m/year. This, together with continuing state subsidies, which in 1995 were of the order of DM10 bn for Ruhrkohle's 14 mines, which produced 43 Mt and sold 48 Mt, and Saarbergwerke's three mines, which produced 8.2 Mt and sold 7.9 Mt, should be able to cover mine closure costs. Preussag Anthrazit was also reversed into the new organisation with its production of 1.7 Mt/year. This colliery has a long-term contract to supply RWE's Ibbenbueren power station with 0.8 Mt/year of coal with a top-up option of a further 0.2 Mt. The colliery's reserves are around 26 Mt and should be sufficient to continue supplying the 700 MW power station over its remaining life as it is expected to close in 2016. With production of 166 Mt in 1998 Germany is also the largest lignite producer in Europe, with the bulk of production consumed in the domestic power industry. The Rhineland region is the country's major producing area with 1998 output of 97.4 Mt, whilst the Lusatian region has seen production fall from 195.1 Mt in 1989 to only 50.5 Mt in 1998 as a consequence of structural adjustment programmes implemented since reunification. Lignite production in central Germany has also suffered a dramatic decline from 105.7 Mt in 1989 to 13.6 Mt in 1998, although increasing demand means that future output may increase to 20 Mt/year. Other producing areas include Helmstedt, Hesse and Bavaria, but combined output from these regions is only 4.6 Mt or 3% of total German lignite production.

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9.2.10

Hungary

Current forecasts indicate that by 2010 only one colliery will be left in operation in Hungary, at Bakony in the Ajka coal region, which has reserves sufficient to last to 2015. Lignite reserves in Hungary are estimated to be 7.9 bn tonnes, but there are no plans to increase production capacity above the current 15 Mt/year level of output.

9.2.11

India

India's coking coal mines were nationalised in May 1972 and the non-coking coal operations in May 1973. Since then, the country's coal-mining industry has remained largely state-controlled ± under the management of Coal India Limited (CIL) and Singaremi Collieries Company Limited (SCCL). CIL was formed in 1975 and is structured as a holding company, controlling nearly 90% of India's hard coal production through seven operating subsidiaries and one research department. These are Bharat Coking Coal, Central Coalfields, Eastern Coalfields, Mahanadi Coalfields, Northern Coalfields, South Eastern Coalfields and Western Coalfields as operating subsidiaries, and Central Mining and Design as the research and development function. SCCL produces about 10% of the country's output of coal, with the remainder supplied by the captive production of Tata Iron and Steel, Indian Iron and Steel and two other smaller producers. There was a change to background legislation in India in 1997 when the government proposed an amendment to the Coal Mines (Nationalisation) Act 1973. This had the effect of opening up coal and lignite mining to private Indian companies for captive consumption and sale. This process is to be handled by a new independent body which can encourage exploration for coal and lignite, and can allocate exploration blocks to potential miners on the basis of a competitive bidding process. At the same time, the government removed price regulations on D-grade non-coking coal, hard coke and soft coke but allowed CIL and SCCL to fix the prices of E, F and G grade non-coking coals until January 2000. Very little coal is sent for export except for some sales to Bangladesh, Bhutan and Nepal, with the majority of the country's output consumed in the domestic market. Although total hard coal production in India is some 300 Mt/year, only about 13% is suitable for use in the domestic metallurgical industry, requiring metallurgical

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coal imports of about 10 Mt/year, mostly from Australia and China. Indeed, increasing domestic consumption (see Chapter 11) and the large capital cost of increasing state-controlled production are behind the legislative changes in 1997 as private sector entry is considered unavoidable. The alternative would be to increase imports of coal to the country's coastal regions, which would damage India's trade balance. The poor situation in the industry has also been exacerbated by the delays in the payment to coal-mining companies from the State Electricity Boards (SEBs). This situation reached a climax in 1999 when CIL's Eastern Coalfields subsidiary closed 32 loss-making collieries. Conversely, Mahanadi Collieries, which operates in the Talchev and IB Valley coalfields in Orissa, has announced plans to increase production by 88 Mt/year by 2006/7. One of the problems faced by the industry has been the trade-off between output and quality, and this has seen ash contents rise to as much as 35% ± causing severe problems to domestic electricity and steel producers. The decision not to purchase sub-standard coal by a range of consumers also meant that pit-head stocks of coal built to very high levels in the late 1990s, with a consequent loss of revenue by coal producers, further exacerbating their problems. Production of coal in India has also suffered from a lack of investment in new plant and equipment and, as old machines have become worn out, productivity has suffered. This has been the case in the Central Coalfields region where much of the equipment was purchased at the time the mines were constructed in the 1950s and 1960s. As Table 9.10 shows a relatively large proportion of India's underground coal mines still use bord and pillar techniques, which also tend to reduce productivity. This is apparently related to poor geology, which means that longwall mining is less efficient, although the high availability of labour may also have some bearing on the choice of mining techniques employed. Recently updated resource statistics indicate that India has around 206.2 bn tonnes of hard coal resources to a depth of 1200 m, making the country one of the best endowed in the world. Within this total, some 33.9 bn tonnes is classified as high grade coking coal for metallurgical applications, with the remainder for use as thermal coal. The current estimate of recoverable reserves is some 14.9 bn tonnes, of which 7.6 bn tonnes is attributable to CIL and SCCL and 7.3 bn tonnes is attributable to captive power producers.

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Table 9.10 Estimated production by mining method from India's coal mines (Mt) Technology

Company

1996/97

1997/98

1998/99

Opencast

CI SCCL Total

195.0 14.1 209.1

201.5 14.7 216.2

211.0 15.6 226.6

Underground Bord and Pillar

CIL SCCL Total

35.2 10.9 46.1

34.5 11.1 45.6

34.0 10.9 44.9

Conventional Longwall

CIL SCCL Total

0.5 0.0 0.5

0.4 0.0 0.4

0.4 0.0 0.4

Mechanised Bord and Pillar

CIL SCCL Total

18.0 0.9 18.9

19.1 0.9 21.0

21.6 0.9 22.5

Mechanised Longwall

CIL SCCL Total

2.9 3.6 6.5

3.6 3.7 7.3

4.4 4.2 8.6

Special Method

CIL SCCL Total

0.5 0.7 1.2

0.5 0.7 1.2

0.6 0.7 1.3

Total U/G

CIL SCCL Total

57.0 16.1 73.1

59.0 16.3 75.3

61.0 16.4 77.4

6.8

7.1

7.2

252.0 36.2 6.8 289.0

260.5 31.0 7.1 298.1

272.0 32.0 7.2 311.2

Others Grand Total

CIL SCCL Others Total

Source: Minerals and Metals Review, January 2000.

The four north-eastern states of Arunachal Pradesh, Assam, Meghalaya and Nagaland account for the bulk of the resources in India, of which 411.4 Mt are designated as proven and 80.11 Mt as indicated. Total resources in Meghalaya are 459.4 Mt, with Assam's resources at 320.2 Mt, making the total resources in the region some 900 Mt. The Gondwana belt, including Bengal, Bihar and Orissa account for about 2.0 bn tonnes of the country's coal resources, with the Dhanbad district of Bihar the country's only known source of coking coal. The total level of lignite resources in India amounts to around 24.4 bn tonnes, of which the bulk is located in Tamil Nadu (21.8 bn

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Table 9.11 Indian lignite resources State

Million tonnes

Tamil Nadu Rajasthan Gujarat Jammu & Kashmir Kerala Other

21 806 1 431 932 128 108 4 953

Total of which proved

29 360 2 683

Source: Minerals and Metals Review.

tonnes) (see Table 9.11). The state produces around 20 Mt/year of lignite, which accounts for some 90% of Indian lignite production. Only a small proportion of this lignite is extracted for electricity production, although a number of plants are expected to use it to feed the expansion of electricity generation within the country. In Rajasthan, lignite is the only potential source of fuel, with the bulk of resources in the Bikaner, Nagaur and Barmer districts, and the high cost of transporting coal to the state is encouraging the development of its indigenous resources. Six deposits in Rajasthan with combined resources of 59 Mt have been earmarked for development to supply new electricity generating plants in the state. Increased steel production in India is expected to lead to greater demand for domestically produced metallurgical coal. This demand is set to be met from greater utilisation of the underground coking coal mines in the Jharia coalfield, the development of new mines in the Kedla-Jharkhand region and rationalisation of mines in the North Karanapura region. Moreover, captive producers in the steel industry may also attempt to increase production of coking coal now that the government has liberalised the industry, although imported coking coals may also be competitive in view of internal transport constraints.

9.2.12

Indonesia

Indonesian coal production has been on a steeply rising trend over the past decade as new mines have been brought to production and have been directed at the export market as a consequence of the slow growth of internal demand for the fuel. Indeed, production

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doubled between 1991 and 1993 to 28 Mt/year and by 2010 some forecasts expect output to have increased to 65 Mt as Indonesia joins Colombia and Venezuela and attempts to break into the international coal market. PTBA, the state-owned coal producer that is set for privatisation in 2000, is the only company with mine production on Sumatra (see Chapter 2). The company has been restructuring in the run-up to privatisation and this has improved the productivity of its Tanjung Enim mining operations. Reserves are in the region of 5 bn tonnes, which underwrite production at the current rate of 9.8 Mt/year and should enable future expansion of the operations up to 16 Mt/year by 2003. By this time, the expansions underway at other producers should mean that total Indonesian production exceeds 100 Mt/year, of which 70 Mt should be available for export. In September 1991, Rio Tinto and BP opened the Kaltim Prima coal mine 200 km north of Balikpapan on the island of Borneo under a 50:50 joint venture. The mine initially produced at a rate of some 7 Mt/year and had an immediate impact on the price of coal in the Asian market. Output has since been expanded and is currently of the order of 15 Mt/year and is set to increase to a maximum of around 22.5 Mt/year. In line with the mining expansion, the operators are planning to increase their fleet of more than 20 shovels and 150 haul trucks. The fleet moved around 280 Mt of overburden in 1997 and was set to move over 300 Mt in 1998 for a waste to ore ratio of over 20:1. The joint venture also owns a number of satellite resources that are currently being investigated. One, at Bengalon, is situated some 39 km north of the existing mining operations but has the potential to contribute some 7.5 Mt/year to Kaltim Prima's output. Marketable reserves at Kaltim Prima were estimated at 316 Mt at the end of 1996. Under the original agreement with the Indonesian authorities, BP and Rio Tinto had to sell a 15% interest in the mine to Indonesian investors or float it on the Jakarta stock exchange within five years of the start of operations. This sale was delayed as new regulations were to be introduced in 1996 that could have extended the period of full ownership to 15 years. These new regulations could not be introduced as a consequence of other problems within the Indonesian mining sector, most notably the Bre-X scandal, and so the sale was delayed. The overall structure of the disposal agreement is not unusual in the

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country, and was instigated to promote domestic ownership of industry. A similar agreement was structured for the original Erstberg copper/gold-mine controlled by Freeport McMoRan Copper and Gold. PT Adaro also commenced operations from its coal deposit, situated at Tanjung in central south Kalimantan province in the early 1990s. The coal at this location is found in a series of seams ranging between 10 m and 70 m thick and the total resource is estimated to be of the order of 2 bn tonnes, with reserves of 920 Mt at a strip ratio of 3 bcm/t. The coal finds a ready market because it contains only 1% sulphur and produces 1% ash, although this is at the penalty of a 24.5% moisture content, which reduces the calorific value to 5300 kcal/kg. Nevertheless, this enables the company to market the coal under the `Envirocoal' brand name. Commercial production commenced at 2.5 Mt/year in 1994 and has since been expanded to 11.2 Mt in 1998. The company planned sales of nearly 15 Mt in 1999 and expects at least 20 Mt in 2001, following the completion of longterm supply contracts with a range of consumers. BHP also uses an environmental association to market the `Ecocoal' produced by its 80% owned Arutmin operation in southern Kalimantan. The coal has 0.15% total sulphur and a maximum ash content of 3.9%, whilst the moisture content at 35% as received is even higher than Envirocoal's 24.5%. Consequently, the gross calorific value of the coal is 5000 kcal/kg. This mine commenced operation in 1989 and was the first major foreign investment in Indonesia's coal-mining industry, but started a rush of other companies to the country that is behind the large increase in output (see Fig. 2.3 in Chapter 2). Total reserves in the Arutmin lease area were initially 170 Mt of thermal coal and over 250 Mt of lignite, although they have been increased further by subsequent exploration. Production capacity at the mine was originally 2 Mt/year but has steadily been expanded to the level of 6.3 Mt produced in 1998. Output in 1999 should be between 7 Mt and 7.5 Mt whilst sales benefit from the company's dedicated Capesize coal terminal, which can accept vessels of up to 320 m LOA and 47 m beam. PT Berau Coal commenced mining at its Kalimantan operations, 300 km north of Balikpapan, in 1994 when it produced 0.3 Mt. Production has since expanded to some 7 Mt, whilst the company has

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long-term plans to produce 18 Mt in 2005. Finally, Morrison Knudsen has won a mine management contract to develop the 4 Mt/year Bontang mine in east Kalimantan from PT Indominco Mandiri. Production for export markets was scheduled to commence in 1998.

9.2.13

Kazakhstan

Coal production in Kazakhstan was about 72 Mt in 1998, down from over 130 Mt in the 1980s as a consequence of rationalisation and restructuring. Total reserves and resources within the country are estimated to be over 30 bn tonnes, mainly in the Ekibastuz, Karaganda, Maykuben and Turgay basins. About 50 Mt/year is consumed internally, with the remainder exported to Russia and other CIS countries. There have been many changes of ownership amongst the 400 plus coal deposits and mines within Kazakhstan in recent years, with some sales contracts annulled by the government. Nevertheless, the major Ispat steel group appears to have consolidated its purchase of 15 coal mines in the coking coal Karaganda region.

9.2.14

Kyrgyzstan

The Kyrgyzstan coal industry has undergone a substantial restructuring since the collapse of the Soviet Union. This has seen the number of coal mines fall from 20 to 13 and the number of employees decline from 13 000 to around only 3000, whilst production in 1998 was around only 0.4 Mt. Nevertheless, coal reserves and resources are estimated to be some 3.9 bn tonnes, of which mineable reserves total 1.3 bn tonnes (1.1 bn tonnes of brown coal and 0.2 bn tonnes of hard coal).

9.2.15

Mexico

Mexico's coal production is dwarfed by that of its northern neighbours, although the country is still in the top 30 countries on a global scale. Total production in 1997 was some 11.6 Mt, with the largest amount of production mined by Mineral Carbonifera Rio Escondido (MICARE) and Minerales Monclova (MIMOSA), both of which are owned by Grupo Acerero del Norte, the Mexican steel producer. MICARE produces steam coal at a rate of some 7.1 Mt/year from two

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open pit and three underground mines in the Sabinas and Fuentes-Rio Escondido basins, where it has total reserves of over 200 Mt. MIMOSA produced about 4 Mt in 1997 from five underground mines in the Sabinas region. In 1998 the company also opened a new operation Mina 3 in Coahuila, which should produce about 2.2 Mt/year of coking coal from reserves of 31 Mt. This level of output should be sufficient to meet 30% of the requirements of Altos Hornos de Mexico. Coking coal is also produced by Carbonifera de San Patricio from three underground mines in the state of Coahuila. Total production from the company following the opening of a new operation should be about 550 000 t/year.

9.2.16

Mongolia

Coal-mining remains an important part of the Mongolian economy as the fuel represents the major source of energy available to the country, a situation that appears unlikely to change in the foreseeable future. Indeed, most coal is consumed in the 540 MW Ulan Bator No 4 power station, one of three stations feeding Ulan Bator, the capital. Other provincial centres have either coal- or dieselfired generating stations, although there is a need for additional capacity as existing output is insufficient for local demand. Total reserves and resources are estimated to be in the region of 100 bn tons, of which some 20% is hard coal and 80% is lignite. This coal is contained in 200 known deposits, of which only 42 have been surveyed. Only 17 of the deposits are currently mined, producing around 7 Mt/year, which remains more than required for domestic needs and the balance of which is exported to Russia in return for electricity. Total coal exports were 490 200 t in 1990 but following the collapse of the USSR they fell to 90 000 t in 1991 and only 78 100 t in 1992. The main coal mine in Mongolia is the Baganuur mine, which is located 125 km east of Ulan Bator. The mine opened in 1979 and is the largest open pit operation in the country and now produces around 6 Mt/year. The coal has a calorific value of 3900 kcal/kg and is mainly used in Ulan Bator, which is linked to the mine by rail. Mining is undertaken using a range of draglines and shovels with a mixture of Russian and Japanese equipment. The next largest mine in the country is the Sharyn Gol operation,

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situated 240 km north of Ulan Bator. It is also an open pit mine and started coal extraction in 1965, and when the nearby Erdenet copper mine started operations in 1981 it also started supplying coal to that mine, together with the country's northern regions. Capacity at the mine is of the order of 2 Mt/year of coal with a calorific value of 3900 kcal/kg. The mine uses a range of trucks and shovels to extract the coal at a strip ratio of between 4.5 bcm/t and 5 bcm/t. The third mine in the country is the Shivee Ovoo operation, situated 240 km south of Ulan Bator and covering an area of 391 km2. Proven and probable reserves are estimated at more than 2 bn tons, with recoverable reserves of some 564 Mt with a calorific value of 2800 kcal/kg to 3200 kcal/kg. Coal extraction commenced in 1992 at a rate of some 500 000 t/year but it is intended that this will increase to around 2 Mt/year. The other deposit that is of interest in the country is the Tavantolgoi deposit, which is located in the southern Gobi region, 540 km south of Ulan Bator. The coal in this locality is found in 16 seams, which vary in thickness from 3 m to 30 m, and total reserves and resources amount to some 1.5 bn tons of coking coal and 3.5bn tons of steam coal in a range of 5000 kcal/kg to 5500 kcal/kg. One of the problems for the development of the deposit is the lack of local infrastructure, with the nearest railway located some 400 km distant. A feasibility study into the potential of the deposit has looked at the potential of mining at an annual rate of up to 20 Mt/year, with a strip ratio of some 3.6 bcm/ton during the first 20 years of operation. Nevertheless, the cost of construction would be considerable, and no advance in the search for foreign investment has yet been achieved.

9.2.17

Mozambique

There is currently negligible coal production in Mozambique, but the increasing political stability of the country is expected to lead to an increase in foreign investment. This is expected to be enhanced following the development of the Mozal aluminium smelter in Maputo, which is being constructed by Billiton and a number of other joint venture partners. The smelter is expected to be supplied with electricity from South Africa and, in the future, from the Caora Bassa hydroelectric station, although this is likely to require substantial investment.

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As a consequence, there is potential future demand for electricity, and hence coal, within the country and this may lead to the development of known deposits. One of the largest of these is the Moatize project in Tete province, situated in the wedge of land between Malawi and Zimbabwe. Total resources of coal in the deposit are estimated to be in the region of 2700 Mt, of which some 60% is coking coal and the remainder steam coal. Mining and supply to a mine-mouth power station has been estimated to cost some US$8/t at an annual rate of 2 Mt to 3 Mt of steam coal. Coking coal production could be of the order of 3.5 Mt/ year and it may be possible to send this material for export if the preexisting railway to the port of Beira can be rehabilitated, although this is expected to cost around US$350 m. Given these costs, the economic development of the deposit may not occur for some time.

9.2.18

Myanmar

Information about coal production in Myanmar remains sketchy, although the country's Mining Enterprise Number 3 (ME3) is reported to operate two coal mines in the country. These are the Kalewa and Namma mines, which had production of 9.9 Mt and 20 Mt, respectively, in the year to March 1998. Future production may increase with the development of a new mine to exploit the Lweje deposit in Momank Township, Kachin state, under a joint venture between ME3 and Sampu Reserve Co.

9.2.19

North Korea

Whilst North Korea is thought to be one of the world's top ten coal producers, very little information is available on production in the country in view of its secretive political regime. Coal resources are estimated to amount to 12 bn tonnes, although this is mainly of thermal coal, restricting the ability of the country to feed its domestic metallurgical industry. As well as hard coal production, which is thought to amount to 70 Mt/year, the country also produces about 20 Mt/year of lignite. Most of North Korea's reserves are located in the Anju region, where new mines at Chili and Soho are thought to have increased production capacity to 7 Mt/year. In the Sunchou district capacity was

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increased to 3 Mt/year whilst coking coal production is thought to be about 1 Mt/year from the Kukdon and Yangjong mines.

9.2.20

Philippines

Domestic production of coal in the Philippines is around 1.5 Mt/ year, although one of the largest potential operations, the 200 000 t/year Malangas mine in the southern province of Zamboanga del Sur, has been closed since 1994 when a large gas explosion killed 54 people. The other major coal producers in the Philippines are Semirara Coal Corporation, Samar Mining and Development and a private company owned by D M Consunji, a local businessman. In addition there are estimated to be some 30 small-scale operations in the country. Local coal is generally sub-bituminous with an energy content in the range of 8000BTU/lb to 10 000BTU/lb and a sulphur content of less than 1%. A large proportion of land remains undeveloped as much of the potential in the country is for lignite rather than coal, and consequently generates too little heat to justify extraction. Nevertheless, small-scale mine-mouth power stations with a generating capacity of some 1000 MW could be feasible.

9.2.21

Poland

Poland remains one of the largest producers of coal in the world but, as with many of the former Comecon countries, output is set to decline due to a restructuring and efficiency drive. Between 1991 and 1996 total employment in the industry fell from 352 000 to 259 000 but the industry still sustained losses of US$732 m. In 1996, the government put forward a plan to reduce output to 120 Mt by 2000, including exports of 18 Mt (vs 32 Mt in 1995), whilst employment was expected to fall to 195 000. Over time, the costs of retrenchment and absence of alternative employment opportunities has led to a dilution of closure plans. Indeed, in earlier versions, the government planned for output of 110 Mt, exports of 12 Mt and employment of 180 000 people by 2000. The cost of the retrenchment programme was estimated at ZL5.5 bn (US$2.2 bn) in 1996. The future of Poland's coal mines is intrinsically linked to the level of internal demand for the fuel as there is effectively no scope for

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import competition. As part of a major restructuring study led by the World Bank in 1997, the demand for coal was expected to decline from 104.4 Mt in 1996 to some 95 Mt in 2010. Total production in 1996 was 133 Mt, of which 26 Mt was coking coal and 107 Mt steam coal. The excess of production over internal demand was sent for export with 13.2 Mt of coking coal exported and 15.5 Mt of steam coal exported, an increase in the total from only 20 Mt in 1992. The higher proportion of coking coal sent for export underlines its higher price and its ability to bear transport costs. Nevertheless, exports still lost the industry money despite the argument that increased production would lead to a reduction in unit costs and hence improve the overall profitability of the industry. Within Poland there are seven major government-owned coalmining organisations, each of which owns between five and ten individual operations. In addition, there are some individually registered mines which were formed as limited liability companies and operate independently of the larger organisations. The seven state-owned companies are Byromska, Gliwicka, Jastrzebska, Katowicki, Nadwislanska, Rudzka and Rybnicka, of which Jastrzebska is solely a producer of coking coal and therefore has reported the best profit performance of the seven. The latest restructuring programme suggested three separate scenarios. The first was based on the closure of 17 collieries, which produced 13 Mt in 1996 and employed 36 500 people, by 2010. This scenario was not deemed sufficient to return the industry to profitability and so two more programmes, which included the closure of an additional 11 collieries either within a five year period or spread over ten years, were constructed. The 11 collieries produced an additional 35 Mt of coal and so the total production of coal was set to fall by 48 Mt, or nearly 50% of 1996 production under the closure programme. Moreover, they employed 86 000 individuals, which would bring the total number of jobs lost to some 122 500 or 43% of the total. The closure costs associated with other mines amounted to an average of US$32 m, indicating US$900 m of costs for the complete programme of 28 closures, although a phased closure programme may reduce the cost to US$22 m/mine. After these closures, and looking at the potential demand from the European Union of some 200 Mt/year, Poland may have an export opportunity of up to 40 Mt/year by 2005. Nevertheless, the high

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transport costs mean that it may well be more profitable for the country to look to its domestic market for demand rather than to exports. Moreover, with the lower level of production in the future, it may well be that the Polish industry will have excess production of around only 10 Mt/year, which could be used to satisfy the export market. One of Poland's most modern mines is the Budryk operation in the north-east of the country. The mine employs 2200 individuals and, following long delays, only started production in 1994, although construction commenced in 1979. The operation produced 1.5 Mt in 1996 and expected 2.1 Mt in 1997 with a final capacity of 5 Mt/year and employs 3500 people.

9.2.22

Romania

Romania is not a significant coal producer with output of about 4 Mt/year of hard coal and 23 Mt/year of lignite. The industry is still being restructured and output is therefore more likely to decline than increase in the future as a very large number of small formerly staterun lignite mines producing less than 0.5 Mt/year are closed following privatisation in 1998.

9.2.23

Russia

Russian coal production has been falling as a consequence of constraints on investment imposed by the financial problems of the country. This means that the mining companies are not being paid by their customers except through bartered goods and services. The absence of money in these transactions also causes problems for the miners, many of whom are still suffering from extensive delays in receipt of their pay. With the high levels of inflation that have been seen in Russia, when the pay is eventually received it is often insufficient to cover the most basic cost of living expenses. State support to the industry has been maintained at high levels, and in 1999 it was estimated at some Rb12 bn (US$462 m) and expected to rise to Rb15 bn (US$578 m) in 2000. New legislation associated with the increase in support encouraged the complete restructuring of the industry within a 20 year period and may have awarded some of the miners' unions more power in overseeing how the funds were applied. Total production of coal in Russia in 1999 is

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estimated to be 236.4 Mt, 11.6 Mt above the original plan and 4.2 Mt above the strike-depressed level of 232.2 Mt produced in 1998. In January to November 1995 coal production in Russia was 227.5 Mt against 237.1 Mt in the previous year. Of this output 95.9 Mt came from underground sources, with the remaining 131.6 Mt produced from open pit mines. One of the largest producers in the country is Kuznetsugol, which produced 15.2 Mt, although future output declined as a result of the closure of six mines during 1996, with the loss of 3500 jobs. One of the mines to be closed was the Shevyakov colliery, which suffered from a major explosion in 1992, from which it has been unable to recover. Nevertheless, three new mines are reported to have opened in the region in September 1999. Against these closures, Kuzbassinvestugol Corp announced a massive US$2.0 bn investment programme for the region in 1995, with the possible creation of 6000 new jobs, although nothing more has been heard of these plans. Primorskugol, in the far east of Russia, announced plans for two new anthracite mines in 1995 with production aimed at both local and export markets. In early November 1996, Rosugol, the Russian state coalproducing organisation opened a new 95% owned coal terminal at Ust-Luga in the St Petersburg region. Despite this good news, the company has been suffering from many problems during the restructuring process, not least of which has been the failure of the Ministry of Finance to release US$250 m of funds from the World Bank that were designated for the industry. Nevertheless, the company has also been concerned that the funds should only be used for the closure of mines and that none can be used for mine development. In the far east of Russia, Stroikatyermash and Energia Vostoka have sought US$216 m for the development of two open pit mines in the Primorye territory. Some US$145 m of the total is set to be spent on the development of the Luchegorsky±2 open pit, US$47.8 m at the Rakovsky development and US$23.2 m at the Nachalny project.

9.2.24

South Africa

The South African coal-mining industry has completed a major expansion since it has returned to the international market free from the stigma of apartheid. Indeed, this stigma meant that South African producers were previously forced to sell their output at a discount to

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the ruling international price. Nevertheless, coal is now South Africa's second most important export, generating annual revenues in excess of US$1.4 bn/year. Total reserves of coal in the country are estimated to be in excess of 50 bn tonnes. Anglo American plc is now one of the largest coal producers in the world. Following the merger with Minorco in May 1999 and the acquisition of Anglo American Coal (Amcoal) in November 1998, all of the coal interests are now 100% owned by the group. The newly named Anglo Coal division is primarily concentrated on its coal interests in South Africa where it is the largest producer at around an annual 60 Mt ± over a quarter of the country's total output. In addition to the buyout of the Amcoal minorities, Anglo American also purchased all of the shares in Gold Fields Coal that it did not previously own. This acquisition is viewed as a precursor to the formation of a new black empowerment group and this will see some of the mines injected into the new vehicle. Nevertheless, with its major share in the local market, it is unlikely that Anglo American will be able to expand further within South Africa ± especially as a result of the consolidation that has already occurred in the local industry. Anglo Coal's output into production by colliery and the type of industry supplied is shown in Table 9.12. The difference in the output figure in the table and the near 53 Mt actually sold relates to miscellaneous output from mines now closed and secondary re-processed material. The coal produced for Eskom is all steaming coal for power generation, as is most of the output being exported from the mines and being sold to independent trade and industrial customers within South Africa. Indeed Anglo Coal's metallurgical production is a mere 3.1% of the division's total output. Despite these problems, Anglo Coal's export business can generate higher margins than its local coal sales. There are, however, increased capital requirements because export coal, unlike the locally burnt coal that Eskom takes `raw', has to be washed to create an acceptably clean fuel for overseas utilities. However, even in better markets that might lie beyond the current developing recession, Anglo Coal and other South African coal producers are going to find that increases in export tonnages are likely to be restrained by the desire of customers to have as diversified a supply base as possible. For this reason, Anglo Coal's move into Colombia is a sensible one, for it will

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Table 9.12 Anglo Coal's domestic and international sales split (Mt) Sales: Steam 12 Months to

31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 1990

1991

1992

1993

1994

1995

1996

1997

1998

Export

8.46

7.94

7.85

8.44

9.98

11.14

11.80

14.80

16.30

Eskom

29.88

30.95

29.87

28.08

31.29

29.82

30.30

34.50

39.60

1.19

1.21

0.86

1.28

1.33

1.74

1.70

1.80

2.00

39.53

40.1

38.58

37.8

42.6

42.7

43.8

51.1

57.9

Export

21.4%

19.8%

20.3%

22.3%

23.4%

26.1%

26.9%

29.0%

28.2%

Eskom

75.6%

77.2%

77.4%

74.3%

73.5%

69.8%

69.2%

67.5%

68.4%

3.0%

3.0%

2.2%

3.4%

3.1%

4.1%

3.9%

3.5%

3.5%

Other domestic PERCENTS

Other domestic Sales: Metallurgical 12 Months to

31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 1990

1991

1992

1993

1994

1995

1996

1997

1998

Exports

1.95

1.92

2.14

2.60

2.05

2.24

2.50

1.70

1.40

Coke exports

0.12

0.07

0.30

0.17

0.05

0.00

0.00

0.00

0.00

Domestic

1.18

1.05

1.05

0.92

0.64

0.76

0.60

0.50

0.50

Coke domestic

0.35

0.32

0.28

0.11

0.13

0.00

0.00

0.00

0.00

3.60

3.36

3.77

3.80

2.87

3.00

3.10

2.20

1.90

43.13

43.46

42.35

41.60

45.47

45.70

46.90

53.30

59.80

Total coal

Source: Anglo American.

give it a new geographical source, enabling it to expand its export business free from South African `quota' restraints. Ingwe Coal, which was formed from the merger of Randcoal and Trans-Natal Coal in 1994, is now a wholly owned subsidiary of Billiton plc, a company that was spun out from Gencor and re-incorporated in the United Kingdom in the middle of 1997. The company retains many South African links in its coal and aluminium operations and through Ingwe supplies Eskom's Kendal power station from the Khutala mine. Khutala is situated in the Witbank coalfield, adjacent to the 50% owned Matla mine and 120 km north-east from Johannesburg. In situ reserves are estimated at 1200 Mt of which about 640 Mt are mineable. Current production through underground room and pillar techniques and a small open pit is of the order of 13.2 Mt/year and the mine life is estimated at over 40 years. Ingwe's contract with Eskom allows the group an escalation of 85±87% of South Africa's Producer Price Index (PPI), thereby putting pressure on the company to cut costs of production in real terms in order to remain profitable. In terms of expansion, the company is

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investigating the possibility of mining an additional seam at Khutala for export product, particularly following the impending closure of the Rietspruit colliery. The company also owns resources at Leandra and it may be able to develop these to supply Sasol given the latter company's decision not to proceed with the development of the Sigma Northwest operation (see below). Ingwe is also proceeding with the Middleburg Klipfontein project and the Douglas Pillars or Boschmanskrans project. The Middleburg mine was originally developed to feed Eskom's Duva power station, however, a second operation was developed and some of the coal from the deposit was sent for export. As a consequence, the company would have been unable to meet its supply obligations to Eskom if it did not proceed with the development of adjacent resources at Klipfontein. Indeed, without Klipfontein the company would have to cease exporting coal in 2002 in order to retain sufficient reserves to supply Eskom over the life of the contract to 2034. With the new operations, export coal production can continue until 2018 and, as this is the real profit generator of the mine, the company decided to proceed with the R445 m (US$100 m) development. A similar situation exists at the Douglas Pillars operation, which will enable the extraction of pillars from an old room and pillar mine using open cast techniques. The original mine extracted some 60% of the coal in the 2 Seam, leaving 40% in situ, although the open pit should also be able to mine the 4L Seam and the 1 Seam, with an overall strip ratio of 3.5 bcm/t. The other mining group that has been building up its operations over the past few years is Duiker Mining. This company was a subsidiary of Lonmin plc, another company incorporated in the United Kingdom although it was purchased by Glencore in May 2000, the international coal trading organisation. The most important acquisition for Duiker was the 1998 purchase of Tavistock Collieries, which was the wholly owned coal-mining division of Johannesburg Consolidated Investments (JCI). In an earlier transaction, JCI acquired the South African coal-mining assets of Shell South Africa in mid1997. Shell's operations cost JCI a total of R440 m and included a 6.83% share of the RBCT, 1750 Mt of in situ reserves and a 50% share in the Rietspruit joint venture with Ingwe. This operation produced

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2.4 Mt/year and was subject to a pre-emptive right, which Ingwe elected not to exercise. Sasol is one of the unsung coal-mining companies in South Africa, but remains one of the largest producers in the country with output of approximately 53 Mt/year following a 10 Mt/year capacity expansion in 1998. Most of the company's production is used domestically, with only 1 Mt of coal exported in 1997, although this is expected to increase to 3 Mt/year in 1999. Over the medium term, Sasol's coal consumption is set to increase, and the company originally planned to meet this demand by expanding its Secunda and Sigma mines and by the construction of the Sigma Northwest mine. Unfortunately, the Sigma Northwest deposit is located close to the Vaal River and a local environmental group successfully campaigned against development, which now means that Sasol is likely to seek coal from other local producers with spare capacity such as Ingwe and Anglo Coal. Looking to the longer-term, many of South Africa's export quality coal mines have now been in operation for over twenty years and some, such as Rietspruit, are nearing the end of their reserves. There is a large amount of potential in the Waterburg basin, 350 km north of Witbank, where most of the existing mines are located. However, economic exploitation of the 17 bn tonnes of estimated resources in the region would have to overcome increased rail freight costs. An alternative would be to develop the Matalo coal terminal in Maputo, which is closer to Waterburg than RBCT.

9.2.25

Ukraine

Ukraine is one of the new entrants to the international coal sector following its independence from Russia. Coal production in 1996 was expected to fall from an originally planned level of some 90 Mt to only 71 Mt as a consequence of the ageing equipment and labour unrest due to low levels of safety and unpaid wages. Some union representatives suggested at that stage that the total level of arrears amounted to some US$600 m to a total of about 1 million employees. At this time this level was probably equivalent to their annual salary. By the end of 1997, the industry planned to close at least 25 mines, as part of a total closure programme of 60 operations by 2000. This is out of a total of 270 collieries, of which only 76 were deemed

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profitable in 1996 without the average industry subsidy of US$35/t. The government has received a series of World Bank credits with an initial tranche of US$300 m, to cover the costs of closure and restructuring, and, as a consequence of some of this aid, coal production has declined to an estimated level of only 59.4 Mt in 1998.

9.2.26

United Kingdom

In February 1997, Rackwood Mineral Holdings purchased 1300 acres of freehold coal-bearing land near Cumnock in Ayrshire for £1.125 m. This is equivalent to around £865/acre. Also in the United Kingdom, but in this instance in Northern Ireland, the Australian company Meekatharra Minerals (now called AuIron Energy) has been investigating the economics of a dedicated lignite mine and power station at Ballymoney since 1986. Whilst the project was almost forgotten by investors, the company diligently pursued its objectives and in July 1999 appointed PricewaterhouseCoopers as its financial advisor for the £500 m (US$800 m) project. AuIron Energy has since delineated a lignite resource amounting to 660 Mt with a sulphur content of only 0.13% that could be mined using open pit techniques. Initial investigations have concentrated on the use of its partner ABB Stal's clean coal, fluidised bed technology for the generating plant. This technology is currently in commercial use in Germany, Japan, Spain and Sweden. RJB Mining is the largest coal producer in the United Kingdom but it has been suffering from declining international coal prices and the ending of long-term high priced contracts to sell coal to the domestic generators. These generators have benefited from low international coal prices and have put pressure on the company to reduce its sales prices. RJB has cut production from an initial level of 37.1 Mt in 1995, following its acquisition of the English coal mines privatised by the government at the end of 1994, to a current level of some 23 Mt. There is little possibility that the company will generate sufficient cash to cover the cost of opening new collieries, and it is therefore expected that future production will decline as collieries are exhausted and run out of reserves.

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9.2.27

United States

Total coal production in the United States is over 1 bn tonnes a year with 47% of the country's production derived from the Powder River Basin in Montana and Wyoming. West Virginia is also a major coal-producing state, with production of 157 Mt in 1997. Illinois Whilst production of coal in Illinois is only around 37 Mt, or some 4% of total production in the United States, the state has substantial reserves of the fuel. Indeed, some 68% of the state's surface area, or 95 830 km2 is underlain with coal resources, amounting to some 27 bn tonnes. Most of the coal is high-volatile bituminous material with an energy content of 11 000±12 000 BTU/lb (6100±6700 kcal/kg), with 1±3% sulphur and 8±10% ash. Clearly, the relatively high sulphur content and the depth of the state's reserves, which restrict production to 15 underground and only 8 surface mines, is behind the low production/resource ratio in the state. Pennsylvania The coal resources of Pennsylvania are situated in the east of the state and amount to approximately 7 bn tonnes. The coal is mainly anthracite and represents the bulk of the United States' resources of this quality of coal. Most mining occurs in the eight counties of Schuylkill, Carbon, Luzerne, Northumberland, Lackwanna, Columbia, Dauphin and Sullivan, although two-thirds of production of 8.7 Mt in 1995 came from washing old mine dumps, with 2.4 Mt produced from open pit mines and 0.4 Mt produced from deep mines. In total, the coal industry employed 2179 people in 274 operations in 1995. Deep mining has been problematic in the state in view of the heavy folding of coal seams. Indeed, between 1870 and 1995 there were 31 113 deaths recorded in mine accidents, ranging from a high of 708 in 1908 to none in 1982, 1984, 1987 and 1992. Despite the problems, large-scale underground mining of coal continued until 1959 when the Knox mine started extracting coal illegally from beneath the Susquehanna River and the water broke through into the mine working. The water flooded many of the anthracite mines in the Wilkes-Barre/Scranton area forcing them to cease operation.

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Wyoming Wyoming is one of the largest coal-producing states in the United States ± accounting for around 26.2% of the country's coal production in 1996. The recent rise in production in the state has been related to the low sulphur coal produced from the Powder River Basin, which provides about 94% of the state's output. The recent increase in production in Wyoming is detailed in Fig. 9.2 and it should be noted that the rise really commenced from 1992 onwards. At least some of the initial rise may have been related to increasing energy demand following the recession in the early part of the decade. However, the overall growth in output is also undoubtedly related to the low sulphur characteristics of the coal and the introduction of more stringent emission controls in the United States in 1990. Of the coal produced in Wyoming, some 97% is used in the generation of electricity, with the remainder used in a variety of industrial and domestic applications. Only about 0.8% of Wyoming's coal is exported and the bulk of that is likely to go overland to Canada. The distribution of sales by Wyoming coal producers is detailed in Fig. 9.3. The highest sulphur coals in the United States come from the north-eastern end of the Appalachian belt, which stretches from Pennsylvania in the north-east to Alabama in the south-west. The sulphur content of these coals can approach 2.3% (as at the Cyprus Minerals Emerald Mine) and the coal produced by Cyprus Minerals has to be blended with low sulphur coal from other mines in order to

9.2 Coal production in Wyoming (source : Wyoming Coal Information Committee, 1997).

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9.3 Distribution of Wyoming coal sales, 1996 (source: Wyoming Coal Information Committee, 1997).

stay within the country's emission control legislation. The emissions of sulphur dioxide in the United States and the share of those emissions produced by coal-fired electricity generators is shown in Fig. 9.4, together with the coal consumption of the electricity generators. This shows clearly that despite an increase in the amount of coal burnt, the country has been able to reduce emissions considerably since the peak in 1976.

9.4 Sulphur dioxide emissions in the United States (source: Facts About Coal, EIA).

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The merger between Ashland Coal and Arch Mineral Corporation to form Arch Coal was completed in 1997. The combined entity has reserves of some 2000 Mt with mines in Illinois, Virginia and Wyoming. Zeigler Coal Zeigler Coal was listed on the New York Stock Exchange in 1994 and was one of the few quoted coal-mining companies in the United States until it succumbed to a takeover in 1998. The company had been built up slowly during the 1990s, having only produced 36 Mt in 1993, although this was partially affected by a seven month strike. With employees of 3950 and reserves of 1.4 bn tonnes the company produced 45% of its output from surface sources in 1993 and on the 40 Mt of production in 1994 produced at a rate of 10 127 t/man-year. Zeigler was continuing to expand production at its various operations and in 1997 commenced output at the Betsy Lane mine in eastern Kentucky. The company's major new development was the North Rochelle mine in Wyoming's Powder River Basin, which produces 10 Mt to 12 Mt of low sulphur coal annually and started production in the second half of 1998. Zeigler was also moving downstream into energy trading and electricity generation ahead of its takeover as this integration was considered compatible with its core coal-mining businesses. Peabody Coal Peabody is the largest coal-mining company in the United States, and the largest privately owned coal-mining company in the world. Despite this, the St Louis-based company has had a very chequered history, with its latest owners being the venture capital arm of Lehman Brothers. Peabody was originally owned by Consolidated Gold Fields (CGF), who had built it up over a number of years, then in 1988 CGF, having rebuffed a takeover approach from Minorco succumbed to a bid from Hanson Trust. By the middle of the 1990s, the age of the conglomerate had passed and Hanson elected to split itself into its various parts. One of these was called the Energy Group, which was demerged from Hanson on 24 February 1997, and comprised Eastern Electricity in the United Kingdom and Peabody Coal in the United States. One of the factors about the creation of the Energy Group that caused a concern to the investors in Hanson was the treatment of the funding for the Federal Coal Industry Black Lung Fund and the Abandoned Mined Land Fund. Under Hanson's accounting policy,

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these charges were taken as provisions in the balance sheet and did not impact the profit and loss account, thereby inflating the group's reported profits by approximately £70 m/year. Moreover, the provisions had been included in the cost basis of Peabody's coal reserves and had therefore inflated the carrying value of those reserves in Hanson's balance sheet by £1.5 bn. The coal companies incorporated in the United States took the charge as a tax on revenue through the profit and loss account, and this policy was then adopted by the newly created group. Even though the two separate parts of the Energy Group operated in the energy sector there were seen to be few synergies between them ± very little coal from the United States could be used to fuel Eastern Electricity's coal-fired power stations. As a consequence, the group was split in two in May 1998, with Peabody being purchased by Lehman Brothers for US$2.3 bn. Peabody's production in the year to March 2000 was 190.3 Mt, and has recently grown due to the increase in the group's ownership of the Black Beauty Coal Co from 43.3% to 81.7% at the start of 1999 (see Table 9.13). In Australia, the company has also been expanding its operations with the commencement of production at the Bengalla coal mine in April 1999 at a rate of 6 Mt/year. Looking further to the future, the company has purchased a 100 Mt ultra low sulphur reserve adjacent to its existing operations in the Powder River Basin. The company is also intending to purchase BHP's 80% stake in the Moura semi-soft coking coal mine in Queensland, Australia, which produces at a rate of some 4 Mt/year. A T Massey In the eastern United States, A T Massey has been developing and expanding its mining operations and reserves of high quality low sulphur coal with the acquisition of additional mines (Eagle Energy and Green Valley). The company produced about 28.1 Mt of coal from underground longwalls in 1996, of which 5.1 Mt was exported. Pittston Coal Pittston Coal is also located in the eastern United States, in Virginia, and has a number of mines and a preparation plant. The main mines are Blair/Tiller (245 000 t/year), Paramount Coal's No 23 (350 000 t/year) and Cherokee (285 000 t/year).

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The coal industry

Table 9.13 Peabody Coal production (m short tons) 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Eastern

19.0

20.0

20.0

13.9

14.8

18.6

17.6

16.7

16.3

18.0

Peabody Coal

35.1

30.4

26.5

17.4

18.7

18.4

19.8

20.1

19.5

18.0

Powder River

20.7

21.8

25.6

30.8

36.1

75.4

89.4

91.6

91.7 100.8

Peabody Western

16.3

17.6

16.6

15.3

16.7

18.2

17.5

16.4

17.5

13.5

±

±

±

1.0

3.9

3.9

4.2

4.4

4.7

4.9

0.2

0.2

0.2

0.4

0.3

0.5

0.7

0.6

0.2

±

Patriot

±

±

±

±

±

0.8

1.4

1.5

1.7

1.7

Black Beauty

±

±

±

±

±

±

±

±

±

4.3

Australia

±

±

±

2.8

7.0

7.3

6.7

7.2

7.3

7.4

2.0

1.7

1.9

4.1

4.1

7.9

5.7

6.4

8.6

7.4

93.3

91.7

90.8

Lee Ranch Powderhorn

Coal Trading Total

85.7 101.6 151.0 163.0 164.9 167.5 176.0

Source: Peabody Group.

9.2.28

Uzbekistan

Uzbekistan is not a significant coal producer with annual output of around 3 Mt/year, most of which is brown coal produced by the state-controlled Ugol (literally `Coal') joint stock company. The country's main mining operation is the Angren strip mine, which produces about 2.4 Mt/year, but is being expanded with the help of Krupp and other western firms to an anticipated level of over 5 Mt/ year by 2001. The underground No 9, or Baisoun, mine yields some 400 000 t annually, whilst less than 100 000 t/year of hard coal is produced at the Shargan mine in the Surkhandrya region. Total coal reserves and resources in Uzbekistan are over 6 bn tonnes.

9.2.29

Venezuela

The Guasare basin in Zulia state in north-west Venezuela is estimated to hold 8300 Mt of coal, or around 80% of the country's known coal resources. Of this figure, 2400 Mt has already been identified and the remaining 5900 Mt is hypothetical but is based on the known geology of the region. The coal produced in the region has an average calorific value of 12 650 BTU/lb and a sulphur content of only 0.6% with 34.5% volatile material, 6.7% ash and 7% moisture. The largest mines in the region are operated using strip mining techniques and all mining is under the control of Carbones del Zulia (Carbozulia). The Paso Diablo mine, in which Shell Coal holds 25%, Ruhrkohle

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(25%) and Inter-American Coal NV (50%), has a quantified reserve of 180 Mt and produced 5 Mt in 1998, with an expansion to take output to 8 Mt/year currently underway. The Socuy prospect has estimated resources of 215 Mt and a study into the feasibility of a 10 Mt/year operation at a capital cost of US$500 m is underway. The Norte and Cachiri mines have a combined reserve of 70 Mt and are both expected to reach output of 2 Mt/year on the basis of small-scale operations. The Cachiri mine is expected to require US$100 m to achieve this level of output.

9.2.30

Vietnam

Coal in Vietnam is under the control of the Vietnamese National Coal Corporation (Vinacoal). Over 80% of the country's production is derived from the huge Quang Yen basin in the north of the country. Total production from Vinacoal is of the order of 10 Mt/year, of which 3.65 Mt was exported in 1997. Future output is expected to increase to 12 Mt/year by 2000 and 15 Mt/year by 2010. The first foreign company to be licensed to explore, mine and market coal in Vietnam is PT Vietmindo Energitama, an Indonesian incorporated organisation. The company signed a Business Cooperation Contract with Uong Bi Coal Company on 19 April 1991 and was granted a 30 year Business Licence by the State Committee of Cooperation and Investment on 22 October 1991. The licence included the mining areas of Dong Vong and Uong Thuong and covered a total of 1300 ha in Quang Ninh province of North Vietnam. The deposits are situated 17 km north of the town of Uong Bi, itself 120 km east of Hanoi. Exploration, delineation and feasibility studies outlined total mine reserves of over 35 Mt in seven seams, which vary up to 10 m in thickness and dip between 5 ë and 30 ë. The coal is of Triassic age and is characterised by an average energy content of 7100 kcal/kg, low moisture of 7% on an as received basis, ash of 8% and maximum sulphur of 0.8%. The good quality of the coal then led to the decision to proceed with the development of a mine, washplant and barge loading facilities. These were completed in 1997 when mining commenced at the Uong Thuong deposit. Mining of the Dong Vong deposit was planned to commence in 1999, providing the combined operation with output of about 1 Mt/year.

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Golden Tiger Resources signed a letter of understanding with Vinacoal to explore the country's coal and peat projects in late 1996. It has selected four projects for further work and has arranged for them to be investigated by the Irish Peat Board. Other projects in Vietnam include the Dong Cao Son open cast mine, which is reported to have 20 Mt of reserves and could produce 1 Mt/year. Hon Gai Coal Co has been in operation for over 100 years and now manages seven underground mines and one open pit operation, the last of which is to be expanded from 150 000 t/year to 200 000 t/year.

9.2.31

Zambia

Zambia's Maamba Colliery is located on the southern border of the country, close to Victoria Falls. It commenced production in 1968 when the government became concerned about the security of supply of coal from Zimbabwe's Wankie Colliery during the upheavals in that country. Although it has a nominal capacity of 1 Mt/year, Maamba's peak output was only 800 000 t, achieved in 1975, and it produced 100 000 t in 1996. The mine has recently benefited from an injection of capital from JCI, which helped it to recover from the closure of the operation following serious flooding during the rains at the end of 1996 when it produced 98 500 t. Indeed, the mine produced and sold 164 443 t in 1997.

9.2.32

Zimbabwe

The Wankie Colliery mining complex near the Hwange National Park in north-west Zimbabwe produces all of the country's coal and provides some fuel for export to Zambia. The mine has had a chequered history of ownership and, more particularly, operatorship as a consequence of the past political problems between Zimbabwe and South Africa. This now appears to have become more settled with Wankie now operated by Anglo American. Most of the coal produced at the mine is used to feed the Hwange mine-mouth power station, whilst other output is used by Zimbabwe Railways as many of the trains in the country are still steam-driven. In 1998, a major increase in capacity of the Hwange power station was proposed by the Malaysian-based YTL Corporation. Unfortunately, financing problems associated with the economic turmoil in the Asian economies led to difficulties raising the US$800 m the scheme required and it was subsequently deferred.

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10 World demand 10.1 Introduction 10.2 Areas of consumption 10.3 The three coal markets 10.4 Future demand 10.5 Steel industry outlook 10.6 Regional demand trends 10.6.1 Asia Australia China India Indonesia Japan New Zealand Pakistan Philippines South Korea Thailand 10.6.2 Europe Czech Republic Denmark Germany Hungary Lithuania Norway United Kingdom 10.6.3 North America Canada United States 10.6.4 South America Brazil 10.6.5 Africa South Africa

# Charles Kernot

10.1 Introduction Prior to the First World War, coal supplied some 70% of the world's primary energy, a figure that had risen to 74% by 1937 and the eve of the Second World War. Since then, however, relatively cheap and easily usable supplies of gas and oil, together with the more contentious nuclear fuels, have been discovered and have increased market share at the expense of coal. Whilst significant deposits mean that future supplies of coal are not in question, its relative share of primary energy demand remains problematic in view of the environmental consequences of increased consumption. Nevertheless, the large number of electricity generating stations already built and under construction around the world mean that future demand for the fuel is set to continue rising over the next 20 years. This trend means that coal will become significantly more reliant on the electricity generating sector, which is now estimated to consume about 1900 Mt of the 3660 Mt of coal mined each year. This is particularly because it is a relatively cheap source of energy that requires little treatment or refining before it is used. The reliance on electricity is also expected to rise due to changes in the steel industry and a general decline in other areas of consumption. One factor that is important to recognise in this regard is that the relationship between growth in energy consumption and gross domestic product (GDP) growth changes as an economy develops. In its initial stages, economic growth tends to concentrate on major infrastructure projects and a general increase in industrial production. This can be particularly enhanced if the economy benefits from low energy and labour costs and can produce and export goods of sufficient quality to find markets in more developed economies, where individuals tend to have greater purchasing power. As this indicates, the more developed economies will tend to exhibit a lower level of energy consumption growth than GDP growth as the economy becomes more service oriented and moves to rely more on imports of manufactured items. Admittedly, there must be exclusions to such a general scenario and these relate to countries where there is an abundance of cheap energy. In these regions the low cost of energy can offset the increasing cost of labour, particularly if increasing investment in capital equipment can lead to a reduction in the labour component

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through improved productivity. Nevertheless, over the long-term it is likely to be those countries with access to low-cost energy that will become the mainstays of global manufacturing, whilst the rest of the world imports finished goods rather than the energy which it then uses to manufacture the same goods domestically. One example serves to show how this is likely to develop: Japan now has restricted indigenous energy supplies, with only four coal mines left in operation, and has come to rely on imported energy in the form of coal and liquefied natural gas (LNG) to cover the domestic shortfall of coal and nuclear power. When the world suffered from the first oil shock in 1973/74 Japan's aluminium industry was forced to close as the import cost of fuel rose to such an extent to force the producers into loss. The aluminium industry suffered more than any of Japan's other metallurgical operations in view of the high energy input required in aluminium smelting in comparison with the smelting and refining of the other major metals. As a direct result, the country moved to import aluminium to feed its fabrication plants, with a range of smelters in low-cost energy regions providing this supply. The domestic fabrication plants stayed in operation as it is still more efficient to manufacture beverage cans and other items near to consumers in view of transport logistics. Since the collapse of the USSR the Japanese fabricators have been purchasing increasing amounts of aluminium from Russia, where the metal has tended to be produced on a tolling arrangement by international traders such as Glencore and Trans-World Group. In these instances, imported alumina is converted into aluminium utilising cheap and abundant hydroelectricity, with the resulting metal exported almost as the equivalent of electricity in solid form. Overall, this is clearly a more efficient use of the world's limited fossil fuel reserves. Coal does not have the advantage of oil or gas, which can be piped and pumped around the country or the world. Nor does it have the advantage of gas that it can be liquefied into a smaller vessel and shipped around the world. Uranium, also, is a relatively easy fuel to transport in terms of its bulk, although the radiation risks mean that safety and security costs also need to be taken into consideration. Electricity is also a very easy form of energy to transmit, although the further the distance, the greater the loss of power because of the

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inherent resistivity of the steel, aluminium or copper cables used in the grid. Despite this loss on transmission, plans for a circum-Pacific electricity grid are being developed. The generating plants at the centre of the grid would have the advantage of being able to supply countries in different time zones and would therefore be able to balance demand over a 24 hour period. This would enable fewer power plants to operate as base load stations on a continuous basis, thereby improving the overall efficiency of the system. As mentioned in previous chapters, most of the world's coal producers are planning, or have recently completed, expansions in their productive capacity, and the amount of coal which will be produced in the future can be expected to increase. Given the need to earn a return on this capital investment, it is clear that as much coal as possible will be produced. Unfortunately, if the producers take little account of the demand for the fuel this scenario may have short-term adverse implications on the price of the commodity (as occurred during 1999).

10.2 Areas of consumption As the example of Japan indicates, the use of coal is generally restricted by economic considerations, including cost of production and cost of distribution. The main producers of coal are also its main consumers in view of the costs of transporting what is really a very bulky and immovable source of energy. The international trade in coal is covered in Chapter 11. The future of coal demand is largely restricted to the advent of a new cycle of economic growth in the industrialised economies and the continuing growth of the developing nations. Against this factor will have to be set the growing level of environmental awareness, which will tend to reduce fossil fuel demand through the introduction of carbon taxes and will attempt to make industry more efficient in its use of energy. Therefore, it is to be expected that world primary energy supply will grow at a slower rate than the overall rate of growth in final energy demand. Within this total energy consumption picture the use of coal has to be considered on its individual merits. It is currently less energyefficient to burn coal in power stations than it is to burn gas in the

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newly developed CCGTs, especially where new CCGT plants are being constructed in combined heat and power (CHP) developments. In the short-term, therefore, it is unlikely that there will be a marked upturn in coal demand at the expense of any other fuel medium and it is to be anticipated that coal consumption will, in fact, show a relative, although not necessarily an absolute, fall in demand. This is likely to be particularly the case in the industrialised world, which is more able to afford the greater cost of environmental awareness. In the developing countries, the use of coal can be expected to grow at a rate similar to the growth of the local economy. This is particularly because many of these countries have indigenous coal deposits and, therefore, do not have to spend large amounts of precious foreign exchange to import their primary energy requirements. As a result, they may show a greater use of coal in the attempt to increase their economic growth, although this is not in the best interests of the environment. The greater use of local coal supplies may also become prevalent in the coming years because of the lack of precise knowledge about whether a carbon tax will be imposed on the coal supplier or consumer. Indeed, many of the OPEC countries could add the indicated US$10 to a barrel of oil overnight if this was required (as they have shown in the past). This, of course, would not be politically acceptable to the oil-importing nations who would not wish to provide OPEC with a bonus. Apart from this, the addition of US$10 to a barrel of oil has been calculated to increase the cost of petrol (or gasoline) at the pump by only some 10% because of the high refining and marketing costs together with the generally high taxes already associated with the fuel. Such a small rise would not have much of a deterrent effect on the use of oil, and a consumption or purchase tax on the end user rather than a production tax on the supplier/refiner is much more likely to be imposed. Such a tax, also, would have ramifications in the European electricity market and have implications for the coal industry. If a carbon tax is introduced, it would have to be imposed on the burning of coal in power stations in much the same way as an increase in the tax on petrol at the pump. As a result, it would have to be a severe tax if it is to deter consumers from using electricity. Apart from this, the ability of consumers to decide whether they wished to purchase electricity from renewable, fossil fuel or nuclear

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sources may push up demand for renewable electricity to such an extent that it becomes more expensive than highly taxed coal generated supplies. Admittedly, intensive energy users would probably be more concerned about the overall cost of the supplies, rather than consider the environmental aspects of each choice of fuel source, and taxation alone may not be sufficient to influence a reduction in fossil fuel consumption. Despite the difficulties of transport, all countries will attempt to adopt a varied energy policy as they could otherwise become too dependent upon one source of power. In such circumstances a country could become `hostage to energy ransom' as Neil Kinnock, then leader of the Labour opposition, stated in the House of Commons during the 13 October 1992 debate on the future of the United Kingdom's coal industry. Such a diversity of supply would still be promoted even if the chosen form of energy is more expensive than an imported alternative. The extra cost is accepted because of the need to ensure security of supply and, therefore, results in the continuing use of existing, or the commission of new, sources of energy, despite the huge costs that they could force a country to bear. A massive proportion of France's electricity is generated by nuclear power stations, and the high cost of this source of electricity has to be borne by the population. The reason for the country's insistence on nuclear generation, as opposed to all others, is that it has no other indigenous sources of energy, apart from some small coal mines in the north-east (which have now largely been closed down), and small deposits of oil and gas in the Paris basin. For other countries, such as China, which are major producers of coal, a similar logic can be expected to apply, and coal should remain an important component of the domestic fuel mix. The other problem that arises over the source and use of coal as opposed to any other form of energy, is the use to which it is to be put. Crude oil, whilst varying to some degree in texture and composition, must still be cracked to produce the components which are used in its various applications. Coal, on the other hand, varies considerably from location to location and different types or ranks of coal can only be used in certain applications. The unique nature of Sasol's South African operations effectively demonstrates that it is not economically possible to break coal down into its constituent parts, in view of the high initial capital costs of plant and equipment.

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10.3 The three coal markets There are essentially three main types of demand for coal. The first of these is the nascent home demand, whether it is for the basic steaming or for the more specialised coking coal. The reason why both types of coal have to be combined in a local market analysis is because of the various incentives and restrictions on competition in many areas of the world. The second and third types of demand are the export markets for each variety of coal on an individual basis. The reason for this is that they represent two specific areas of demand as the consumption of these coals varies around the world. This difference is reflected in the higher price that coking coal generally commands both internationally and in home markets. Import restrictions are related to a government's desire to support its local mining industry and to the difficulty of import substitution, often resulting from the geographical position of the country. A further, and increasingly important, factor is the effect that import substitution will have on a country's balance of payments. If a country needs to import oil and gas, it is more likely to attempt to protect an indigenous coal industry in order to provide a source of energy with no exchange rate risk. Indeed, not only did Sir Derek Ezra, a past Chairman of the United Kingdom's National Coal Board (and since Lord Ezra), argue in defence of the indigenous coal industry that `coal imports on any scale would represent a significant burden on the balance of payments, at a time when the balance of payments benefits from the North Sea could be declining', but he also stated that `the price of imports into the UK are heavily influenced by the sterling exchange rate; the long term level of which is problematical' (as RJB Mining has since found to its cost).

10.4 Future demand With increasing economic development, the world is expected to increase its energy requirements and this, in turn, is likely to lead to an increase in the demand for coal in the future. The United States is, perhaps, the only country where there may be a fall in demand (apart from the United Kingdom) as increasingly stringent environmental legislation leads to greater restrictions on the sulphur content of the coal that can be burnt in the country.

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Coal demand in the future will be related to the level of global economic growth and hence the level of demand for energy of all forms. Coal's share of this market will reflect continuing worries over greenhouse gas emissions and the proximity to supply. Whilst in Chapter 7 the much lower efficiency of coal-fired power stations in developing countries was discussed, it is still to be expected that these countries will see the largest growth in demand for coal. Assuming business-as-usual scenarios the International Energy Agency's projections to 2020 for its World Energy Outlook anticipate that total world primary energy demand will increase at roughly 2%/year from 9245 mtoe in 1995 to 14 995 mtoe in 2020. Again, under a business-as-usual scenario coal demand is expected to grow at 2.2%/year from 2205 mtoe in 1995 to 3775 mtoe in 2020, this compares with growth in gas demand of 2.6%/year, whilst oil will only grow at 1.9%/year over the same period. As indicated above, the fastest growth in demand is projected to occur outside the OECD, with average rates of 1%, compared with 1.5% for Eastern Europe and the former Soviet Union (FSU), 3.6% in China and 3.5% in the rest of the world. By 2020 the disparity in growth rates indicates that the OECD will only account for 42% of world energy demand, in comparison with 54% in 1995. Given the size and geographic extent of the world's coal reserves, which could last for well over 200 years, coal will remain an important part of the overall fuel mix. Indeed, there is scope for the fuel to increase its share modestly from 26.9% to 27.8% by 2020 as the proportion of coal used in the generation of electricity rises from 58% to 64% due to strong increases in electricity generation in the Asian region and polarisation of coal use in the industry. Nevertheless, gas will remain an important competitor, growing at an estimated rate of 3.9%/year against 2.5%/year for coal. This will mean that gas's share of the market will rise to about 27% and coal's fall to 46%. OECD use of coal for generation will only rise at around 1.4%/year involving a small loss of market share, although there is a strong difference between demand growth in Europe and North America where coal use is expected to fall by 0.5%/year and rise by 1.9%/year, respectively. In the Asian region, China is expected to see growth of 4%/year and the rest of the world at 4.5%/year. This rate of expansion would lead to an increase in CO2 emissions

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of 46% by 2010 ± a level that Kyoto and other agreements are attempting to reduce. Even in 2010, the International Energy Agency's (IEA) World Energy Outlook suggests that 57% of emissions could come from oil consumption in transport and 39% from the electricity generating sector (including all fuel types), although coal is estimated to account for 28% of total energy-related emissions as it relies solely on the burning of carbon rather than hydrocarbons (see Chapter 7). The future global market for clean coal technologies is expected to be of the order of US$750 bn up to 2010 in view of the increasing demand from the Asian countries. This relies on an estimate of a 60% increase in global primary energy demand by 2010. One of the major countries to expand its generating capacity under this scenario will be China, which is expected to increase its installed generating capacity from 200 GW to near to 500 GW over this period.

10.5 Steel industry outlook The decline in the European steel industry has also led to a fall in the demand for metallurgical coal across the continent. Despite British Steel's position as one of the lowest cost producers in Europe, the company is still pursuing a cost-cutting programme and has completed a somewhat defensive merger with Dutch steel producer Hoogovens in an attempt to remain competitive in the face of strong competition from Asia and the FSU. Despite this, the use of more efficient techniques also means that less coal is now used (see Chapter 8) and that the proportion of more expensive hard coking coal used in conventional blast furnaces can be reduced through blending with semi-soft coking coal or through increasing use of PCI coal. All of these aspects further increase coal's reliance on the electricity generation industries. Indeed, the development of new techniques to reduce iron oxides in iron ore may well lead to further declines in demand for coking coal. This may be as a consequence of either the comercialisation of DRI or the increasing preponderance of mini-mills, which take pellet and scrap feed and tend not to utilise the more expensive coking coal in the steel-making process. This shift is reflected in the large use of electric arc furnaces for steel production, now accounting for nearly 34% of crude steel production (Table 10.1).

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Table 10.1 Crude steel production by process (1998) Country

Production (million tonnes)

Oxygen (%)

Electric (%)

Open hearth (%)

Other (%)

Austria Belgium Finland France Germany Italy Luxemburg Netherlands Spain Sweden United Kingdom Other EU EU 15

5.3 11.4 4.0 20.1 44.0 25.7 2.5 6.4 14.8 5.2 17.3 3.2 159.9

90.5 78.7 77.2 60.0 72.5 40.6 0.0 97.6 28.9 62.1 77.5 13.6 61.8

9.5 21.3 22.8 40.0 27.5 59.4 100.0 2.4 71.1 37.9 22.5 86.4 38.2

± ± ± ± ± ± ± ± ± ± ± ± ±

± ± ± ± ± ± ± ± ± ± ± ± ±

Czech Republic Hungary Poland Romania Slovak Republic Turkey Others Other Europe

6.5 1.8 9.9 6.4 3.4 14.1 5.2 47.3

88.1 83.4 92.6 73.4 90.7 36.4 47.0 65.3

10.5 16.6 ± 16.1 9.3 63.6 53.0 31.8

1.4 ± 7.4 10.5 ± ± ± 2.8

± ± ± ± ± ± ± ±

Russia Ukraine Other FSU FSU

43.8 24.4 6.2 74.4

59.6 47.1 47.0 54.4

12.6 4.7 39.5 12.3

27.8 48.1 13.5 33.3

± ± ± ±

15.9 14.2 97.7 127.8

58.5 35.0 55.4 53.6

41.5 65.0 44.6 46.4

± ± ± ±

± ± ± ±

Argentina Brazil Chile Venezuela Others Central/South America

4.2 25.8 1.2 3.7 2.6 27.4

47.6 79.2 93.1 ± 21.9 64.3

50.0 19.3 6.9 100.0 78.1 34.4

± ± ± ± ± ±

2.4 1.4 ± ± ± 1.2

Egypt South Africa Other Africa Total Africa

2.9 7.5 1.5 11.9

48.1 64.0 25.6 55.9

51.9 36.0 74.4 44.1

± ± ± ±

± ± ± ±

Iran Saudi Arabia

5.6 2.4

39.3 ±

60.7 100.0

± ±

± ±

Canada Mexico United States NAFTA

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Other Middle East Middle East China India Japan Korea Taiwan Other Asia Asia Australia New Zealand Australasia World

0.9 8.9

± 24.8

100.0 75.2

± ±

± ±

114.3 23.5 93.5 39.9 16.9 9.1 297.3

61.2 53.9 68.1 59.7 58.1 ± 60.6

20.1 31.8 31.9 40.3 41.9 97.7 31.0

4.9 14.3 ± ± ± 2.3 3.1

13.8 ± ± ± ± ± 5.3

8.8 0.8 9.6

88.0 71.9 86.7

12.0 28.1 13.3

± ± ±

± ± ±

774.4

59.4

33.9

4.6

2.1

Source: International Iron and Steel Institute.

10.6 Regional demand trends What follows are selected comments on specific countries or regions that either have a major influence on the global outlook for consumption of steam coal or are important as they show some of the trends in demand that other countries may also follow in the future.

10.6.1

Asia

In recent years Asia as a whole has experienced energy demand growth at a rate in excess of 3%/year, and some forecasters project that China and India will account for 60% of the global increase in energy and 40% of the increase in coal demand if these rates are maintained to 2010. In order to ensure that greenhouse gas emissions are kept to a minimum, much of this potential expansion would have to involve some form of clean coal technology. In 1995, a study by the joint ASEAN/European Community Energy Management Training and Research Centre forecast that ASEAN demand for coal could increase from 7 mtoe in 1988 to a massive 100 mtoe by 2010, with a reduction in dependence on oil from 72% to only 53% of local energy needs. The ASEAN countries include Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand.

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Australia In New South Wales the domestic electricity industry relies on coal for 80% of its output, although excluding the Snowy Mountains Hydro-electric Authority's output increases this figure to 94%. Coal consumption has increased from 7.4 Mt to 23.2 Mt between 1971 and 1996 and is expected to reach 25 Mt by 2000. This increase in consumption will reflect increased use of existing power stations, whilst improved efficiencies should also mean that there is no need for a major new station before 2005. Coal demand in Queensland has also grown, reflecting that state's industrial expansion, particularly at the aluminium smelting operations in the state. Nevertheless, a further expansion of aluminium smelting by Comalco is likely to be dependent on gas-fired, rather than coal-fired electricity, with the gas supplied from Papua New Guinea. China China is the world's largest producer of coal, mainly for domestic use, and hence the country is also the world's largest coal consumer with the fuel supplying some 75% of its domestic energy needs. Future economic expansion and the requirement for increasing supplies of energy to feed that expansion are expected to be met from an increase in coal-fired electricity generation and improving the efficiency of existing plants. Moreover, the concentration of Chinese industrial activity in a broad crescent along the coast and the inland, western and northern location of the main coal mines and deposits, suggests that Chinese imports of coal for steam generation may increase at a faster rate than total coal consumption. Such a situation may be enhanced if there is any reduction in the level of expenditure on the country's railways. Cost still remains an important factor and coal remains a cheap source of electric power in many developing countries. For instance, in China, it is considerably cheaper than all other sources, as detailed in Fig. 10.1. Nevertheless, coal is used in a wide range of other areas. In the early 1990s, the IEA estimated that Chinese electricity generating capacity could increase from 138 Gwe in 1990 to 310 Gwe in 2000 and then double for a second time to 632 Gwe by 2010. The amount of coal burned was forecast to increase from 197 Mtce to 389 Mtce by 2000 and 920 Mtce by 2010. Such forecasts clearly assumed a straight line projection for Chinese economic growth and an

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10.1 Relative energy costs in China, 1990s (source: Ecoal, Volume 29, March 1999, after GEF).

assumption that there would be no improvement in the efficiency (in fact quite the converse) of other sources of electrical power brought on stream. As a consequence, total coal demand in China was expected to rise from 752 Mtce through 1075 Mtce (equivalent to 1435 Mt on a ROM basis) in 2000 to 1632 Mtce (2175 Mt ROM) in 2010. At present China's coal consumption is estimated to generate some 10% of the world's entire carbon dioxide output and a doubling of coal consumption would have a devastating effect on the world environment. Nevertheless, much of this may be overcautious as China has recently announced significant plans to restructure is domestic coal industry (see Chapter 9) and approved plans to expand generation from other sources. This includes the vigorous expansion of oil and gas projects together with an increased emphasis on renewable sources of supply such as geothermal energy, solar power, tidal and wind turbines. The programme also includes work on the use of coalbed methane as an alternative supply, especially in view of its lower level of pollution in comparison with coal combustion and because coalfields in northeast and south China have estimated recoverable gas resources of over 3.5 billion cubic metres. Whilst the plan also originally included the expansion of China's nuclear power capacity, this has since been cancelled given the relatively slow growth in electricity demand in recent years in

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comparison with the growth in supply. Indeed, as a consequence, many regions in China now have a surplus of electricity. India Total demand for raw coal across India was about 325.4 Mt in the 1998/9 financial year, with additional consumption of 7.7 Mt of middlings. With continued economic growth in the country, the government's Planning Commission expects total consumption to reach 412.2 Mt of raw coal and 7.7 Mt of middlings in 2001/2. The two authorities expect domestic production of between 357.6 Mt and 344.8 Mt, respectively, indicating scope for a significant increase in imports over the next few years. Moreover, longer-term forecasts by the Chari Committee on integrated coal policy put domestic consumption as high as 716 Mt by 2006/7. As with China, one of the main constraints on coal production and consumption in India is related to infrastructure and the difficulty of moving substantial quantities of coal across country by rail. Moreover, the transport cost of coal is a major component of the wholesale cost of the fuel for those consumers located at some distance from the source of supply. Consequently, additional power station consumption of coal may be restricted to pit-head power stations, with the Korba and Talchev coalfields expected to be the main contenders for this type of development. India's estimated coal consumption by sector is shown in Table 10.2. India's Steel Ministry expects domestic steel production to increase markedly over the next few years. This could lead to an increase in domestic consumption of coking coal to 63 Mt/year by 2001/2 and 80 Mt/year by 2006/7, requiring a substantial increase in supply or an improvement in steel-making technology, which would reduce the relative requirement for hard coking coal (see Chapter 8). Rajasthan is the first state in India to adopt a competitive bidding system for setting up private power plants that can feed electricity into the local grid. In the 1997/8 financial year the state had installed capacity of 3796 MW, and per capita domestic consumption averaged 289 kWh, up from only 74.32 kWh in 1978/9. Peak demand in 1997/8 was 3169 MW. A number of new plants have recently been authorised in the state, including operations at Barsingsar (500 MW), Dholpur (700 MW), Suratgarh Stage 2 (500 MW), whilst the Suratgarh Stage 1 project

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Table 10.2 Estimated coal consumption by sector in India (Mt) Sector Coking coal Steel Coke ovens Total Non-coking coal Power utilities Captive power Sponge iron BRK and others Domestic Cement Fertiliser Export Collieries Total Middlings Power utilities Captive power Total Grand total

1996/7

1997/8

1998/9

N/A N/A 41.0

N/A N/A 41.4

45.2 2.0 47.2

194.0 15.0 3.2 27.1 4.0 17.5 4.7 0.5 4.0 270.0

205.9 16.7 3.4 28.3 2.0 18.2 4.4 0.3 3.4 282.0

205.9 23.0 4.0 24.3 2.3 18.2 4.1 1.0 4.0 286.8

5.0 2.1 7.0

4.1 2.7 6.8

5.0 2.4 7.4

318.1

330.2

341.4

Source: Metals and Minerals Review.

should see two additional 250 MW coal-fired units commissioned in 1999 and 2000. In the central sector, smaller power plants are also being set up at Nathpa Jhakri (150 MW), Anta GTPS Stage 2 (85 MW), Auriya GTPS Stage 2 (30 MW), Rehand Stage 2 (47.5 MW), Unchahar Stage 2 (42 MW), RAPS Extension (88 MW), Dulhasti (39 MW), and Dhuliganga (28 MW). The only coal based plant in Rajasthan is the Kotat TPS, which supplies about 30% of local demand. The Indian power company HCVL has been selected to use the domestic lignite deposits to feed a new 2 6 250 MW power plant, whilst West Power has been offered the Kapurdi and Jalipa lignite deposits for a much larger 1200 MW plant. These new plants should be sufficient to meet increased consumption of electricity within the state, which is expected to reach peak demand of 5606 MW and a total energy requirement of 31 881 MWh in 2001/2002, respectively. Elsewhere, Neyveli Lignite is planning to treble production from 11.2 Mt/year to 33 Mt/year in

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response to an expansion of local power generation capacity from 2070 MW to 3990 MW. Indonesia The general recovery of the Asian economies and apparent easing of political tensions within Indonesia should mean that the country's economy also starts to improve. This, in turn, should lead to an increase in domestic energy consumption ± especially if plans to construct new electricity generating stations under IPP projects are now resurrected. Indeed, forecasts by the Indonesian government suggest that, as coal production increases to over 110 Mt by 2005, so domestic consumption could increase to 45 Mt from about 15 Mt in 1998. Japan In the near term, Australia's problems with declining coal demand from the Asian region may be overcome. This is because of a steady improvement in the health of the Japanese economy and the problems that the strength of the US dollar is causing to producers in the United States. As a consequence, it could be the case that the level of exports from the United States is constrained, which could aid Australia and help it increase its share of the Japanese market from 54% (71.5 Mt, 45% coking and 55% steaming) in 1998. Looking further into the future, however, the situation is far less clear. The Kyoto protocol, which committed the world's developed countries, those of Central and Eastern Europe and the FSU to reduce greenhouse gas emissions by 2008±12 to 5% below 1990 levels, will undoubtedly have an effect on energy production. Given Japan's reliance on imported energy sources, within which coal plays a major part, and its commitment to exceed the protocol requirement by achieving a 6% reduction in emissions over the period, the country's energy balance is set to change markedly over the first decade of the twenty-first century. In formulating its long-term energy policy for the country, the Japanese Ministry of International Trade and Industry (MITI) has constructed a long-term model of the domestic economy and its energy demand trends. The expectation that the country will benefit from a sustained economic recovery, following the severe recession during the 1990s, has not been fully accommodated into MITI's March

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1999 forecasts of a 1.9% annual growth rate for the economy, given that trend economic growth for a developed country can normally be expected to fall in the 2.25±2.75% range. Even the previous forecast of 2.2% may be considered on the low side given the scope for a strong rebound in growth in the early years of a recovery. Nevertheless, even using the lower growth forecasts, it is clear that the country's production of greenhouse gases would be substantially above 1990 levels by the 2008±12 period. As a consequence, MITI has been investigating ways of introducing changes to the country's energy mix that will have the effect of reducing greenhouse gas production. Some of these involve increasing the level of efficiency of existing gas-producing industries, replacing the use of coal with natural gas, an expansion of the country's nuclear power industry and, interestingly, emissions trading whereby Japan buys unused allowances from other countries. These forecasts indicate that Japan's consumption of coal will be some 124 Mt in 2010, against 115.3 Mt in 1990, and will compare with a forecast of 145 Mt under a business-as-usual scenario. However, assuming no changes in the country's energy policy, the country's Institute for Energy Economics (IEEJ) suggests that coal consumption on its base case scenario, using an oil price of US$20/barrel will be about 186 Mt. The main reason for the IEEJ's higher forecast for coal consumption is that it assumes a much more muted expansion of nuclear generation within the country, from 202 TWh in 1990 to 373 TWh in 2010, against MITI's forecast of 480 TWh for 2010. One final way of projecting future growth in demand is to look at the actual plans of the electricity generators rather than economic projections, which rely heavily on both the veracity of the underlying assumptions of economic growth and have been notoriously inaccurate in the past. Currently, Japanese utilities have some 9.3 GW of coal-fired power stations under construction and due for completion by 2002, in addition to the 1996 level of 20.3 GW, a further 8 GW of capacity has received planning permission and is due for completion by 2006. Operating at a load factor of 70%, this additional capacity could consume about 35 Mt/year of coal and so it is likely that Japanese consumption will be at least 170 Mt by 2010 unless drastic measures to reduce consumption are taken by the government.

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New Zealand New Zealand's Ministry of Commerce has projected that consumer energy demand will increase at around 1.5%/year between 1995 and 2020, equivalent to growth from 416 petajoules (PJ) to 604 PJ. This rate of growth is lower than the 3.0%/year GDP growth rate projected in the forecasts and indicates a 1.5%/year reduction in intensity of energy consumption in New Zealand as a consequence of increasing efficiency and other factors. In 2006, the country's main energy source, the Maui gas field, is expected to be exhausted and should have a major impact on energy supply. This is because the field contains 64% of known reserves and accounts for 80% of production. Whilst accounting for 12% of energy input into electricity generation, gas accounted for 27% (182 PJ) of the country's total energy supply in the year to March 1996 (see Fig. 10.2). Beyond 2006 there is some scope for new gas discoveries, whilst known deposits should be able to continue generation until 2014 at a rate of some 30 PJ/year. As the price of onshore gas is expected to rise, the country's main thermal plant, the Huntly power station, is expected to switch from gas to coal-firing between 2000 and 2005, leading to an increase in coal burn in the country. In the initial years following the downturn in gas production, renewable sources (both geothermal and hydro) are expected to be the main new generating capacity brought on stream. Thereafter, by perhaps 2010, coal is expected to become the dominant source of baseload generating capacity in the country. By 2020, a total of

10.2 New Zealand ± Electricity generation by fuel, 1996 (source: Ministry of Commerce).

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2600 MW of new capacity is projected to be required in order to meet electricity demand growth of 1.8%/year, of which about 400 MW is expected to be coal-fired (equivalent to approximately 1 Mt of coal). This is faster than total energy demand growth in view of the decline in gas production and its increasing cost of supply. Whilst New Zealand hosts large coal resources, it is not expected that the increase in demand would be met from internal sources in view of the need for substantial infrastructure investment. As a consequence, Australian coal is expected to be the source of New Zealand's increasing demand for coal. Pakistan In Pakistan the Sindh Coal Authority started a feasibility study into the construction of a mine-mouth power station in 1999. A positive study could justify exploitation of the Thar coalfield, where initial infrastrucutre and other work has already commenced ahead of mine construction. The province also contains some 98% of all coal deposits in Pakistan. Philippines The Philippines has become concerned about its future ability to obtain coal in view of the potential increases in internal demand from its neighbours. As a consequence, the country has been looking to the United States and South Africa for potential future supplies. In recent years, the country has imported coal from Australia (800 000 t), China (400 000 t) and Indonesia (900 000 t), but the level of consumption and hence the amount of coal to be imported is set to rise with the construction of new independent power producers. Philippine coal consumption was 3.1 Mt in 1994 and rose to 5 Mt in 1997, with 80% of supply coming from imports. Future coal consumption could rise to as much as 14 Mt in 2005 and 22 Mt if the proposed 15 000 MW of new coal-fired electricity generating plant is built by 2010. With this increase in consumption production is set to triple to about 3 Mt by 2005, although the country will clearly remain heavily dependent on imported supplies. South Korea Energy consumption in South Korea in 1995 was 162 152 GWh, a rise of 10.7% on 1994. This led to an increase in steam coal imports of

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Table 10.3 Imports and consumption of coal in South Korea Category

1994

1995

Imports Coking Steam

16.902 21.808

17.016 25.442

Total

38.710

42.458

Consumption Iron/Manufacturing Electricity Cement Other

15.750 12.376 5.310 1.675

16.294 13.752 5.563 1.933

Total

35.111

37.542

Source: International Coal Report, March 1996.

3.6 Mt to 25.4 Mt, out of a total level of imports of 42.5 Mt. Imports and consumption of coal in South Korea in these two years is detailed in Table 10.3. Pohang Iron and Steel Company Limited (POSCO) is South Korea's major consumer of coking coal, which is used in its steelmaking operations. In 1997, the company used 16.5 Mt of coal at a cost of Won 964 bn, which was sourced mainly from Australia, Canada and the United States. The cost of coal, including all transport costs and import duties, purchased by POSCO increased from Won 46 717/t in 1995 to Won 50 346/t in 1996, 57 229 in 1997 and Won 91 294/t in the first half of 1998. It should also be noted that much of the coal purchased by POSCO is bought on long-term contracts that have durations ranging from 5 to 20 years and are periodically repriced to market levels. The company also purchases coal from mines in which it holds equity interests, equivalent to 17.9% of 1997 purchases and 14.6% of purchases in the first six months of 1998. The contracts require POSCO to buy a minimum amount of coal in any one year, which is generally around 10% of the total purchases by the company under the contracts. Thailand Future coal demand in Thailand will be tied both to the country's declining reserves of indigenous coal and to increasing industrialisation.

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Two local coal-mining companies Lanna Lignite and Ban Pu Coal are soon to see the exhaustion of their own coal reserves and are now looking internationally to discover additional resources. This has seen both companies look towards Indonesia as a potential new supplier to the indigenous electricity generating sector, and it is into this area that the two companies are diversifying their operations. In the steel industry, Thai Special Steel Industry (TSSI) was due to sign an agreement with Fording Coal of Canada for the supply of 500 000 t/year of coking coal for its new steel plant. The contract was for a five year period from the middle of 1999 at an estimated price of US$150 m, equivalent to US$60/t, but may not have been completed as a consequence of the many problems in the Asian region at the end of 1998. Coal was due to be supplied from Fording's three mines in British Columbia, which produce at a rate of some 15 Mt/year.

10.6.2

Europe

Czech Republic The Ministry of Trade and Industry in the Czech Republic expects electricity consumption to grow at about 1%/year to 2010, even though it has actually fallen in recent years and was at 1995 levels in 1998. Future recovery in the domestic economy is expected to lead to a return to demand growth, whilst the liberalisation of the European electricity market and potential for the country to join the European Union may increase the scope for cross-border supplies. Denmark Over 50% of Denmark's electricity is derived from coal-fired plants but, in 1997, the Danish government banned the construction of new coal-fired power stations in order to aid the country's commitment to reduce CO2 emissions to 25% below 1990 levels by 2010. Dual-firing plants were also included in the legislation, which resulted in the cancellation of a planned 88 MW biomass and coal plant at Arhus. Existing plants were originally allowed to continue operation over their remaining economic lives and so coal consumption in Denmark was expected to remain at around 12 Mt/year until 2025. However, new targets set by the government for a reduction in CO2 emissions by 1 Mt/year from 23 Mt in 2000 to 20 Mt in 2003 may force a rethink amongst domestic power producers.

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ELSAM, with total production capacity of 4500 MW, is the largest producer and exporter of power in Denmark and may be forced to close some of its more modern units for a period of time. Any CO2 production over the limits will be taxed at a rate of 40 Danish crowns/ tonne (US$5.60/t). The legislation covers the country's total emissions and makes no allowance for a transfer of CO2 emission credits from Norway, which imports electricity during periods of cold weather and is dependent on hydroelectricity for the bulk of its domestic needs. Germany The long-term policy of the German government is a gradual withdrawal from nuclear energy, effectively reflecting the stated aim of the country's electricity utilities. Indeed, no new nuclear plants have been ordered in Germany for a period of 20 years but even so the industry still supplies some 30% of the country's electricity. As the existing plants close, the country will therefore need to find alternative sources of supply. As part of its strategy, the German government is also promoting energy conservation, renewable energy and the improved efficiency of fossil fuel plants. The latter factor because hard coal and lignite together provide over 50% of Germany's electricity (see Table 10.4). Nevertheless, there may be an increase in fossil fuel production of electricity during a transition period, although this may well be supplied by gas in view of the economic and environmental advantages offered by the fuel. This is a situation that has also been enhanced by the deregulation of the German electricity supply Table 10.4 Gross power generation in Germany Energy source

1997

1998(P)

TWh

(%)

TWh

(%)

Coal Hydro Lignite Natural gas Nuclear energy Oil Other

143.1 20.9 141.7 48.0 170.3 5.9 19.8

26.0 3.8 25.8 8.7 31.0 1.1 3.6

151.5 20.5 140.0 51.5 161.7 5.5 21.3

27.4 3.7 25.4 9.3 29.3 1.0 3.9

Total

549.7

100.0

552.0

100.0

Source: Rheinbraun, 1999.

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industry, which is now fully open to competition through the allowance of third party access to all consumers. As part of its environmental policy, the German government introduced the Ecological Tax Reform Act on 1 April 1999 in order to promote the thrifty use of energy as a whole, rather than to target specific areas of consumption such as coal. As a consequence, taxes on fuel will increase annually by DM0.06/litre and by DM0.005/kWh on electricity. Hard coal and lignite each supply about 25% of Germany's electricity, and although much is argued about hard coal production subsidies none is available to the country's lignite industry. In the future, however, hard coal subsidies are set to be reduced (see Chapter 9), and this is expected to lead to lower domestic production and a consequent increase in imports which, at 27 Mt in 1998, have more than doubled since 1990. Hungary Unfortunately the high cost of new coal-fired electricity generation capacity and the potential supply of cheap gas from Russia means that new electricity generating capacity is likely to be gas-fired (see Table 10.5). Table 10.5 Power generation capacity in Hungary Plant

Fuel

Units

Nameplate capacity

Total capacity

Ajka BaÂnhida Borsod Budapest Dunamenti Inota Inota GT MaÂtra OroszlaÂny Paks* PeÂcs Tiszapalkonya Tisza 2

Coal Coal Coal Oil & Gas Oil & Gas Coal Oil Lignite Coal Nuclear Coal Coal Oil & Gas

6 1 9 16 13 5 2 5 4 8 6 7 4

3630 + 12 + 10 + 19 100 4630 + 4 + 4 + 10 + 12 + 21 Min 1.3 ± max 32 66215 + 36150 + 50 + 40 + 2620 4620 + 12 2685 36200 + 26100 1655 + 3660 86230 2660 + 35 + 35 + 2630 1650 + 13 + 15 + 7 + 3655 46215

132 171 131±163 1870 92 170 800 235 1840 250 250 860

*Represents four reactor blocks of 460MW and 8 turbine generators. Source: SZEÂSZEK

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Lithuania Lithuania is dependent on its domestic nuclear power industry for 83% of its electricity needs. However, by 2005 the country intends to decommission the first of two 1500 MW Chernobyl-type reactors at its Ignalina plant at a cost of US$2.5bn. The full cost of decommissioning both reactors has been set at US$4bn and is seen as a step on the way to joining the European Union. After decommissioning, the country will clearly become more dependent on outside sources of electricity ± but it should have access to the free market in electricity that is being developed within the European Union. Norway As indicated above, Norway is mainly dependent on hydroelectricity for the bulk of its domestic needs. However, during particularly cold weather, or if there has been insufficient rainfall, the country is forced to import electricity from neighbouring countries, such as Denmark. Overall, however, there is unlikely to be any major change in the primary energy supply mix in Norway, which will therefore remain a negligible coal consumer. United Kingdom Apart from the consumption of coal by electricity generating companies, industrial uses of coal remain relatively important for the indigenous industry (see Fig. 10.3). One of the main industrial consumers of coal is British Alcan, which requires coal to power its Lynemouth power station, which consumes some 1.3 Mt/year of coal. The power station is adjacent to the aluminium smelter and the Ellington colliery on the north-east coast of the country. Following the privatisation of the British coal industry, coal for the smelter was supplied by RJB Mining, Coal Investments and Gordon Harrison, with about 1 Mt/year supplied from RJB's adjacent Ellington colliery. A new contract between British Alcan and RJB was completed in 1999, but the possible closure of the Ellington colliery means that the coal is now likely to be supplied from RJB's open pit mines in the vicinity.

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10.3 Fuel input for United Kingdom electricity generation (source: Department of Trade and Industry).

10.6.3

North America

Canada Over the period 1998 to 2025, the National Energy Board (NEB) of Canada expects that there will be a major increase in the production of electricity from gas-fired power stations at the expense of coal-fired stations. Currently bituminous coal is produced within Canada for local consumption in New Brunswick and Nova Scotia, whilst coal mined in Alberta is despatched by rail and barge to southern Ontario. Sub-bituminous coals and lignite are also mined in Alberta and Saskatchewan for electricity generation within the two provinces. Lignite is also sent by rail to electricity plants in northern Ontario and occasionally to Manitoba. In total, the electricity generation in these regions consumed over 41 Mt of domestically produced coal in 1996. In eastern Canada the rail infrastructure means that it is inefficient to transport coal across the country and so it imports about 13 Mt/year to supplement production. Canada's total consumption of thermal coal for electricity generation is therefore approximately 54 Mt/year, whilst its metallurgical coal consumption remains negligible and the bulk of this type of coal is exported. Table 10.6 provides a list of the 25 major coal-fired power stations in Canada together with their respective generating capacity, which totals 19 GW and supplies approximately 20% of the electricity produced in the country.

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Table 10.6 Coal-fired power plants in Canada Power plant

Owner

Capacity (MW)

Power plant

Owner

Capacity

Sundance Wabemun Keephills Battle River HR Milner Sheerness Genesee Boundry Dam Poplar River Shand Brandon Selkirk Thunder Bay

TransAlta Utilities TransAlta Utilities TransAlta Utilities Alberta Power Alberta Power Alberta Power Edmonton Power SaskPower SaskPower SaskPower Manitoba Hydro Manitoba Hydro Ontario Hydro

1987 569 754 735 140 766 800 875 592 272 237 132 423

Mantioke Lakeview Lambton Atikokan Belledune Dalhousle Grand Lake Lingam Glate Bay Trenton Point Actoni Point Tupper

Ontario Hydro 4096 Ontario Hydro 2400 Ontario Hydro 2040 Ontario Hydro 230 NB Power 440 NB Power 286 NB power 82 Nova Scotia Power 602 Nova Scotia Power 116 Nova Scotia Power 350 Nova Scotia Power 165 Nova Scotia Power 150

Source: Coal Association of Canada.

United States Most of the coal consumed in the United States is used to generate electricity in 500 of the country's 3000 electricity generating stations. Indeed, coal is used to generate about 55% of domestic electricity supply and the size and economic weight of the industry is thought to be a major factor in the country's reluctance to ratify the Kyoto protocol and agree to the cut in greenhouse emissions proposed (see Table 10.7). Table 10.7 Coal consumption in the United States 1989±98 End-use (Mt) Electricity

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

767

773

772

780

814

761

771

814

815

827

Metallurgical

41

39

34

32

31

29

30

29

27

25

Other industrial

82

83

82

80

81

68

66

64

64

63

±

±

±

±

±

5

5

5

5

6

Exports

101

106

109

103

74

65

80

82

77

70

Total

991

1 001

997

995

1 000

928

952

994

988

991

Other

Source: Zeigler Coal, Mining Annual Review, Energy Information Administration.

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10.6.4

South America

Brazil Demand for locally produced steam coal in Brazil is concentrated in the internal electricity generating industry, which accounts for 98% of domestic consumption. In 1999 there were plans to expand the capacity of electricity generating stations within Brazil through allowing coal producers to expand downstream into generation, although such projects remain at early stages of evaluation. The country's metallurgical industry relies on imports of coking coal, which rose from 10.4 Mt in 1997 to 12.6 Mt in 1998, at a cost of US$747m. The main suppliers of coking coal are the United States (38%), Australia (22%), South Africa (13%), Canada (8%) and China (5%). The country is the third largest international purchaser of coking coal after Japan (73 Mt) and South Korea (17 Mt).

10.6.5

Africa

Most coal produced in Africa, with the exception of South Africa, is used domestically and is dependent on the health of local economies and consequent demand for power. Indeed, countries across sub-Saharan Africa have a 2% electrification rate (the percentage of the population supplied with electricity) against 70% in South Africa. With electricity demand growth in developing countries normally expected to be some 2±3% above the growth of GDP, there is great potential for the expansion of the electricity market across Africa. To capitalise on this potential, Eskom Enterprises, a separately structured subsidiary of Eskom, is expanding into Africa and is already active in Ghana, Ivory Coast, Mozambique, Nigeria, Senegal, Tanzania, Uganda, Zambia and Zimbabwe. South Africa Total domestic demand for coal in South Africa is of the order of 140 Mt/year, with Eskom consuming some 80 Mt/year, Sasol around 40 Mt/year (although this should rise following the expansion of its oil and chemical activities) and other industrial and domestic uses accounting for the balance. Coal-fired plants supply around 90% of South Africa's electricity requirements, with the nuclear industry providing the bulk of the remainder. There are currently no plans to

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increase installed capacity as the country is benefiting from a surfeit of electricity due to an overestimate of economic growth and increasing efficiency at existing plant. Any increases in South African production will, therefore, have to be targeted at the export market. In 1994, Eskom generated 160.3 TWh of electricity and with installed capacity of 36 GW, leading to an excess of some 5.4 GW, there is no immediate need for a new plant to be built. If all mothballed plant is brought on stream then Anglo Coal is estimated to have potential additional demand for almost 7 Mt/year. Anglo Coal also holds rights to other coal deposits that could be utilised in a minemouth coal mine±power station complex, but this is not expected to be a viable proposition for the next five to ten years. Sasol is also important in a South African context given its transformation of coal into chemical and other fuel products, and demand here is related to the health of the global chemical intudstry. Sasol's consumption of coal effectively absorbs around 40 Mt/year, although it has recently been looking to expand its export sales as a consequence of new mine development. At some 3 Mt/year exports are unlikely to become significant in comparison with the company's total production of 54 Mt/year.

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11 International trade 11.1 A blessing or a curse? 11.2 International suppliers 11.2.1 Australia 11.2.2 CIS 11.2.3 South Africa 11.2.4 South America 11.3 International consumers 11.3.1 Coking coal 11.4 The traders

# Charles Kernot

11.1 A blessing or a curse? Easy access to the sea meant that British coal could be sent around the world in British ships and it was then stored in a string of worldwide depots to fuel those ships. This originally provided Britain's indigenous coal industry with a great advantage, but it is now a liability as the same ports that exported cheap British coal are now able to import still cheaper foreign material. Conversely, Botswana, which has extensive coal deposits, may find it impossible to exploit them economically because the country's landlocked position restricts the profitable export of potential production. France became an importer of coal in the fourteenth century when the English king Edward III authorised exports of the fuel across the English Channel during a lull in the Hundred Years War. Other imported means of electricity generation are still used by France but the country now prefers to be as self-dependent as possible, as can be seen by the French government's insistence (whatever its political persuasion) that the nuclear industry is maintained. Cogema, the state company that is 85% owned by the government and 15% owned by Total, manages France's nuclear industry. To this end, the group also acquires significant equity stakes in existing or potential uranium producers, wherever in the world they are based, in order to attempt further to guarantee supplies. Any producer and supplier of coal has to meet exacting requirements and restrictions before a consumer will commit to purchase coal on a long-term contract. Indeed, the security of supply argument was one of the reasons why most South African coal was sold on the ARA spot market rather than being sold on longer-term contracts. Clearly, the political stigma associated with South African output also meant that it suited the country to sell so-called `Rotterdam blend' through intermediaries so that the final buyer did not necessarily know where the coal originated. Now, following the dismantling of apartheid, more longer-term contracts have been completed and, as worries over the future political complexion of the country diminish, the country's share of the international market is likely to be limited only by its export capacity. The case of China shows the problems that can result from the source of the coal and where it is to be used. The country is, by a large margin, the world's largest producer, and an increasing exporter, of

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coal. This, however, has not stopped it from importing coal because of the infrastructure problems of distributing the coal from the mines to the consumers. As a large part of China's industry is located along the coast it is often cheaper for the country to import Australian coal than to move the fuel internally. The local market for coal, therefore, bears little or no relation to the international or free market price of the commodity or other forms of energy. Nevertheless, the price of coal tends to rise in relation to the distance from the mine as the extra transport costs should lead to an increase in the delivered cost of the product. On top of this must be placed an `in use' charge that takes account of the additional cost of transporting coal over a distance of say 1000 miles when two 500 mile deliveries could be made in the same period of time. The method of transport from the source is also important, as Ian MacGregor found during the 1984/5 miners' strike `that it cost more to transport coal by rail from the docks at Hunterston to Ravenscraig a few miles away than it would to ship that coal half the way from America to Hunterston'. Therefore the price of coal will rise depending on the distance and method of transport from the source. Location, however, remains a major factor influencing the final market for coal, particularly during periods of high freight rates. For instance, when rates are high, Australia is almost completely excluded from selling into Europe and the United States, whilst South African producers find it difficult to sell into Asia. Table 11.1 shows the distance from the main coal loading ports to Japan ± an important consideration for Japanese consumers. There are many question marks hanging over the future use of coal in the world, although internationally traded coal represents only a relatively small part of the total amount of coal burned. Nevertheless, it is expected that the international trade in coal will continue to grow. Beyond this, the use of coal will depend on the imposition of carbon and other taxes, and on the anticipated increase in the prices of both oil and gas, which may tend to make coal a more economically viable fuel, despite the high tax burden that it is likely to suffer.

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Table 11.1 Distance from main loading ports to Japan Country

Port

Distance (nautical miles)

Australia

Hay Point Gladstone Newcastle

3 963 3 846 4 289

Canada

Roberts Bank Prince Rupert

4 141 3 706

United States

Norfolk Los Angeles Gulf

9 315 4 741 8 937

South Africa

Richards Bay

7 750

Russia

Vostochny

China

Rizhao

1 249

Indonesia

Tanjung Bara

2 910

781

Source: Sumitomo Metal Industries, CoalTrans 1999.

11.2 International suppliers The international market in coal is relatively small, being restricted to a few key players in a small number of countries. All other producers either sell all of their own production locally and are unable to export due to a lack of infrastructure, or the cost of production is so high that their exports are not economic, as cheaper coal can be purchased elsewhere. The major world exporters of coal are Australia, Canada, South Africa and the United States. To put this in context it must be recognised that international trade in coal was only 480 Mt, or around 13% of total world hard coal production in 1998. However, it is a share that is expanding as a consequence of new mines constructed specifically to feed increasing demand for the product. World coal exporters are vastly different from the list of world producers because of the large amount of coal which is consumed in the home market. It is also interesting to note various disparities between the geographical areas of exports and consumption. For instance, whilst China is the world's largest producer of coal and is situated relatively close to Japan, which is one of the world's largest

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consumers, only 1.8% of China's entire production is destined for the export market. Australia stands as the world's largest single exporter of coal: at 166 Mt in 1998, this represents 78% of the country's total production of hard coal during the year. Steaming coal is produced on a global basis and supplied internationally by a wide range of companies with access to port facilities. Conversely, the more specialised coking coal market is dominated by producers from Australia, Canada and the United States, which together account for some 87% of the market for high grade metallurgical coals. Other coking coal producers that sell into the international market are China and South Africa, and both of these countries are attempting to break into this market, although the bulk of their production is of semi-soft coking coal. One of the factors that has helped to support this trend is the increasing switch amongst iron and steel producers to use PCI coals in steel operations. These coals are relatively cheaper than high grade metallurgical coals (see Chapter 12) and consumers can therefore save money by reducing the amount of these coals consumed in the steelmaking process by increasing the amount of cheaper coal that they consume. This trend is shown in Fig. 11.1. The export market for lignite is not well developed as the relatively low energy content means that the transport cost per unit of energy is excessive and it is normally cheaper to utilise imported hard

11.1 Sumitomo Metal Industries PCI rate (kg/t) and semi-soft ratio (%) for blending purposes (source: Sumitomo Metal Industries).

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International trade

Table 11.2 Major global coal exporting countries Country

Exports 1991 (Mt)

Share of hard production (%)

Exports 1198 (Mt)

Share of hard production (%)

Australia USA South Africa Canada CIS China Poland Colombia Indonesia Germany Venezuela Great Britain Rest of World

120.2 98.8 47.8 34.1 28.1 18.8 18.0 14.7 6.5 3.3 2.1 1.8 21.5

72.2 16.2 26.9 55.6 6.7 1.9 12.8 63.9 45.5 5.0 84.0 1.9 N/A

166.9 70.5 72.8 34.2 ± 32.3 28.1 29.6 46.8 0.2 5.7 ± 54.8

78.4 7.5 32.2 53.8 N/A 2.6 24.0 87.1 76.7 0.4 83.8

Total World

415.7

N/A

541.9

N/A

N/A

Sources: Mining Magazine, OECD and Author.

coal or home supplies of lignite than to import lignite from overseas. Moreover, lignite is liable to suffer from spontaneous combustion, which increases the risks of long-distance transport unless the fuel is first transformed into briquettes. The world's largest coal exporters and the share of hard coal production which was exported in 1991 and 1998 is shown in Table 11.2. Anglo American estimates the breakdown between the supply and the demand for bituminous hard coal (both steam and metallurgical) shipped by sea in 1997 according to the data in Table 11.3. In 1998, the split for demand is not expected to show much variation, although the North American component of supply is likely to have fallen as a consequence of the strength of the economy in the United States and the resultant increased demand for energy. South Africa's share of the world steam coal export market was a much higher 23% in 1997 in view of the relatively lower level of metallurgical coal produced in the country.

11.2.1

Australia

Exports of coal from New South Wales are heavily weighted towards thermal coal, accounting for 52 Mt of the 76 Mt exported and expected to rise to 70 Mt by 2005. Thermal coal generated revenues of

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Table 11.3 Breakdown between supply and demand of bituminous hard coal shipped by sea in 1997 Country/Region Australia North America South Africa Indonesia Rest of World Total

Supply (%) 31 20 13 9 27

Country/Region Asia Europe North America Rest of World

100

Demand (%) 51 35 4 10

100

Source: Anglo American

A$2.5bn, against revenues of A$1.5bn for the 24 Mt of metallurgical coal exported during 1997±98. The export destination of the coal produced in New South Wales is given in Table 11.4. Table 11.4 Export destination of New South Wales coal, 1997±98 Thermal coal

(%)

Metallurgical coal

(%)

Japan Korea Taiwan Hong Kong China Other

49 21 16 3 2 9

Japan South Korea Taiwan India United Kingdom Other

62 14 7 6 3 8

Total

100

Total

100

Source: New South Wales Department of Mineral Resources.

11.2.2

CIS

The self-sufficiency of the former Communist bloc is changing as the countries reduce their previously self-imposed barriers to world trade. This means that the world can expect the countries in the CIS to increase their share of the international coal market in order to satisfy their growing need for foreign exchange, and prevent the creation of a massive trade deficit with the West. Although many CIS mines are highly dangerous and uneconomic, and the CIS is in need of as much of its own indigenous energy as it can produce, it is likely that the level of exports from these countries will increase in the future. The introduction of western oil companies with modern production technology has been a recent

Chapter 11/page 6

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International trade

development and it must only be a matter of time before the same happens to their respective coal industries.

11.2.3

South Africa

Of the non-OECD countries, South Africa is the largest single exporter, and accounted for some 14% of the total world market in hard coal of 480 Mt in 1998. It has been mentioned above that there are various options open to the South African coal producers as to how they could expand their share of the international market, both through the construction of additional port capacity and also through the use of Maputo as an alternative. One of the factors that will also be of future importance is the quality of the railway line that links the collieries with the port of Richards Bay. The use of the railway is governed by a long-term contract between the coal producers and Spoornet ± the South African state railway authority. The existing contract is due to expire in 2005 and the coal producers are confident that it will be possible to negotiate a new contract on similar terms. However, it must also be recognised that the existing contract is highly profitable for Spoornet and that the profits on transporting coal are used to subsidise the rest of the local railway industry. South Africa is both continuing with a privatisation programme and in need of additional funding in order to continue with its Reconstruction and Development Programme. As a consequence, it remains a possibility that the cost of railing coal from the mines to the port will increase the next time that the contract comes up for renegotiation.

11.2.4

South America

Despite the expansion plans detailed above, it is likely that the Latin American countries of Colombia and Venezuela will become the major players in the international coal market of the next few years. This is because of the vast reserves situated in these countries and the relatively efficient infrastructure and low labour costs that will enable the coal to be exported cheaply. In particular, both countries are well situated to take advantage of the European market, and a massive expansion of their coal-mining industries is planned over the next few years. As the development of South American economies progresses, it may be that some of the coal is exported to

# Charles Kernot

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The coal industry

neighbouring countries, although much of it will be sold to European consumers.

11.3 International consumers On the other side of the equation, the international demand for coal is dominated by Japan and the European Union, which together account for about 60% of the total. However, the rapid expansion of Asian economies over the past decade has led to a relative decline in Europe's share of demand (see Fig. 11.2). Statistics from the World Coal Institute show how European coal consumption has fallen from 25% of the global total in 1987 to only 16% in 1997. In some instances it must be noted that old Comecon affiliations are still in place. This has been seen with EKO Stahl, which is situated in former East Germany, close to the Polish border. The company is now owned by Cockerill-Sambre, itself recently taken over by Usinor, the French steel producer. Despite these major structural changes, the group is still purchasing its coal requirements from Polish mines given its proximity, at Eisenhuettenstadt, to the border with Poland. Not all of this increase in demand will have come from increasing steam coal use to power an expanding electricity sector in the Asia/ Pacific region (although it still remains largely undersupplied), as increasing production of steel has also increased demand for coking coal. However, this demand has risen at a slower rate than the level of

11.2 Increasing share of Asia/Pacific in global coal trade (1987 and 1997) (source: World Coal Institute, 1996).

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International trade

demand for steam coal, to the extent that over 60% of international trade is now in steam coal, compared with 55% in 1991. The greater demand for steaming coal is related to the huge energy demands in Europe, where much of the indigenous coal industry has closed due to exhaustion or declining profitability, whilst the region remains dependent on coal to generate over 25% of its electricity. In total Europe's demand for steam coal imports was 106 Mt in 1998, accounting for over 40% of total consumption. The second largest consumers of steaming coal are the developing Asian economies, although they account for only some 5% of international steaming coal trade. One of the important factors that should secure the future level of demand for steam coal in Europe is that the bulk of the electricity generating industry represents large capital investment. As a consequence, there is little likelihood that the local electricity generating companies will close plants that are still economic to run (even if only on a cash basis) until they have reached the end of their useful operating lives. This means that international coal suppliers are likely to be buffered to a certain extent from potential declines in European demand, although the potential threat of carbon taxes may accelerate the closure of older and potentially less profitable plants. Transport and infrastructure is important to the international coal trade, hence the importance of the RBCT and the dedicated rail network to South Africa's coal exports. A converse situation exists in India, where a consortium led by Natco intends to construct a Rs13 bn (US$360 m) port 31 km north from Krishnapatinam in Andhra Pradesh in southern India. Three proposed power stations could consume coal delivered through the port.

11.3.1

Coking coal

The Japanese are the world's largest consumers of coking coal accounting for 38% and 40% of world coking coal demand in 1990 and 1991, respectively. The international trade in coking coal is larger than its relative share of production because of its relative scarcity and importance in the world's metallurgical industries. This demand is fuelled by the large Japanese metallurgical industries, which need to import much of the coal which they consume. Indeed, Japan was once a large coal producer in its own

# Charles Kernot

Chapter 11/page 9

The coal industry

right, but from a total workforce of 348 000 people, the Japanese industry now only employs some 4000 people in four collieries. This has led to a marked need for imported coal to supply the metals industry, a situation enhanced by the country's imposition of import tariffs on finished metals. This means that it is still cheaper to go to the extra expense of importing iron ore and coal than it is to import the finished metal. European OECD countries make up the second largest importers of coking coal in order to fuel their own metallurgical industries. Most European imports originate from the USA, as opposed to the Australian dominance of the Japanese market. This clearly shows the cost benefit of being near to the source of the material, as the greater the distance the greater the costs of transport. The major exporters and importers of both coking and steaming coal in recent years are shown in Tables 11.5 and 11.6.

11.4 The traders Coal traders are a relatively secretive group of individuals and organisations and are generally unwilling to release much information about their activities. It is certainly not in their interests to divulge the profitability of any particular shipment of coal but, by inference, it must be a remarkably profitable business. This profitability is not related to the trading of coal with high profit margins but is based on maximising the throughput of material, organising joint shipments in order to share transport costs, or providing additional financing packages to customers. Moreover, because a trader is able to purchase bulk shipments from a mining company and may have a range of customers in any particular location, it should be able to obtain keener purchase and transport costs than each of its customers on an individual basis. It is for this reason that the coal consumers will transact business with a trader whilst the coal-mining company benefits from having to worry about fewer customers and ensuring faster throughput at its load-out points which, in turn, helps to maximise mine production, thereby reducing unit costs. As long as the decline in unit costs is greater than the discount offered to a bulk buyer, the mining company also stands to gain.

Chapter 11/page 10

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# Charles Kernot

43.2

Total

0.5

Total

25.9

1.2

0.1

1.1

89.9

48.8

41.1

1986

55.8

46.4

1988

26.7

1.0

0.0

1.0

31.7

1.0

0.0

0.9

95.7 102.2

49.8

45.9

1987

58.4

45.6

1990

6.3

Total

32.8

0.9

0.0

0.9 0.7

0.0

0.7

5.8

6.8

2.7

4.1

9.7

10.0

3.7

6.3

10.8

15.6

4.2

11.4

13.5

15.3

3.7

11.6 17.3

4.0

13.3

0.4

0.0

0.4

Steam

Coking

Total

France

Denmark

Czech Republic

0.7

0.0

0.7 0.7

0.0

0.7 0.6

0.0

0.6 0.7

0.0

0.7

0.1

1.0

0.0

1.0

0.1

0.7

0.0

0.7

0.1

0.8

0.0

0.8

0.1

1.5

0.0

1.5

0.1

0.7

0.0

0.7

0.0

0.6

0.0

0.6

11.4

3.5

7.8

2.5

5.3

Total

1.0

7.0

2.4

4.6

0.1 0.5

6.6

2.3

4.3

11.3 0.3

6.4

1.8

4.6

Steam 0.2

6.6

1.5

5.1

Coking

0.2

1.4

Coking

Colombia

4.9

Steam

China

60.1

53.1

1991

65.5

57.7

1992

72.4

56.0

1993

71.6

57.2

1994

73.8

62.6

1995

76.2

63.1

1996

78.2

68.2

1997

82.7

84.2

1998

0.6

0.0

0.6

13.4

0.3

13.1

20.0

4.2

15.8

34.1

28.8

5.3

1.1

0.0

1.1

0.5

0.0

0.5

16.1

19.7

3.7

16.0

27.4

0.7

0.0

0.7

0.6

0.0

0.6

17.7

19.8

0.0

19.8

28.2

0.7

0.0

0.7

0.6

0.0

0.6

17.7

24.3

0.0

24.2

31.6

1.0

0.0

1.0

0.4

0.0

0.4

18.7

27.8

0.0

28.6

32.8

27.3

5.4

0.8

0.0

0.8

0.3

0.0

0.3

24.0

28.6

0.0

36.5

33.8

27.3

6.5

1.2

0.0

1.2

0.2

0.0

0.2

7.0

25.7

1.7

24.0

31.0

4.6

26.1

36.5

30.1

6.4

1.5

0.2

1.3

0.1

0.0

0.1

29.6

0.5

29.1

32.3

4.9

27.4

34.2

28.3

5.8

1.3

0.0

1.3

99.3 104.0 113.2 123.2 128.4 128.8 136.4 139.3 146.4 166.9

56.6

42.7

1989

31.0

27.4

1.3

0.2

1.1

83.8

50.5

33.3

1985

Total

25.1

1.2

0.2

1.0

66.5

44.1

22.4

1984

4.1 17.0

0.6

0.0

0.6

55.5

38.8

16.8

1983

26.9 16.0

0.7

0.1

0.6

47.2

37.4

9.8

1982

Coking 15.7

0.8

0.3

0.5

47.4

36.9

10.6

1981

Steam

15.3

0.2

Coking

Canada

0.3

Steam

Belgium

7.0

36.1

Coking

1980

Steam

Australia

EXPORTS

Table 11.5 Major coal exporters by type of coal

International trade

Chapter 11/page 11

Chapter 11/page 12 0.9

0.9

1.0

0.2

0.2

5.3

2.5

0.2

0.0

6.4

4.5

1.9

4.3

0.1

5.5

4.0

1.5

1990

7.9

0.1

3.5

2.1

1.4

1991

16.8

0.1

1.7

0.7

1.0

1992

18.7

0.1

1.0

0.2

0.8

1993

25.4

0.1

2.0

0.5

1.6

1994

31.3

0.1

1.9

0.7

1.1

1995

36.4

0.1

1.0

0.0

1.0

1996

0.1

0.5

0.0

0.5

1997

0.1

Total

0.1

0.0

31.1

Coking

Total

0.0

0.0

0.0

Steam

Coking

Total

Russia

31.1

Steam

Poland

0.0

0.0

0.0

15.2

0.0

15.2

0.0

0.0

0.0

28.5

0.0

28.5

0.0

0.0

0.0

35.1

0.0

35.1

0.0

0.0

0.0

43.0

0.0

43.0

0.1

1.2

0.0

0.0

0.0

60.3

0.0

60.3

36.1

0.0

36.1

0.1

1.4

0.0

0.0

0.0

51.8

0.0

51.8

34.9

0.0

34.9

0.1

2.3

0.0

0.0

0.0

52.8

0.0

52.8

30.2

0.0

30.2

0.1

1.8

0.0

0.0

0.0

0.1

0.0

0.0

0.0

32.3

0.0

32.3

0.1

1.8

0.0

0.0

0.0

0.0

52.9

0.0

52.9

28.9

0.0

28.9

0.1

1.1

0.0

0.0

0.0

0.2

0.1

0.0

0.0

0.0

0.5

0.0

0.0

0.0

0.5

0.0

0.0

0.0

0.5

0.0

0.0

0.0

0.0

0.0

0.0

56.1

31.6

24.5

34.4

6.3

28.1

37.4

15.6

21.8

25.8

6.3

19.5

40.5

24.3

16.2

19.6

0.0

19.6

25.9

6.7

19.2

23.0

12.8

10.1

23.1

17.4

5.7

27.7

10.7

17.0

0.5

0.1

0.0

0.0

0.0

0.1

1.2 0.1

0.0

0.0

0.0

0.0

North Korea (Total)

Netherlands (Total)

0.0

0.0

0.0

0.0

New Zealand (Total)

0.1

0.0

Coking

Kazakhstan (Total)

0.0

Steam

Japan

Ireland (Total)

26.3

8.7

17.6

31.9

12.3

19.6

0.5

1.3

0.0

0.0

0.0

25.3

6.5

18.8

28.9

9.9

19.0

0.5

0.0

0.0

0.0

21.2

5.3

15.9

29.5

9.1

20.3

0.5

0.0

0.0

0.0

41.7

1.1

0.2

0.1

6.6

3.6

1.7

1989

Total

0.9

0.2

0.0

7.5

4.2

2.3

1988

3.5 0.4

0.2

0.2

9.2

4.7

2.8

1987

38.2 0.2

0.1

10.8

5.7

3.5

1986

Steam 0.2

0.2

10.9

7.7

3.1

1985

Coking

0.1

0.2

10.2

8.3

2.6

1984

0.1

Indonesia

0.1

12.3

7.6

2.6

1983

India (Steam)

12.7

Total

9.2

3.1

1982

0.1

8.6

1981

Greece (Total)

4.0

Coking

1980

Steam

Germany

EXPORTS

Table 11.5 Major coal exporters by type of coal cont'd

23.5

5.5

18.0

28.1

6.5

21.5

0.5

1.2

23.7

0.0

0.0

0.0

46.8

4.6

42.2

0.1

0.2

0.0

0.2

1998

The coal industry

# Charles Kernot

28.2

Total

# Charles Kernot

0.0

4.0

Coking

Total

83.2 102.1

Total

27.5

22.5 34.4

26.3

0.0 38.6

39.5

0.0

0.6

46.6

0.0

0.2

54.0

42.4

0.3

54.3

0.0

0.5

91.5

59.1

32.4

2.0

0.0

2.0

0.0

46.9

4.2

42.8

96.0

57.6

38.3

2.3

0.0

2.3

0.0

49.9

3.6

46.3

6.4 10.1

0.0

10.2

0.9

2.1

98.9

58.6

40.2

1.8

0.0

1.8

0.0

47.4

3.5

43.8

2.6

31.4

1.3

93.0

53.9

39.0

1.0

0.0

1.0

0.0

52.1

5.1

47.0

21.5

34.2

1.7

67.6

45.0

22.6

1.1

0.0

1.1

0.0

51.7

0.0

51.7

16.6

35.1

2.3

4.2

64.7

42.9

21.9

1.2

0.0

1.2

0.0

54.8

0.0

54.8

0.8

24.0

2.5

4.2

80.3

47.2

33.1

0.9

0.0

0.9

0.0

59.7

0.0

59.7

0.0

28.0

3.2

4.3

82.1

48.1

34.0

1.0

0.0

1.0

0.0

63.4

3.2

60.2

0.0

26.2

4.2

75.8

47.3

28.5

1.1

0.0

1.1

0.0

64.2

5.7

58.6

0.0

0.0

3.5

5.7

70.5

42.7

27.8

0.9

0.0

0.9

0.0

72.8

5.7

67.1

Grand Total

263.5 273.0 274.4 268.2 307.9 376.0 363.0 363.2 390.2 403.9 401.2 415.7 404.6 396.5 413.5 464.6 485.5 513.0 541.9

138.6 139.5 137.5 126.0 145.8 158.0 152.1 156.2 179.2 182.8 176.4 178.8 157.1 160.4 162.0 173.3 174.5 189.8 185.0

27.5

20.0

0.6

86.2

56.2

30.0

1.7

0.0

1.7

0.0

44.2

5.0

39.2

124.8 133.5 136.9 142.2 162.1 218.0 210.9 207.0 211.1 221.1 224.8 237.0 247.5 236.1 251.6 291.2 311.0 323.2 356.9

27.4

20.2

0.5

72.2

46.9

25.3

2.3

0.0

2.3

0.0

41.7

4.8

36.9

Total Coking

30.9

Coking

0.4

77.6

49.9

27.7

2.7

0.0

2.7

0.0

46.2

5.9

40.3

Total Steam

21.9

Steam

Other

0.7

84.1

54.7

29.3

2.6

0.1

2.5

0.0

47.6

5.1

42.5

0.7

0.9

73.9

51.7

22.2

2.4

0.1

2.4

0.0

38.9

4.8

34.1

Vietnam (Total)

70.6

45.3

25.1

6.3

0.1

6.2

0.0

31.2

3.3

27.9

1.5

96.4

58.6

37.8

7.4

0.2

7.2

0.0

28.3

3.5

24.8

Venezuela (Total)

0.6

57.2

59.2

26.0

Coking

42.9

9.5

0.9

8.6

0.0

29.5

3.2

26.4

Steam

USA

4.0

Steam

UK

0.0

3.4

Coking

Spain (Steam)

24.7

Steam

South Africa

International trade

Chapter 11/page 13

4.2

10.1

Total

Chapter 11/page 14

0.0

2.0

Coking

Total

10.5

29.4

Coking

Total

3.0

16.2

Coking

Total

0.6

0.6

Coking

Total

Ireland (Total)

0.0

Steam

India

Greece (Total)

13.1

Steam

Germany

19.0

Steam

France

Denmark (Total)

2.0

Steam

China

Canada (Total)

Brazil (Total)

6.0

Coking

1980

Steam

Belgium

IMPORTS

0.1

0.1

0.0

16.6

2.3

14.4

27.5

10.2

17.3

1.9

0.0

1.9

10.1

4.2

5.8

1981

1.2

1.2

0.0

16.1

2.1

14.0

23.0

8.1

14.8

2.2

0.0

2.2

10.5

4.4

6.1

1982

0.5

0.5

0.0

14.1

1.8

12.3

18.5

6.5

12.0

2.1

0.0

2.1

7.5

3.1

4.4

1983

1.4

0.4

0.4

0.0

1.9

13.2

2.0

11.2

21.6

7.7

13.9

9.7

2.5

0.0

2.5

9.3

5.0

4.3

1984

Table 11.6 Major coal importers by type of coal

1.9

2.0

2.0

0.0

2.1

15.5

2.2

13.3

18.7

7.8

11.1

12.7

2.3

0.2

2.1

9.3

4.7

4.7

1985

2.6

2.1

2.1

0.0

1.8

17.2

2.2

14.9

16.8

7.6

9.2

12.0

1.9

0.5

1.4

8.5

4.0

4.5

1986

2.9

3.0

2.7

0.3

1.8

15.0

2.2

12.8

13.2

7.5

5.8

12.0

1.7

0.3

1.4

9.1

4.9

4.3

1987

3.5

3.7

3.5

0.2

1.5

13.3

2.2

11.1

12.0

8.2

3.9

10.3

1.7

0.1

1.6

11.1

6.8

4.2

1988

3.3

4.4

4.2

0.2

1.2

11.1

2.3

8.8

16.0

7.8

8.2

10.9

2.3

0.5

1.8

12.8

7.1

5.6

1989

5.7

5.6

0.1

13.6

1.7

11.9

19.4

7.8

11.5

2.0

0.9

1.1

14.8

7.1

7.6

1990

5.9

5.8

0.1

15.4

1.1

14.4

21.8

7.7

14.1

1.4

0.6

0.8

14.4

6.4

8.0

1991

6.3

6.1

0.2

15.5

1.4

14.1

22.0

7.5

14.5

1.2

0.4

0.8

14.0

5.8

8.2

1992

7.1

6.8

0.3

13.1

1.0

12.1

14.2

6.9

7.3

1.4

0.0

1.4

11.9

4.7

7.1

1993

8.3

7.9

0.4

15.5

1.1

14.4

12.2

6.7

5.4

1.2

0.0

1.2

12.7

4.4

8.2

1994

8.9

8.5

0.4

15.1

1.4

13.6

13.2

7.3

5.9

1.6

0.0

1.6

9.7

14.1

5.3

8.8

1995

9.5

9.1

0.4

16.3

2.2

14.2

15.8

7.4

8.4

3.2

0.0

3.2

11.7

12.8

5.3

7.5

1996

15.0

9.0

0.4

23.3

2.5

17.5

13.6

7.2

6.4

2.0

0.0

2.0

10.5

15.0

10.2

9.7

0.4

26.7

4.3

17.9

16.2

6.7

9.5

1.6

0.0

1.6

18.7

12.6

4.2

8.4

1998

12.8

4.3

8.5

1997

The coal industry

# Charles Kernot

12.6

14.4

13.9

21.3

19.8

20.8 31.2

33.9

36.0

37.5

42.1

49.4

52.3

15.0

# Charles Kernot

68.6

Coking

Total

12.4

0.2

89.4

69.7

19.7 75.0

26.7 73.5

29.3 74.2

75.6

72.9

74.0

72.6

74.0

0.0

1.0

Coking

Total

28.2

Total

0.0

0.0

Coking

South Africa (Coking)

28.2

Steam

Russia

Portugal (Total)

1.0

Steam

Poland

0.0

0.0

0.0

0.0

1.1

0.0

0.0

0.0

0.0

0.0

1.0

0.0

0.0

0.0

0.0

0.0

1.0

0.0

0.0

0.0

0.0

0.0

0.5

1.0

0.0

1.0

0.0

60.0

0.0

60.0

1.4

1.1

0.0

1.1

0.0

0.0

0.0

0.0

1.7

1.2

0.0

1.2

73.8

75.9

54.2

73.4

55.1

13.1

0.2

14.8

0.2

14.1

0.2

0.6

0.1

0.1

13.7

0.0

0.0

0.0

0.0

2.5

1.1

0.0

1.1

0.0

0.0

0.0

0.0

3.0

1.1

0.0

1.1

0.0

0.0

0.0

0.0

3.7

0.9

0.0

0.9

0.0

53.2

0.0

53.2

0.6

0.0

0.0

46.9

0.0

46.9

0.1

0.0

0.0

39.7

0.0

39.7

0.1

0.0

0.0

0.0

28.2

0.0

28.2

0.1

0.1

0.4

0.0

27.2

3.2

24.0

1.0

0.6

0.4

22.7

2.2

20.5

1.5

1.4

0.1

0.4

20.1

1.7

18.4

2.0

1.7

0.3

16.2

4.6

11.6

0.4

18.0

1.4

13.7

3.2

2.9

0.3

20.0

1.6

17.7

1.8

15.9

4.2

3.6

0.6

22.2

5.3

16.9

51.4

49.8

33.4 18.0

17.4

32.4

90.7 101.7 102.7 105.5 109.6 108.9 111.5 114.7 123.4 126.2 130.1 128.5

67.1

23.6

17.7

11.7

0.2

91.0

70.1

20.9

Total

11.0

0.2

86.3

69.3

17.0

5.1

1.0

73.8

59.8

12.6

1.0

78.5

64.1

Steam

1.1

78.0

65.3

Coking

Netherlands

Luxemburg (Total)

Total

Coking

Steam

South Korea

6.3

62.2

Steam

Japan

7.1

20.3

7.1 22.2

Total

21.0

Coking

Steam

Italy

International trade

Chapter 11/page 15

4.1

5.7

Total

Chapter 11/page 16 3.4

7.0

3.4

3.6

1984

5.6

8.4

4.1

4.3

1985

4.3

8.5

3.1

5.6

1986

3.3

8.8

3.4

5.4

1987

4.6

8.8

3.6

5.1

1988

4.1

10.6

4.0

6.6

1989

6.2

10.5

4.2

6.3

1990

10.4

13.0

4.7

8.3

1991

2.4

7.3

Coking

Total

0.0

1.1

Coking

Total

9.8

12.7

4.6

8.2

1993

7.0

11.5

3.9

7.6

1994

9.1

13.4

3.2

10.2

1995

9.6

12.0

3.3

8.7

1996

39.0

11.3

3.7

7.6

1997

31.1

14.6

3.9

10.6

1998

66.1

16.4 63.6

83.4

2.0

0.0

2.0

10.6

6.3

67.6

86.3

1.5

0.0

1.6

9.8

6.5

69.9

99.5

1.9

0.0

1.9

11.7

7.1

69.0

93.5

2.6

0.0

2.6

12.1

8.0

67.3

83.3

2.4

0.0

2.4

14.8

8.6

66.6

81.1

3.1

0.0

3.1

19.6

9.2

6.6

0.0

6.6

18.4

8.6

6.9

0.0

6.9

15.0

8.1

6.5

0.0

6.5

15.9

6.8

6.5

0.0

6.5

17.8

8.2

6.8

0.0

6.8

19.8

8.1

11.7

64.6

64.5

63.7

63.4

65.4

38.5

60.9 103.8 121.1 112.7 128.4 124.7

3.4

0.0

3.5

20.3

8.4

17.7

63.0

6.8

0.1

6.8

21.2

8.6

12.6

Contacts, National Coal Association, Indonesian Coal Mining Association.

Sources: International Energy Agency, OECD, Energy Information Administration, Department of Trade and Industry, European Commission, Mining Magazine, Company

258.7 269.2 276.6 269.8 313.4 346.0 344.0 348.7 374.8 377.9 393.0 398.8 403.7 393.6 411.0 440.1 464.1 497.0 493.1

62.7

64.7

1.8

0.0

1.8

12.7

7.2

139.9 141.0 140.0 134.8 155.9 164.4 159.1 162.1 176.5 176.3 177.5 177.6 171.3 171.3 172.3 178.9 183.2 186.4 183.4

57.4

83.2

1.2

0.0

1.2

8.9

5.5

Grand Total

53.7

78.6

1.2

0.0

1.2

4.5

2.4

118.8 128.3 136.6 134.9 157.5 181.6 184.8 186.6 198.3 201.6 215.5 221.2 232.4 222.3 238.8 261.2 280.9 301.2 309.7

52.7

69.0

0.6

0.0

0.7

4.1

2.6

Total Coking

53.0

Coking

0.9

0.0

0.9

4.3

2.6

Total Steam

35.6

Steam

Other

1.1

Steam

USA

4.9

Steam

UK 12.0

18.8

14.3

4.3

9.9

1992

5.9

2.0

5.9

3.1

2.8

1983

37.0

1.4

7.2

3.6

3.5

1982

Total 1.7

7.0

3.5

3.5

1981

Coking

Steam

Taiwan

1.6

Coking

1980

Steam

Spain

IMPORTS

Table 11.6 Major coal importers by type of coal cont'd

The coal industry

# Charles Kernot

International trade

Many of the major trading companies are also becoming producers in their own right, as is the case with AMCI and Glencore. Indeed, not only does Glencore have a significant one-third interest in the CerrejoÂn joint venture with Anglo American and Billiton, but it has also purchased Duiker Mining in South Africa from Lonmin, which used to hold the controlling interest. AMCI has grown quickly but has followed in the footsteps of Glencore, first organising sales or marketing contracts and then moving into coal-mining when the sale of the coal is assured. This was achieved both with the Tanoma coal mine in Indiana county, Pennsylvania, in the United States and with the Lake Vermont project in the Bowen Basin of Queensland, Australia. Rio Tinto has also recently moved to acquire a couple of ships to service coal consumers around the Pacific Basin. Using these boats, the company should be able to supply coal to smaller consumers on a CIF basis rather than on the FOB basis that most large consumers tend to purchase their consignments. As indicated above, this is intended to help the company keep the margin benefits that may otherwise be acquired by intermediary coal-trading organisations. Whilst it may appear to be a departure from the normal role of a mining company, Rio Tinto has been undertaking similar shipment operations to deliver its borax chemicals to consumers around the world for many years. If the ship logistics and marketing operations can be combined, Rio Tinto should be able to compete with the world's other major coal traders. Amongst all of the coal producers who are attempting to overcome many of the problems associated with the divorced location of their mines and their customers, Billiton is proposing an innovative solution. The company is considering ways of developing a direct distribution method for its coal so that it can move almost seamlessly from the mine to a stockpile located closer to its customer base. It has also set up its own internal coal-trading department, currently based in Switzerland, but soon expected to move to the group's main commodity trading centre in the Hague. In this way, the company should be able to reduce transport costs as it could dispense with the need to stockpile coal at Richards Bay whilst waiting for a ship. Moreover, with the move amongst consumers to purchase coal on short notice tenders, the ownership of stockpiles in Rotterdam, or elsewhere in Europe, would mean that the

# Charles Kernot

Chapter 11/page 17

The coal industry

company is able to compete with coal traders directly. Indeed, if the logistics of the operation have been properly costed, it should easily be able to beat them on price for specific qualities of coal. In this regard, it is important to recognise that the increasing use of pulverised fuel means electricity generators are becoming less concerned about specific qualities of coal. Indeed, they are happier buying a pre-blended coal of a defined average quality rather than being concerned about having to ensure that they have sufficient stocks of various qualities to carry out their own blending programmes. Given the oversupplied nature of the coal market, the customer is able to push for the provision of additional services by the supplier, and it is likely that these moves by Billiton will be followed by other producers.

Chapter 11/page 18

# Charles Kernot

12 Coal pricing and hedging 12.1 Introduction 12.2 Contracts and pricing 12.2.1 Contract price adjustments 12.2.2 Contract lengths 12.3 International coal prices 12.4 Hedging 12.5 Outlook 12.5.1 Long-term trends 12.5.2 Short-term trends

# Charles Kernot

12.1 Introduction The world's proven reserves of coal are sufficient to meet current international demand for at least 210 years, whilst resources will last considerably longer. This compares with reserves sufficient for about 42 years for oil and 60 years for gas. Indeed, coal should outlast the other fossil fuels by a considerable margin and this is why thermal or steaming coal is priced as a bulk commodity like iron ore or bauxite rather than as a scarce resource. As such, the price is more closely related to the net cost of the coal at the consumer, after accounting for all discovery, mining, rehabilitation, washing, transport and financing costs (including company profit margins). It is for these reasons that similar coals can have very different mine gate prices ± the massive coal deposits in Botswana are essentially worthless because they cannot find a market, whereas if the deposits were situated in Japan they would be extremely valuable. Coking or metallurgical coals cannot be priced so easily in view of their specific characteristics, particularly in the case of hard coking coals. These types of coal are less widely available and, because the iron and steel industry has no viable alternatives, they can command a higher price. This is not to exclude the influence that short-term supply/demand factors can exert on the price of either type of coal, as shown by the collapse in both their prices during the Asian economic crisis in 1998/99. Nevertheless, the smaller global market in coking coal (albeit that it remains a substantial part of internationally traded coal) means that it can be expected to show the widest price fluctuations. The two types of coal are as different as marble and the limestone chips used for making roads ± both have essentially the same composition but the crystalline structure of marble makes it a more valuable product, able to bear the costs of transport from restricted source locations to global consumers. Roadstone can only be shipped to a point equidistant between two producers, assuming similar costs of production and transport, and may not find a market if there are other cheaper alternatives. This pricing scenario has only really emerged in the past 25 years as a direct result of the fallout from the two oil (and hence energy) price explosions during the 1970s. Up until this time, the world's

# Charles Kernot

Chapter 12/page 1

The coal industry

major economies had come to rely on cheap, easily transportable, and therefore freely available, supplies of crude oil. The oil crisis forced a reassessment of this view and a search for alternative primary energy supplies ± which led directly to coal. It was these influences that led to the growth in the thermal coal trade as up until this time the bulk of coal shipped internationally had been destined for metallurgical applications. Supply/demand factors are, undoubtedly, important and it was the switching from oil to coal as a consequence of high oil prices that squeezed the availability of coal and forced up its price markedly during the 1970s. More benign economic activity also influences supply/demand statistics, although there tends to be a lag between an upturn in the economy and a recovery in coal prices. This is because of the level of stockpiles and is in marked contrast to the price movements of the other commodities, many of which move sharply higher at the first sniff of an economic upturn. There is one major reason for this, which may be about to change markedly as a result of the changes that are occurring in the coal market (see Hedging section). The problem relates back to the lack of a consistent type or quality of coal found around the world. If it was 100% carbon, with no moisture, sulphur or ash, then coal could be traded more easily as each consumer would know what they were buying and, more importantly, speculators or other intermediaries would know that there was a ready market into which they would be able to sell their positions. The absence of a market such as the London Metal Exchange, through which a consistent, or effectively guaranteed, product can be traded, means that speculators tend to avoid the coal market. Furthermore, it is the case that coal will deteriorate if it is stocked for too long and so timing of any speculative purchase is also critical. Finally, as is the case with a number of other commodities, many coal producers attempt to increase output into a declining price environment. Logically, this may appear the opposite of what should occur; however, most production costs are relatively inflexible and will only vary marginally with increased output. Hence, a rise in output can have a marked affect on unit production costs and, in turn, help to maintain profitability in a declining market. This strategy may also lead to increased availability of coal and can delay any price rally until well into an economic recovery. Indeed, prices may only rise as a

Chapter 12/page 2

# Charles Kernot

Coal pricing and hedging

result of increased union militancy or equipment failure ± both symptomatic of unsustainably high production rates. Prospects for switching primary energy sources may also have a direct impact on the coal price. Historically, coal prices have been more closely linked with heavy fuel oil prices in view of the ability to switch between the two fuels in dual-firing electricity generating stations. This link is no longer strong, and the increasing availability of electricity generated by gas means that, at least in Europe, gas prices are likely to have an increasing influence on coal prices. By the end of 1999, coal prices had failed to respond to the near tripling of oil prices during the course of the year. At least part of this may have been related to disbelief that OPEC would be able to honour their commitments to output reductions in the face of such a strong rise in price. Nevertheless, if the oil price rise is sustained into 2000, there can be little doubt that the price of coal will follow suit.

12.2 Contracts and pricing Coal's pricing structure is dependent upon its thermal energy; its moisture content; its sulphur, ash and other minor element contents; its ability to cake; and its origin. Obviously high thermal energy coal, anthracite, should command a higher price per tonne than lignite, as less needs to be bought and transported to produce the same amount of energy. Increasing environmental awareness also means that the sulphur content of coal is becoming increasingly important because of increasing awareness of the damage caused by acid rain. In order to avoid the need to purchase and fit expensive scrubbers to reduce sulphur emissions, a number of North American power generators have switched to low sulphur coal supplies. In the long run, it may be that the premium of low sulphur coal over the high sulphur equivalent will narrow as new power generating facilities are constructed with ever more efficient scrubbers fitted as standard. These new plants will also be more energy efficient than plants with retrofitted scrubbers (see Chapter 7) as energy-saving measures can be built in as standard. Until this occurs, the premium is likely to be maintained, and may even increase as environmental regulations become ever more stringent. Whilst the specific difference between coking and steaming coals

# Charles Kernot

Chapter 12/page 3

The coal industry

is reflected in their respective prices, each coal from each different source commands a different price, particularly on the international market. This is simply because of the different composition of each type of coal. Different coals produce different amounts of energy in relation to their specific chemical composition and the relative amount of carbon that they contain. As a result some coal contracts are calculated on the basis of the energy content of the coal (gigajoules/tonne) rather than its tonnage. It is then up to the customer and supplier to determine the energy output of the coal so that the number of tonnes to be delivered can be determined. British Coal used a base of 23.8 GJ/t for steaming coal, 26.6 GJ/t for industrial coal and 29.7 GJ/t for domestic coal until privatisation at the end of 1994.

12.2.1

Contract price adjustments

Various pass-through contracts exist in the coal market for the sale of coal to electricity generators and the ongoing sale of the electricity to distributors or consumers. These are often governed by PPA and CSA agreements. The PPA will relate the cost of the coal to a range of indices of energy prices but normally excludes any additional cost to the IPP or other electricity generator. These additional costs could be related to the cost of ash disposal; the chlorine or fluorine contents, which can damage the boilers; or other sulphur or arsenic contents that can upset the environment. An additional cost to the power plant in using particular coals may be the hardness of the coal, which means that additional energy has to be expended crushing and grinding coal to the required size for pulverised fuel injection. All of these factors can add to the cost of electricity generation but are rarely included in any coal supply agreement. The PPA is based on an assumed or fixed station heat rate and a fixed energy price to be paid for the coal. The variable is the amount of electricity generated that, in turn, is dependent on the quality of the coal supplied. Here it is important to use the net calorific value of the coal rather than the gross heat rate (see Chapter 3). The formula is: Pc = EO 6 HR 6 PEI

Chapter 12/page 4

# Charles Kernot

Coal pricing and hedging

Where: Pc = the price paid for the coal supplied to the power station. EO = the electricity supplied to the grid. HR = the station net heat rate. PEI = the price paid per gigajoule of coal. The CSA will have to be worded to ensure that the opportunity costs of using a particular coal are recovered under the CSA. The CSA price formula is: PCS = PB 6 CVCS /CVB Where: PCS = the price paid for the coal delivered. PB = the base price for the coal. CVCS = the gross calorific value of the coal delivered. CVB = the base gross calorific value.

12.2.2

Contract lengths

Spot contracts for the sale of coal normally last for a maximum of one year and are priced at a set level with no scope for escalation or readjustment over the life of the contract. Moreover, the coal producer is not normally allowed to pass through any additional costs for taxes or land reclamation. Long-term coal supply contracts are difficult to define, as each producer will negotiate a unique contract with its customer. Moreover, the two parties to the agreement may have a range of long-term contracts, each with a different structure. In the 1970s, many of the long-term contracts had a duration of over 20 years as a result of the need to ensure long-term supplies of what was hoped would be competitively priced fuel. In view of the length of these contracts and very high rates of inflation, a range of cost escalators, pass-through clauses for changes in taxation or other legislation, and periodic price renegotiation mechanisms were often included. The changing structure of the market now means that any agreement with an initial life of over five years can be referred to as long term. As global energy supplies have become more widespread, the price of all forms of energy has tended to fall in real terms. As a consequence of this and the problems caused by escalator clauses that

# Charles Kernot

Chapter 12/page 5

The coal industry

bore little relation to actual prices, most long-term contracts also exclude escalation clauses. An example of this comes from Wyoming, where coal prices peaked at an average of US$12.75/ton in 1982 whilst, in 1985, only 6% of production was sold at prices below US$5/ton. By 1996, this proportion had increased to over 75% of state sales and the average sales price in 1997 was only US$6.07/ton. By 2002 the Wyoming Coal Information Committee estimates that over 96% of state sales will be below this level. In South Africa, the long-term contracts that Anglo Coal has entered into with Eskom are structured over the assumed life of the mine-mouth power station that the mine has been constructed to feed. The initial agreements are normally for a period of 40 years (i.e. the assumed life of the power station) and they run from the commencement of full production from the mine (see Table 12.1). There is also a clause for an extension of the contract if the power station is able to extend its useful life above that originally estimated. Table 12.1 Contract and return on investment escalation expiries of Anglo Coal Eskom collieries Colliery Arnot Kriel New Denmark New Vaal Matla

Date of start-up 1976 1979 1983 1983

Date of ROI expiry April 2001 April 2000 Phased 2012 ± 2016 Phased 2012 ± 2016

Date of contract expiry 2016 2019 2033 2033 2023

Source: Anglo American.

The contracts require Eskom to pay for the coal on a cost-plus return on investment basis with the returns increasing at half the rate of inflation over the first 25 years of each mine's life, after this no further escalation takes place. Under the contracts Eskom will fund any capital expenditure, with no effect on the return on investment parameters.

12.3 International coal prices Until the late 1990s most international coal prices were set during periodic contract negotiations and resulted in the agreement of

Chapter 12/page 6

# Charles Kernot

Coal pricing and hedging

a `benchmark' coal price. This method was appreciated both by supplier and consumer as they could arrange their finances for the following year, or longer if the contract was for a longer period of time. Benchmark contracts provided buyers with security of supply and price and electricity utilities have tended to like this arrangement as it enables them to construct long-term plans. However, as electricity utilities have become more commercially motivated, often as a result of privatisation and increasing competition and the international coal market has become more crowded, there has been a tendency for international coal purchasing to become more oriented to spot coal sales. This allows consumers increased flexibility, enabling them to ride the coal market's price cycle. As with all other aspects of existence the coal market has been touched by the Internet and there are now at least two sites that can be used to buy or sell spot coal. One is operated by FreeMarkets Inc through its freemarkets.com website, and it can solicit bids from interested parties for specific qualities or grades of coal. The other is operated by Spectron Global Coal at globalcoal.com and allows users to post bids and offers of brands and availability. Consequently, it is anticipated that in the future benchmark contracts will only cover a specific proportion of the coal that a utility needs to purchase. It is important to note, however, that the coal price detailed in the contract is effectively a reference price and that there will be side contracts covering the purchase of coal at benchmark less a certain percentage. The discount is generally the minimum that the producer can offer in order to win the deal. The benchmark price takes account of the supply/demand balance that exists in the market during the `mating season'. It does not necessarily lead to an automatic increase in the price of the commodity being supplied, even if there has been a significant increase in inflation over the intervening period. Indeed, as most of the international trade in coal is carried out in US dollars, the Australian producers are highly exposed to the local fluctuations in the Australian dollar against the US currency. The Japanese take full advantage of this when conducting their annual contracts. This means that a fall in the Australian dollar would lead to a fall in the US dollar contract price negotiated between the two parties, in order to ensure that the Australian company's local currency profit margin remained stable.

# Charles Kernot

Chapter 12/page 7

The coal industry

12.1 Japanese steam coal benchmark and Australian average export prices (includes coking coal; source: PTBA; Datastream; Paribas).

In the case of Australian exports to Japan, much of the coal is sold FOB the local Australian port, providing the Japanese with a greater ability to control their own transportation costs. This is not the preferred method of sale for the Australians who would prefer to sell the coal after taking account of CIF as this provides them with a potential additional profit margin (Fig. 12.1). The Japanese have also been careful to encourage Canadian and United States based coking coal producers in order to ensure active competition in the international coal market. This increased competition is clearly to their direct benefit as it helps to ensure keen pricing between suppliers. Nevertheless, coking coal still trades at a significant premium to steam coal as a result of its relative scarcity, and the additional potential profit margins are encouraging new entrants to the market ± which may have an adverse impact on future prices. The other problem with coal price analysis, apart from attempting to determine the quality and sulphur content of the coal (although those producers with low sulphur coal are quick to point out the fact) arises due to its origin. There are two main coal-producing regions in the United States, the Wyoming belt, which produces largely low sulphur coal, and the Illinois, Indiana, West Virginia, region producing generally high sulphur coal. This, however, is not the only reason for a difference in the price of the coal being produced. One of the other, and most important reasons, and indeed the costs, covers the need to

Chapter 12/page 8

# Charles Kernot

Coal pricing and hedging

transport the coal, often over long distances, and therefore whether it is sold FOB or CIF makes a significant difference to the buyer. If a coal producer can extract coal at a significantly lower price than the production cost in a potential export market, then it may be economic to attempt to break into that market. The local market may, also, attempt to import coal if it calculates that imported coal would be cheaper than that produced from local mines. As such, these factors tend to distort what may be called the international price of coal and any CIF price cannot realistically be compared with another such price when considering the international market unless it is in relation to a particular and well defined area. In this instance a CIF price shows the delivered price of the material in one particular area of the world and gives an indication of the relative cost of coal from all sources in that one particular market. It cannot be used to indicate that the same coals would be relatively as expensive or cheap in any other market. For a true picture of the international market price of coal an FOB price has to be used with any additional transport cost added at the ruling cost per tonne per mile travelled. This additional cost can then be compared internationally and the most expensive or cheap coal in any one area can be ascertained. The FOB and CIF prices of steam coal delivered into Europe in 1986 are shown in Table 12.2. Table 12.2 Coal production, transport and delivery costs Country

Production type

FOB costs (US$/t)

Transport cost (US$/t)*

Delivered cost (US$/t)

South Africa

Opencast Underground Richards Bay Phase IV Opencast

13.50 19.00

7.49 7.49

20.99 26.49

21.00

7.49

28.49

Queensland Opencast New South Wales Opencast New South Wales Underground

22.00 30.50

12.32 12.32

34.32 42.82

31.00

12.32

43.32

Colombia

Opencast

50.00

5.95

55.95

USA

Large Opencast Large Underground

40.50 42.00

5.94 5.94

46.44 47.94

Australia

* Assumes US$25/barrel oil price in working out freight rates. Source: Energy Committee Report on The Coal Industry 1986/87 Session.

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The coal industry

Table 12.3 Average 1986 freight rates for the transport of coal into Europe Country of origin

Freight rate (US$/t)

Implied insurance and profit (US$/t)

South Africa Australia Colombia USA

4.25 6.00 2.55 3.87

3.24 6.32 3.40 2.07

Source: Energy Committee Report on The Coal Industry 1986/87 Session.

Basic freight rates for coal to Europe in 1986 are shown in Table 12.3. It will be seen that these rates differ from the total transport costs shown above as they are the basic freight rates and do not take account of the additional insurance costs, nor do they leave room for a profit margin for the supplier. As can be seen, it would normally be cheaper to purchase coal FOB and to carry the additional transport costs rather than to buy coal on a CIF basis. The other factor, of course, which affects the international price of coal is the relative supply/demand position of the product. The international market in coal amounted to only 13% of global production in 1998, indicating how small the international market is in relation to the use of coal in its home markets. In view of this relatively restricted market, and a local producer's natural preference to sell into the local market because of the much higher margins that can normally be achieved in comparison with exports, the international coal market can experience feasts and famines and the price of coal can fluctuate quite widely. This is particularly the case when there is a world shortage of energy supply as occurred in the middle and at the end of the 1970s. At these times coal prices rocketed (Fig. 12.2). Finally, it should be remembered that the guarantee of long-term supply commands a higher price for the product. This is one of the problems the British coal-mining industry suffered as a result of the 1972, 1974 and 1984/5 strikes. As long-term supply could not be guaranteed, because of the perceived militancy of the mining unions, industrial consumers looked elsewhere for alternative supplies and were not won back by British Coal following the resolution of these strikes. The higher price that this guarantee of the long-term supply commands can be seen from Fig. 12.3, which compares the prices paid for coal in Europe on the basis of both short-term and medium- to

Chapter 12/page 10

# Charles Kernot

Coal pricing and hedging

12.2 Long-term coal prices (source: Energy Information Administration; OECD; Datastream; Paribas).

12.3 Quarterly short-term and long-term steam coal contract prices CIF Europe (source: OECD).

long-term contracts. From this it can be clearly seen that longer term contracts command higher prices. Fig. 12.4 shows coal export prices from Australia averaged on a monthly basis between 1967 and 1998. This shows that there is some, but overall not much, seasonality in coal prices as much of the internationally traded coal is coking coal, which will not be affected by higher demand by electricity consumers during cold weather. This is

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The coal industry

12.4 Australian monthly export price averages 1967±98 (source: Datastream; Paribas).

vastly different from the seasonality that coal prices exhibited before the twentieth century and shows the development of local stockhandling and transport systems.

12.4 Hedging The expansion of the financial sector into derivatives has meant that it has been possible to buy gas or oil for future delivery for many years. These types of energy are generally easily definable, and a contract traded on a futures market will cover a specified amount of energy. It is only in recent years that the liberalisation of the electricity market in the United States has enabled the introduction of an electricity contract on the New York Mercantile Exchange (NYMEX). However, the definition of what coal to use in a coal contract has delayed the introduction of a coal futures contract, although one is now planned for the early years of the twenty-first century. The contract that has now been specified by NYMEX is related to the size of a barge of coal shipped down the Ohio River. These barges can carry up to 1550 tons of coal and assuming that the coal meets a specification of 12 000 BTU/lb the barge would carry 37 200 million BTU. The contract obliges the seller to deliver 1550 tons of coal per contract with a loading tolerance of 60 tons or 2%, whichever is the greater, over the total number of contracts traded. The delivery

Chapter 12/page 12

# Charles Kernot

Coal pricing and hedging

location for the coal is any facility on the Ohio River between milepost 306 and 317, or on the Big Sandy River, although deliveries to the Big Sandy River attract a discount of US$0.004 per million BTU. The coal to be delivered should have a minimum heating content of 12 000 BTU/lb with an analysis tolerance of 250 BTU/lb. The allowed ash content is 13.5% and sulphur content is a maximum of 1% by weight or in pounds of sulphur dioxide per million BTU. Surface or inherent moisture is at a maximum of 10% and volatile matter is at a minimum of 30% gas or vapour products, exclusive of moisture. The coal should have a Hardgrove index of a minimum of 41 and a three inch topsize with a maximum of 55% passing a one-quarter inch square wire cloth sieve or smaller, to be determined on the basis of the primary cutter of the mechanical sampling system. Whilst this contract has yet to be introduced, many over-thecounter traders are offering contracts based on this specification to a range of potential purchasers. This market can be expected to expand rapidly as electricity producers attempt to hedge their exposures to the coal market and coal producers attempt to secure prices for their production as the amount of coal sold on long-term contracts declines.

12.5 Outlook 12.5.1

Long-term trends

The world's increasing dependence on imported primary energy supplies such as coal and gas, which may only last a relatively short period of time, means that the cost of energy is likely to fluctuate more widely in the future than it does at present. It is no wonder that in the eighteenth and nineteenth centuries industrialists set up their operations close to the source of power, be it fast running streams or coal for steam generation. And in order to guarantee their supplies of power further they dug their own coal mines or bought stakes in others and, whilst the unions fought this because it could lead to transfer pricing, at least it guaranteed the consumer a source of energy, and the worker continued employment. Renewable and environmentally benign forms of energy are likely to see increased demand in view of the global concern about

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Chapter 12/page 13

The coal industry

greenhouse gas emissions and global warming. Nevertheless, many technologies are still in their infancy and remain prohibitively expensive so it is likely to be many years before they exert a strong influence on fossil fuel demand. It is for this reason that research and development has concentrated on making existing technologies more energy efficient ± a trend that is likely to be maintained at least over the next decade.

12.5.2

Short-term trends

Currently low international coal prices are related to the world energy glut, which has occurred as a result of the recession in Europe and Japan and the more widespread Asian crisis. Coal, gas and oil producers are selling their output just to generate cash flow rather than to generate profits, and the situation could change drastically when the world economy starts to recover. When this occurs, the Australians are likely to find that the Japanese market becomes much more profitable as the prices offered by Japanese companies return to pre-recession levels. At such a time the stockpiles of coal are likely to start to deteriorate and the spot price should start to recover as the fuel becomes more scarce. This rise will be particularly acute if the rise in oil and gas prices encourage fossil fuel consumers with the ability to switch between energy sources to move to consume coal in preference to oil or gas. It is in such situations that a premium price for the stability of long-term supply becomes important. Almost all consumers forget about the bad times when they are in the middle of a boom. Indeed, at some stage in the future the price of coal will rise and only those electricity generators that have ensured their supply on long-term contracts will be able to continue to purchase coal effectively and economically. As such, the simple argument that gas is cheaper than coal will not stand up to analysis. The future supply of coal needs to be guaranteed by the electricity generators and one method by which they can achieve this is to enter into long-term contracts covering at least a part of consumption and not to be wholly exposed to the spot price of the fuel. Towards the end of 1999, closures in order to stem losses and other associated problems, together with generally increasing demand

Chapter 12/page 14

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Coal pricing and hedging

across the Asian region led to a reduction in free stocks of coal. This means that the producers had some scope to limit the fall in the Japanese benchmark price in the 2000 negotiations so that it did not fully reflect the fall in the spot price over the year. Against this, the Japanese were aware of the presence of cheap Polish and possibly South African exports, which could lead to oversupply and reduce upward pressure on prices. However, the short- to medium-term trend in the coal price is undoubtedly higher.

# Charles Kernot

Chapter 12/page 15

Appendix: Coal and shipping terms BFI: Baltic Freight Index. BIFFEX: Baltic International Freight Futures Exchange. Bill of lading: Document acting as the receipt for the cargo prepared by the shipper and signed by the carrier, which confers title to the cargo and is evidence of the terms and conditions of the contract of carriage of the cargo by sea. Boiler slag: This is similar to Bottom ash but is generally larger in size as it represents a melt formed at the bottom of cyclone boilers. Since the slag has been fused there is very little concern about acid contamination from a leachate. BOO: Build-operate-own ± A method by which governments can encourage external companies and investors to participate in the expansion of an indigenous electricity generation industry. Bord and pillar: More commonly referred to as Room and Pillar, this is an underground mining technique where intersecting tunnels or roadways (bords) are driven at right angles through the coal seam, leaving square or rectangular pillars to support the roof. Bottom ash: This is the non-combustible power station feed that does not liquefy under normal operating temperatures and ranges in size from fine sand to small aggregate (up to 1 cm across) which means that it is not carried up the chimney. This ash may be vitrified or clinkered but is friable which means that it may produce an acid leachate and therefore cause disposal problems. Bunkers: Term for the fuel used by a vessel. Bunker clause: A stipulation in a Time Charter that the charterer accepts and pays for all fuel on the vessel at the port of delivery whilst on redelivery the owner shall pay for any fuel remaining on board. Bunker escalation clause: A linkage of the freight rate to the market price of bunkers at the time of fixing.

# Charles Kernot

Appendix/page 1

Appendix

C&F or C/F: Cost and freight. A contractual agreement to purchase coal where the seller pays for loading costs and ocean freight. Capesize: A ship of between about 100 000 DWT and 200 000 DWT which is too large to fit through the Panama Canal and therefore has to sail around the Cape of Good Hope from the Pacific to the Atlantic, or vice versa. Charter party: A document containing details of the fixture of the chartered vessel, often provided in standard form. CIF: Cost insurance and freight. This refers to a contractual agreement to purchase coal on a delivered basis with the purchaser paying the producer to supply the coal at the customer's site. COA: Contract of affreightment ± A Charter Party that covers more than one voyage. Coal ash: Any material or residue formed from coal combustion. Coal combustion ash: As coal ash. Coal combustion by-products: The other large volume of material or residue produced from coal combustion, which can include solid or gaseous products. Specifically, this includes boiler slag, bottom ash, fly ash, fluidised bed combustion ash and flue gas desulphurisation waste. Coal combustion material: As coal ash. Coal combustion products: This includes any saleable products from the burning of coal. Coal combustion residue: As coal ash. Coal combustion waste: Any non-saleable products from the burning of coal. Deadfreight: The freight payable on cargo space booked but not actually used. Demurrage: The financial compensation paid by the charterer to the vessel's owner for delays after the laytime has expired at the loading or discharge port. Despatch: The financial compensation paid by the owner to the

Appendix/page 2

# Charles Kernot

Appendix

charterer if the load or discharge operations are completed in advance of the expiry of the laytime. This is normally paid at half demurrage rate. Draught: The vertical distance between the waterline and the bottom of the keel of a fully laden vessel. DWCC: The dead weight cargo capacity ± the portion of the deadweight available for the carriage of the cargo. DWT: The dead weight tonnage of a ship is the total weight of the load, loading equipment, bunker supplies, water and spare parts that a fully laden ship can carry. FIO: Free in and out ± confers the responsibility on the charterers, shippers or receivers to arrange the stevedores and to load or discharge the cargo on their own account ± i.e. free of expense to the vessel's owners, who remain accountable for the port charges. Floating physical: A derivative transaction where physical coal is bought or sold at a price which floats in line with a specified or proprietary index. Flue gas desulphurisation: This process cleans the gases emitted by the coal as it is burned through the removal of sulphur dioxide. In the process the gas is pumped through pulverised limestone and forms calcium sulphate or calcium sulphite. It is often combined with fly ash in order to provide stability and reduce thixotropy. Fluidised bed combustion ash: This is similar to fly ash but also contains spent sorbent used in the fluidising process. It is also produced at a lower temperature and tends to be highly alkaline in comparison with other fly ash material. The ash also contains a relatively high proportion of dust, which causes additional disposal problems. Fly ash: Fly ash is the general term used to describe the ash carried up the boiler chimney that would be lost into the atmosphere were it not for the need to trap it to prevent pollution. The ash is removed from the gases using different types of air quality control equipment. There are two main types of fly ash ± Class F, which is low in lime, and Class C, which is high in lime. It is a pozzolan, which means that it has additional applications (see Pozzolan).

# Charles Kernot

Appendix/page 3

Appendix

FOB: Free on board. The mnemonic refers to a contractual agreement to purchase coal when loaded onto the purchaser's transport with the purchaser covering associated overhead costs. FOR: Free on rail. The equivalent of FOB, except that the coal is to be shipped by rail to the customer rather than by ship. Forward: A derivative contract to buy or sell a specified quantity of coal at a fixed price on a specified date. Such contracts are privately negotiated and are not publicly traded. Free pratique: Clean bill of health for the ship and crew. Freight: The money paid on a Voyage Charter by the charterer to the owner. Future: A contract to buy or sell a standardised quantity of a specified commodity on a future date that can be publicly traded on an organised exchange. Gearless: A ship without means to self-load or unload cargo. Goaf: Area behind the working face where the roof has fallen into the area previously occupied by the coal. GRT: Gross register tonnage is the amount of capacity in the space below the measuring deck, plus the fixed, covered and enclosed areas above the measuring deck. GT: Gross tonnage, which is the total volume of the ship and its superstructures denominated in tonnes. Handymax: A vessel of between 40 000 DWT and 48 000 DWT. Handysize: A vessel of between 20 000 DWT and 35 000 DWT. Hedging: A reduction in price risk through the use of derivatives contracts. Laydays: Specified time period in days during which the vessel must arrive at the loading port and be ready for loading. Laytime: The time allowed for the vessel's cargo to be loaded or discharged without incurring demurrage. LOA: Length overall (of a vessel for berthing calculations).

Appendix/page 4

# Charles Kernot

Appendix

LULUCF: Land use, land use change and forestry. This was a concern of the Kyoto Protocol and referred to future land use and how this could affect CO2 emission and consumption targets. OBO: Ore, Bulk, Oil ± a multipurpose carrier. OTC: Over-the-counter ± Any derivative contract agreed between a buyer and seller, sometimes through an intermediary, as opposed to one traded on an organised exchange. Outreach: The total distance that a port's loading or discharging equipment can reach out over a vessel. OYOW: Own-your-own-(railway)-wagon. Panamax: A vessel of about 60 000 DWT to 75 000 DWT that is narrow enough (32.2 m) to fit through the Panama Canal. Port costs/disbursements: Charges normally paid by the shipowner to the port authorities for the use of port facilities. Pozzolan: A pozzolan is a siliceous material that can be produced as a fly ash which can combine with lime (calcium oxide) to produce a cement with good structural properties. Spark spread: A derivative transaction that yields a generation margin through a swap or futures package combining energy and electricity derivatives. Steam coal: Steam coal is a thermal coal that is used in the generation of steam, mainly for the generation of electricity. In these plants the steam is produced under pressure and is then used to power turbines to generate the electricity. Stevedore: A company engaged in providing loading or discharging services for vessels. SWAD: Salt water arrival draught. Swap: A derivative transaction to exchange a fixed price for a floating price in an attempt to reduce price exposure. Thermal coal: Thermal coal is the general term used for coal used in any heating application. This includes all coals apart from coking coals, which have specific uses in the metallurgical industry.

# Charles Kernot

Appendix/page 5

Bibliography Anglo American Coal: 100 Years of Coal Mining ± a brief history of AMCOAL. Anglo American Corporate Communications, 1998. Ashton T S and Sykes J: The Coal Industry of the Eighteenth Century, 2nd Edition, Manchester University Press, 1964. Brame J S S and King J G: Fuel Solid, Liquid and Gaseous, Arnold, 1967. China Coal Industry Yearbook 1995: China Coal Industry Publishing House, 1996. Court W H B: A Concise Economic History of Britain, Cambridge University Press, 1965. Creighton D: The Story of Canada, Faber, 1959. Ezra Sir D (Editor): The Engergy Debate, Benn Technical Books, 1983. Fish P M: The International Steel Trade, Woodhead Publishing, 1995. Gray W: Chorographia: Or a Survey of Newcastle upon Tyne in 1649, S. Hodgson, 1813. Galsandorj D: Mongolia, Mongolian Chamber of Commerce and Industry, 1994. Hewitt K and Patten K: The International Zinc Trade, Woodhead Publishing, 1992. First Report of the Commissioners on the Employment of Children in Mines, HMSO, 1842. Howe C: China's Economy, Granada, 1978. Kernot C P H F: British Coal: Prospecting for Privatisation, Woodhead Publishing, 1993. Kernot C P: Valuing Mining Companies, Woodhead Publishing, 1999. Kerr G L: Elementary Coal Mining, Charles Griffin & Co, 1919. Mining Journal, Mining Magazine, Mining Annual Review (various years) Nef J U: The Rise of the British Coal Industry, George Routledge and Sons, 1932. Rheinbraun: Lignite In Europe, 1999. Rosenqvist T: Principles of Extractive Metallurgy, McGraw-Hill, 1983. Smith A: An Inquiry into the Nature and Causes of the Wealth of Nations, Penguin, 1986. Ward C R (Editor): Coal Geology and Coal Technology, Blackwell Scientific Publications, 1984.

# Charles Kernot

Bibliography/page 1

Bibliography

World Coal Institute: Coal Power For Progress, 1996 Wyoming Coal Information Committee: Wyoming Coal, 1997.

Bibliography/page 2

# Charles Kernot

Index ABB Stal, 9/52 Abbot Point Coal Terminal, 6/5 Aberthaw power station, 7/15 abrasion index, 5/5, 7 acid rain, 3/12±14, 7/6±8, 12/3 African and European Investment Co, 2/14 Afterdamp, 1/6, 4/8 air dried basis (ADB), 3/10 Air Laya Mine, 4/4 Ajka region, 2/9 Alcan, 2/3 Alcoa, 2/3 Allen (Nico), 2/17 aluminium, 2/3, 10/2, 10/11 Amalgamated Collieries, 2/14 AMCI, 11/17 American Society for the Testing of Materials (ASTM), 3/5±6 Amsterdam, 6/15±18 Amsterdam Coal Processing, 6/18 Andhra Pradesh, 11/9 Anglo American, 2/14±15, 4/18±19, 6/6±7, 9/17, 9/30±1, 9/48, 9/60 Anglo Coal, 4/15, 4/19, 6/6±7, 9/30-1, 9/48±9, 9/50, 10/27 Angren Mine, 9/58 Anhui Province, 9/25 Anta power station, 10/14 anthracite, 2/16, 3/4±5, 9/53 Antwerp, 6/15, 6/18 Appalachian coalfields, 2/17±18, 9/54 Appin Mine, 9/14 Arch Coal, 9/56 Arco, 2/2, 9/16 Arizona, 2/16 Arrhenius 7/8 Arunachal Pradesh, 9/36 Arutmin, 9/39 Asfordby Colliery, 7/6 ash, 3/9±12, 5/1, 5/6, 5/11, 7/2, 7/7, 7/11±12, 8/3, 9/17 Assam, 9/36 AT Massey, 9/57 Aulron Energy, 9/52 Auriya power station, 10/14 Austral Coal, 9/13

# Charles Kernot

Australia, 2/3±6, 2/16, 4/4±5, 4/15±17, 5/1, 5/11, 6/3±5, 6/15, 7/13, 9/2±3, 9/12±17, 9/57, 10/11, 10/18 Australian Agricultural Company, 2/4 Avondale Mine, 2/18, 4/8±9 Babino Mine, 9/20±21 Baganuur Mine, 9/41 Baisoun Mine, 9/58 Bakony Mine, 9/34 Balkan Mine, 2/7 Ballymoney Project, 9/52 Balmain Coal, 2/5 Ban Pu Coal, 10/20 Bangladesh, 9/34 Baodian Mine, 9/26 Barney Point Coal Terminal, 6/4±5 Barsingsar power station, 10/13 Bath, 1/11 Bayswater Mine, 9/3 BC Rail, 9/23 Bedworth Colliery, 2/13 Beira Port, 9/43 Belgium, 1/13, 2/2, 6/18±19 Bell Pits, 1/5 Belli Breg Mine, 9/19±20 Benchmark Price, 12/6 Bendigo, 2/5 Bengal, 9/36 Bengalla Mine, 9/57 Bessemer, Henry, 8/2 Betsy Lane Mine, 9/56 Bharat Coking Coal, 9/34 BHP, 5/11, 6/3, 6/5, 9/13±15, 9/39 Bhutan, 9/34 Big Sandy River, 12/13 Bihar, 9/36 Billiton, 9/3±4, 9/15, 9/30, 9/42, 9/49, 11/17±18 Birmingham, 1/13, 8/15 Bishop Auckland, 1/8 Blackdamp, 1/16 Blackwater Mine, 9/15 Blair Athol Mine, 9/16 Blair/Tiller Mine, 9/57 Bobov Dol coalfield, 2/7, 9/20±1 Bontang Mine, 9/39

Index/page 1

Index

Borneo, 6/12, 6/10, 9/38 Borsod Region, 2/9 Borssele power station, 6/16 Botswana, 3/12, 9/17, 11/1 bottom ash, 5/1 Boulton, Matthew, 8/15 Bowen Basin, 9/13, 9/15, 11/17 BP Amoco, 2/3, 9/37 Branding Main-Colliery, 1/6 brattices, 1/15, 4/8±9 Brazil, 9/17±18, 10/26 brewing, 8/12, 8/15 brickmaking, 2/13, 8/12, 8/15±16 Bridgewater, Second Duke of, ‰±3 Brindley, James, 1/12 Brisbane Coal Terminal, 6/5 Bristol, 1/11 British Coal, 4/14±15 British Terminal Unit, (BTU), 3/18 Bryant, William, 2/14 Bubble Act, 1/9 bucketwheel excavator, 4/4, 7/6 Buddle, John, 1/7 Budryk Mine, 9/46 Buggenum Power Plant, 7/12 Bukit Asam, 2/11, 4/4, 6/2, 9/37 Bulgaria, 2/6±7, 9/18±21 Burlington Northern Railway, 6/12 Burt, Thomas, 1/18 Cachiri Mine, 9/59 Cahora Bassa, 9/42 California, 7/17 calories, 3/8±9 Canada, 6/15, 9/21±25, 10/24±25 Canadian Pacific, 9/24±25 canals, 1/2 Capesize, 5/4, 6/2±3, 6/6, 6/17 Carbocol, 9/31 carbon dioxide, 1/6, 3/12±13, 3/14, 7/6±9, 7/11, 7/14, 7/16, 8/3±4, 8/6±7, 8/15, 10/7±8, 10/12, 10/20±21 carbon monoxide, 1/6, 3/14, 4/8±9, 7/2, 7/11±12, 8/5±6, 8/15 Carbondale, 2/17 Carbones del Zulia, 9/58 Carbonifera de San Patricio, 9/41 Cardinal River Coal, 9/21±22 Cargill Coal Parcel Service, 6/18 Carrington Coal Terminal, 6/3±4 Central Mine, 2/13 Central Queensland Coal Associates, 6/5, 9/15

Index/page 2

centrifuge dewatering, 5/12 Cerno More Mine, 2/7 CerrejoÂn Mine, 9/30±1, 11/17 CEZ, 9/32 Chaldron, 1/10±11 charcoal, 1/11, 8/1±2 Cherokee Mine, 9/57 Cheshire, 1/12 Cheviot Project, 9/21±22 Chicago and Northwestern Railroad, 6/2 Chili Mine, 9/43 China, 1/1±2, 2/7±8, 3/2, 4/10, 4/16, 6/15, 7/17, 9/24±30, 10/5, 10/8, 10/10±13, 11/1±2 chokedamp, 1/6 Clanny, Dr, 1/6 Clean Coal Technology, 7/8±14 Clermont Project, 9/16 Coal and Allied Inds, 9/12±13 coal formation, 3/1±4 Coal India Ltd, 9/34 Coal Mountain Mine, 9/24 Coalbrookdale, ˆ, 2/17, 8/1, 8/15 Cochrane, Alexander, 8/16 Cogema, 11/1 coke, 3/16, 8/1, 8/4±11, 8/15 coking coal, 2/5, 2/7, 2/18±19, 3/6, 3/10, 3/15±17, 4/6, 5/11, 6/15, 8/1±10, 9/14±15, 9/37±41, 10/6, 10/8, 10/13, 10/20, 10/26, 11/4, 11/8±10, 12/1, 12/8 Collinsville Mine, 6/5 Colombia, 2/16, 6/15, 9/30±2, 11/7±8 Combined Cycle Gas Turbines (CCGT), 6/7, 7/6±7, 7/10, 7/13±14, 10/4 Combined Heat and Power (CHP), 7/10, 7/15±16, 10/14 Commonwealth of Independent States, 2/8, 3/2 Consolidate Metallurgical Industries, 9/17 Consolidation Coal, 9/21±22 continuous miners, 4/12, /13 conveyors, 1/7, 4/10, 6/1, 6/10, 9/20 Copelmi, 9/17 copper, 1/11, 2/3 Cordeaux Colliery, 9/14 COREX Process, 8/7 Cornelia Mine, 2/13 Cort, Henry, 8/2 Cossall, 1/4 cost, insurance and freight, 6/10, 12/8±10 Coundon, 1/8 Crinim Mine, 9/15

# Charles Kernot

Index

Crowley, Ambrose, 8/12 crucible swelling number (CSN), 3/16±17, 5/6 CSA, 12/5±7 Cumnock Coal, 9/12 Curr, Joseph, 1/17 cyclones, 5/10±11 Czech Republic, 9/32, 10/20 Dalintorg, 6/9 Dalrymple Bay Coal Terminal, 6/5 Darby, Abraham, 8/1±2, 8/15 Davy, Sir Humphry, 1/6 Deer Park power station, 7/12 Denmark, 2/16, 7/10, 10/20±21 dense medium separation, 5/8±10 Deutsche Stein Kohle, 5/2±3 Dholpur power station, 10/14 Didcot power station, 7/15 direct reduced iron (DRI), 8/6±7, 10/8 Doly Bilina Mine, 9/31 Doly Nastup Tusimice Mine, 9/31 Dong Cao Son Mine, 9/59 Dong Vong Project, 9/59 Dongtan Mine, 9/25 Douglas Pillars Project, 9/49±50 Draglines, 4/5 Drift Mines, 1/5 Drummond Coal, 9/30±31 Duiker Mining, 9/50, 11/17 Dulhasti power station, 10/14 Dulong formula, 3/7 Durban Port, 6/8 Durham, 1/6, 1/8, 4/8 Duva power station, 9/49 Dyna Whirlpool, 5/11 Eagle Energy Mine, 9/57 Ecocarbon, 9/30 Ecocoal, 9/38 El Descanso Project, 9/31 electric arc furnaces, 8/3 Electricity Supply Commission (Eskom), 2/15, 4/18, 9/17, 9/48±50, 12/6 Elview Mine, 9/23 Ellington Colliery, 4/12, 10/23 Elouera Colliery, 9/14 ELSAM, 7/10, 10/21 Energia Vostoka, 9/47 Envirocoal, 9/38 Ertsonverslagbedrijf Europort CV (EECV), 6/15 Esberg power station, 7/10

# Charles Kernot

European Bulk Services (EBS), 6/15±17 Europees Massagoed-Overslagbedrijf (EMO), 6/15±16 Exxon, 2/3, 9/31 Ezra, Lord Derek, 4/14±15, 10/6 Felling Colliery, 1/6 ferrosilicon production, 8/5 firedamp, 1/6 fixed carbon, 3/9, 3/11 flue gas desulphurisation (FGD), 3/7, 7/7±8, 7/10 fluorine, 3/12, 3/15 Flushing Port, 6/19 fly ash, 5/1 Fording Coal, 9/23±24, 10/20 Fording River Mine, 9/23±24 France, 2/1±2, 2/16, 6/15, 10/5, 11/1 free on board, 6/10, 12/8±10 FreeMarkets Inc, 12/7 froth flotation, 5/10±11 Fushun Mine, 1/1 Gauteng, 2/16 Genoa, 6/13 Germany, 1/3, 4/13, 4/16, 5/2±3, 6/14±15, 8/12, 9/32±4, 10/21±22 Ghent Port, 5/6 Giesler plastometer, 3/17 Gladstone, Australia, 6/4 glass, 8/11 Glencore, 9/31, 9/50, 10/2, 11/17 Globaltex, goaf, 4/10 Gold Fields Coal, 9/48 Golden Tiger Resources, 9/60 Goonyella Mine, 9/15 Gray-King scale, 3/16±17 Greece, 1/1 Green Valley Mine, 9/57 Greenhills Mine, 9/24 Gregg Mine, 9/24 Gregory Mine, 6/4, 9/15 Grupo Acero del Norte, 9/40 Guaimaral project, 9/32 Guizhou Province, 9/25 Gunnedah Coalfield, 6/3 Hamburg, 6/12, 6/17 Hafgrove Grindability Index (HGI), 5/5, 5/7, 12/13 Harlan County, 2/18 Hartley Colliery, 1/5, 4/8

Index/page 3

Index

Haswell Colliery, 4/7±8 Hay Point Coal Terminal, 6/5, 9/14 heavy fuel oil, 7/13, 12/3 heavy medium bath, 5/9 Hebei Province, 9/25 Henan Province, 9/25 HES Beheer, 6/16 HES Group, 6/15 Hillsborough Resources, 9/24 Hoesch, 6/15 Holland, 2/16, 6/12±19 Hon Gai Coal Co, 9/60 Hopi Indians, 2/16 Hristo Botev Mine, 9/20±21 Hungary, 2/9±10, 9/34, 10/22 Hunter, river and valley, 2/4, 9/13±14 Hunterston Port, 11/2 Huntly power station, 10/17 Huntsman, Benjamin, 8/2 Huqiao Mine, 9/25 Hwange power station, 9/60 HYL process, 8/6±7 Ibbenbueren power station, 9/33 IGMA Coal Terminal, 6/18 Illawarra District, 2/5, 9/13 Illinois, 2/16, 9/52 Imperial Smelting Furnace (ISF), 8/11 Independent Power Procedures (IPPS), 6/1, 7/3±5, 10/15, 12/4 India, 7/16, 9/34±7, 10/10, 10/13±15 Indian Iron & Steel, 9/ Indonesia, 2/10±12, 3/3±5, 4/4, 6/2, 6/15, 9/37 Ingwe, 4/15, 9/49 Inner Mongolia, 2/8, 9/25, 9/30 Inspectorate Griffith, 5/4 Integrated Gasification Combined Cycle (IGCC), 7/12 Inter-American Coal, 9/59 iron, 1/7, 1/3±4, 2/17, 2/19, 3/6, 8/1, 8/3, 8/5±9, 8/12±13, 10/8±10 Iscor, 9/17 Ispat, 9/40 Italy, 1/1 Ivan Russev Mine, 9/20±21 Jalipa deposit, 10/14 Japan, 2/15, 9/1, 10/2, 10/15±16, 11/2±3, 11/9±10 Jharia coalfield, 9/37 jigs, 5/8±9 Jigscan Controller, 5/9

Index/page 4

Jining II Mine, 9/26 John Darling Mine, 9/14 Joliet, Louis, 2/16 Jungar Coalfield, 9/25 Kalewa Mine, 9/43 Kalimantan coalfield, 2/11, 9/39 Kaltim Prima, 6/10, 9/38 Kapurdi deposit, 10/14 Karboimpex, 6/9 Kayuga Project, 9/12 Kazakhstan, 9/40 Kembla Coal and Coke, 6/3 Kent coalfield, 1/3 Kentucky, 2/18 Kertapati, 2/11 Khutala Mine, 9/49 Killingworth Colliery, 1/14 King,, Sir Philip, 2/4 Kinnock, Neil, 10/5 Kiskiminetas River, 2/17 Knox Mine, 9/53 Kooragang Coal Terminal, 6/3 Korba coalfield, 10/13 Kotat power station, 10/14 Krygyzstan, 9/40 Kukdon Mine, 9/44 Kunioon Project, 9/17 Kuzbassinvestugol Corp, 9/47 Kuznetsugol, 9/47 KwaZulu Natal, 2/16 Kyoto Protocol, 7/9, 10/8, 10/15 La Loma Mine, 9/32 Lake Vermont project, 11/17 Lancashire coalfield, 1/12, 8/13 Lanna Lignite, 10/20 Le Harve, 6/12, 6/17 lead, 1/11, 8/11 Leandra Project, 9/50 Liddell Mine, 9/12 lignite, 1/1, 2/6, 2/7±8, 3/5, 5/2, 7/10±11, 9/19±20, 9/33, 9/36, 9/39, 9/41, 9/44, 9/52, 10/14, 10/21±22, 11/14±5 Linz and Donawitz, 8/3 Lithuania, 10/23 Liverpool, 1/12, 1/14, 8/13 London, 1/2±5, 1/10±11, 1/13, 2/1, 6/13 longwall mining, 4/9±11, 4/14±15, 9/12 Lonmin, 9/50, 11/17 Lonsdale Mine, 2/18 Luchegorsky-2 Mine, 9/47

# Charles Kernot

Index

Luscar Coal, 9/21±23 Lweje deposit, 9/43 Lynemouth power station, 10/23 Maamba Colliery, 9/60 Macadam, John, 8/16 Macdonald, Alexander, 1/18 MacGregor, Sir Ian, 11/2 Mahanadi Collieries, 9/34 Makgadikgadi Investments, 9/17 Malangas Mine, 9/44 Mamabula Coalfield, 9/17 Manalta Coal, 9/22±23 Manchester, 1/12, 1/13 Manchuria, 1/1 manganese, 8/13 Manufrance, 6/15 Maputo, 6/7±8, 9/51, 11/7 Maritza Iztok, 2/6±7, 9/19±20 Marks, Sammy, 2/13 Marquette, Fr Jacques, 2/16 Marseilles Port, 6/13 Marubeni Coal, 9/24 Massif Central, 2/51 Matalo Port, 6/7±8, 9/24 Matla Mine, 9/49 Matra Region, 2/9 Mecsek Region, 2/9 Meekatharra Minerals, 9/52 Meghalaya State, 9/36 Mersey river, 1/12 metamorphism, 3/4, 3/7, 3/11 methane, 1/6, 4/7, 7/6, 7/16, 8/4±5, 10/12 Metropolitan Colliery, 4/1, 6/3 Mexico, 9/40±1 Microcel, 5/11 Middleburg Klipfontein Project, 9/50 Midlands coalfield, 1/13 Midrex Process, 8/6±7 MIM, 6/4, 9/15±16 mine drainage, 4/19±21, 5/11 Mineral Carbonifera Rio Escondido, 9/40 Minerales Monclova, 9/40 Minyov Mine, 9/20±21 Mississippi Basin, 6/2 Mitsui Matsushima, 9/24 Mlamolovos Mines, 9/20±21 Moatize Project, 9/43 moisture, 3/9±11, 7/4, 9/39, 12/3 Molly Maguires, 2/18 Mongolia, 9/41 Morrison Knudsen, 9/40 Morupule coalfield, 9/17

# Charles Kernot

Morupule Mine, 9/17 Mount Arthur North, 9/3 Mount Owen Mine, 9/14 Mount Pleasant Project, 9/12 Mountain Park Mine, 9/22 Moura Mine, 6/4, 9/15, 9/57 Mozal Aluminium, 6/8, 9/42 Mozambique, 9/42 Murdoch, William, 8/15 Myanmar, 9/43 Nachalny Mine, 9/47 Nagaland State, 9/36 Namma Mine, 9/43 Nantun Mine, 9/26 Natco, 11/9 Nathpa Khakri power station, 10/14 National Ore and Mines Co, 2/9±10 National Power, 7/15 Nepal, 9/34 New South Wales, 2/4±5, 5/1, 6/3±4, 9/3, 9/12±14, 10/11, 11/5 New York Mercantile Exchange, 12/12±13 New Zealand, 10/17±18 Newcomen, Thomas, 1/6 Newcastle (Australia), 2/4, 6/3±4, 9/14 Newlands Mine, 5/9, 6/5 Neyveli Lignite, 10/14±15 Nippon Steel, 9/26 nitrogen, 3/13, 7/9±10 Norte Mine (Venezuela), 9/59 North Jutland power station, 7/10 North Korea, 9/43 North Rochelle Mine, 9/56 North Sea, 1/1, 10/6 Northumberland, 4/12 Norway, 6/15, 10/21, 10/23 Norwich Park Mine, 9/15 Nottinghamshire, 1/4, 8/13 Oakbridge, 6/3 Ohio, 2/19 Ohio River, 12/13 Ombilin, 2/10 open cast mines, 4/5, 4/12, 9/12 open hearth furnace, 8/2 open pit mines, 4/3±4, 5/7, 9/1±2 Oranovo Coalfield, 2/7 Oreganal Mine, 9/31 Orissa State, 9/36 OrosziaÂny Region, 2/9 Overslag Bedrijf Amsterdam (OBA), 6/18±19

Index/page 5

Index

Ovet, 6/20 oxygen in coal, 3/13±14 Pakistan, 10/18 Panamax, 6/2 Paper-making, 8/12 Paramount Coal, 9/58 Paso Diablo Mine, 9/59 Pattin, John, 2/17 Peabody Coal, 4/15±16, 9/56 Peak Downs Mine, 5/11, 9/15 peat, 3/1±2, 3/4 Pennsylvania, 2/17, 4/8±9, 8/10, 9/, 11/17 Philippines, 9/44, 10/18 Phillips, J, 1/12±15 Phosphorus, 3/12, 3/15, 8/3, 8/7 Pine Valley Coal, 9/24 Pingdingshan Coal, 9/30 Pingshuo coalfield, 9/25 pit ponies, 1/15 Pittston Coal, 9/57 PLN, 6/2 pneumoconiosis, 1/7, 4/7 Pohang Iron and Steel (POSCO), 10/19 Poland, 2/12, 4/16, 6/15, 9/44 Poor Laws, 1/15±16 Port Kembla coal Terminal, 6/3±4, 9/13±14 Port Waratah, 6/3±4 Powder River Basin, 4/5, 4/17±18, 6/2, 9/, 9/54 PPA, 12/4±5 Preussag Anthrazit, 9/33 Primorskugol, 9/47 productivity, 1/7, 4/16, 4/13±17, 9/36 Prosper Haniel Mine, 5/2±3 proximate analysis, 3/9±11 PT Adaro, 6/10, 9/39 PT Berau Coal, 9/39 PT Indominco Mandiri, 9/40 PT Vietmindo Energitama, 9/59 PTBA, 2/11, 4/14, 6/2, 9/38 Puerto Bolivar, 9/31 pulverised coal injection (PCI), 5/5±6, 5/10, 7/2, 7/10, 8/6, 10/8, 11/4, 11/18, 12/4 Pumping, 1/5±6, 1/8 Queensland, 4/16±17, 5/9, 5/11, 6/4±5, 9/13, 9/15±17, 10/11, 11/17 Quinsam Coal, 9/24 Rackwood Minerals, 9/52

Index/page 6

railways, 1/10, 1/13±15, 2/15±17, 6/1, 6/6, 9/17, 9/41, 11/7 Rainhill Competition, 1/14 Rajasthan, 9/, 10/13±14 Rakovsky Mine, 9/47 RAPS power station, 10/14 reclamation, 4/19±21 Red Terminal, 6/8 Regenesys, 7/15 Rehand power station, 10/14 Renewable Energy Co, 7/16 Reynolds, Richard, 1/14 Rheinbraun, 9/33 Ribble River, 1/12 Richards Bay Coal Terminal, 2/15±16, 5/1, 6/6, 6/15, 11/7, 11/9, 11/17 Rietlanden Stevedores, 6/18 Rietspruit Colliery, 9/50±1 Rio Tinto, 9/12±13, 9/16±17, 9/38, 11/17 Riverside Mine, 9/15 RJB Mining, 4/12, 4/19, 7/6, 9/52, 10/6, 10/23 Romania, 9/46 room and pillar mining, 4/10, 4/12 Rosin and Rammler model, 5/5 Rosugol, 6/10, 9/46±47 Rotterdam Port, 6/12±17, 11/17 royalties, 1/8±9, 4/2, 4/18, 7/4 Ruhr, 1/3 Ruhrkohle, 6/15, 9/33, 9/58 run-of-mine (ROM), 5/1, 5/3, 5/5, 9/17 Russia, 6/8±10, 9/1, 9/40, 9/46±7 RWE, 9/33 Safety Lamp, 1/6±7 Saint Joseph Lead Co, 8/11 salt, 1/12, 8/11 Samar Mining, 9/44 Santa Marta Port, 9/31 Saraji Mine, 9/15 Sasol, 4/15, 8/16, 9/50, 10/5, 10/26 Savery, Thomas, 1/6 Scottish Power, 7/16±17 Sea-Invest Group, 6/18±19 Secunda Mine, 9/51 Semirara Coal, 9/44 Severn River, 1/14, 8/1 Severoceske Doly, 9/32 Shaanxi Province, 2/8 Shandong Province, 9/25, 9/30 Shanghai Baoshan Iron and Steel, 9/26 Shanxi Province, 2/8, 9/25 Shargan Mine, 9/58

# Charles Kernot

Index

Sharyn Gol Mine, 6/5 Shell Coal Gasification Process (SCGP), 7/11±12 Shell Oil, 2/2, 2/10±11, 6/3, 6/5, 7/11±12, 9/50, 9/58 Shevyakov Colliery, 9/47 Shivee Ovoo Mine, 9/42 short tons, 3/8 Shropshire coalfield, 1/16, 8/1 Siemens, William, 8/3 Siemens-Martin Furnace, 8/2 Sigma Mine, 9/51 silicosis, 4/7 Sindh Coal Authority, 10/18 Singaremi Collieries, 9/34 Smeaton, John, 1/14 Smith, Adam, 1/9 SocieÂte GeÂnerale de Surveillance (SGS), 5/4 Socuy Project, 9/59 sodium, 3/12, 3/15 Sofia coalfield, 2/7 Soho Mine, 9/43 South Africa, 2/12±16, 4/4±5, 4/15, 4/18±19, 5/1, 6/6±8, 8/16, 9/1, 9/47, 11/1, 11/7 South African Bureau of Standards, 6/7 South Dunes Coal Terminal, 6/8 South Sea Bubble, 1/9 South Walker Creek Mine, 9/15 Spectron Global Coal, 12/7 Spedding, Carlisle, 4/18 Spoornet, 6/6, 11/7 Stanjansti Mine, 9/19±20 steel, 1/14, 2/1, 2/19, 8/2±3, 8/5±7, 10/8±10, 10/13 Stephenson, George, 1/6, 1/14 Stockton and Darlington Railway, 1/13±14 Stow, George, 2/12±13 strip mines, 4/15 strip ratio, 4/16±17 Stroikatyermash, 9/47 sugar refining, 8/12 sulphur, 3/2, 3/5, 3/7, 3/9±14, 4/20, 5/3, 5/6, 5/11, 7/4, 7/6±11, 8/2, 8/4±5, 9/2, 9/20, 9/39, 12/3 Sumatra, 2/10±11, 3/3±4, 3/15, 4/4, 6/2, 9/38 Summit Hill Mine, 2/18 Suratgarh power station, 10/13 Swansea, 1/11 Sydney Harbour Colliery, 2/5, 3/4

# Charles Kernot

Tahmoor Colliery, 9/13 Talchev coalfield, 9/35, 10/13 Tamil Nadu, 9/36 Tanjung Enim, 2/11, 6/12, 9/38 Tanna (RG) Coal Terminal, 6/4 Tanoma Mine, 11/17 Tarahan Port, 2/11, 6/2 Tarong Mine, 9/16 Tata Iron and Steel, 9/34 TatabaÂnya Region, 2/9 Tavantolgoi Project, 9/42 Tavistock Collieries, 9/50 Teck Corp, 9/23 Telkwa Project, 9/22±23 Teluk Bayur Port, 2/10 Terneuzen Port, 6/19 TES Bretby, 5/4 Textile Industry, 1/7, 8/12±14 Thai Special Steel, 10/20 Thames Water, 7/16 Thar Coalfield, 10/18 THERMIE Programme, 7/11 Three Gorges Dam, 7/17 Three Mile Island, 2/17 Thyssen Krupp, 6/15, 9/33 tin, 1/11 Togara Project, 9/3, 9/15 Tokyo Electric Power, 9/26 Total, 2/3, 11/1 Tower Colliery (Australia), 9/14 Transvaal Coal Owners Association, 2/15 Trans-World Group, 10/2 Tyne Valley, 1/2, 1/6, 1/9±10, 1/14 Ukraine, 9/51 ultimate analysis, 3/11±15 Unchahar power station, 10/14 Union Pacific Railroad, 6/2 unions, 1/17±18, 2/6, 2/18, 9/32 United Kingdom, 1/1±18, 2/1±2, 4/7±6, 4/12±16, 4/19, 6/15, 7/1, 7/6, 7/13, 7/15±17, 8/11±16, 10/5, 10/23 United States, 2/1±2, 2/16±19, 3/2, 3/4, 3/8, 4/3±5, 4/8±9, 4/12±19, 6/2, 6/15, 7/7±8, 7/14±15, 9/53, 9/57, 10/25 Uong Bi Coal Co, 9/59 Uong Thuong Mine, 9/59 Ust-Luga Port, 6/10, 9/47 Uzbekistan, 9/58 Vaal River coalfield, 2/12±16 vacuum filters, 5/12

Index/page 7

Index

Veba, 9/33 Venezuela, 9/58, 11/7±8 ventilation, 1/5±7, 4/7±10 Vereeniging Estates, 2/13±15, 8/16 VEW Energie, 9/33 VIAG, 7/10 Victoria (State), 2/5±6 Vietnam, 9/59 Vietnamese National Coal Corp (Vinacoal), 9/59 Virginia, 2/16 volatile matter, 3/9±10 Vorsyl Separator, 5/11 VossibUgol, 6/9 Vostochny Port, 6/9 Wandoan Project, 9/15±16 Wankie Colliery, 9/60 Waterburg Basin, 9/51 Watt, James, 8/14±15 Weaver (River), 1/12 WEFA Ltd, 7/13 West Cliff Colliery, 9/13 Western Railroad Properties, 6/2 Westminster School, 1/2, 1/10, 1/15

Index/page 8

Wigan coalfield, 1/12 Willow Creek JV, 9/23 Witbank coalfield, 2/15, 9/49 Wonthaggi Mine, 2/5±6 Worsley, 1/12 Wurts, Maurice and William, 2/17 Wyoming, 2/17, 4/5, 4/17±18, 6/2, 9/, 12/6 Wyong Project, 9/3 Xiangshui Mine, 9/25 Xinglongzhuang Mine, 9/26 Yakutugol, 6/9 Yangjong Mine, 9/44 Yangtze River, 7/17 Yanzhou Coal, 2/7, 4/10, 9/26 Yitai Energy, 2/17, 9/30 YTL Corporation, 9/60 Zambia, 9/60 Zeebrugge Port, 6/18 Zeigler Coal, 9/56 Zimbabwe, 9/60 zinc smelting, 8/10±11 Zouxian Electric Power, 9/26

# Charles Kernot