Coal
Coal
- a fossil fuel - is the most important energy source for electricity
generation and also forms an essential fuel for the production of steel
and cement. A negative characteristic of coal, however, is that it can
be labelled as the most polluting energy source due to its high
proportion of carbon. Other vital energy sources, such as natural gas,
are less polluting but significantly more exhaustive and more
susceptible to price fluctuations on the world market. Therefore, the
world's industries have increasingly shifted their focus to coal.
At current rates of production (and
if new reserves are not found) the global coal reserves are estimated to
last for around 112 years. The biggest reserves are found in the USA,
Russia, China and India.
Top ten coal producers in 2012¹ ²
| 1. China | 1825.0 Mt | 6. Russia | 168.1 Mt |
| 2. USA | 515.9 Mt | 7. South Africa |
146.6 Mt |
| 3. Australia | 241.1 Mt | 8. Kazakhstan | 58.8 Mt |
| 4. Indonesia | 237.4 Mt | 8. Poland | 58.8 Mt |
| 5. India | 228.8 Mt | 10. Colombia | 58.0 Mt |
² million tonnes oil equivalent
Source: BP Statistical Review of World Energy 2013
Coal in Indonesia
Indonesia's Coal Production and Export
Indonesia is one of the world's largest
producers and exporters of coal. Since 2005, when it overtook Australia,
the country is leading exporter in thermal coal. A significant portion
of this exported thermal coal consists of a medium-quality type (between
5100 and 6100 cal/gram) and a low-quality type (below 5100 cal/gram)
for which large demand comes from China and India. According to
information presented by the Indonesian Ministry of Energy, Indonesian
coal reserves are estimated to last around 83 years if the current rate
of production is to be continued. Regarding
global coal reserves, Indonesia currently ranks 13th, containing roughly
0.6 percent of total proven global coal reserves according to the most
recent BP Statistical Review of World Energy. Around 60 percent of
Indonesia's total coal reserves consists of the cheaper lower quality
(sub-bituminous) coal that contains less than 6100 cal/gram.
There are numerous smaller pockets of
coal reserves on the islands of Sumatra, Java, Kalimantan, Sulawesi and
Papua but the three largest regions of Indonesian coal resources are:
1. South Sumatra
2. South Kalimantan
3. East Kalimantan
1. South Sumatra
2. South Kalimantan
3. East Kalimantan
The Indonesian coal industry is rather
fragmented with only a few big producers and many small players that own
coal mines and coal mine concessions (mainly in Sumatra and
Kalimantan).
Since the early 1990s, when the coal
mining sector was reopened for foreign investment, Indonesia witnessed a
robust increase in coal production, coal exports and domestic sales of
coal. Domestic use of coal remains relatively small. Indonesia’s coal
exports account for between 70 and 80 percent of total coal
production, the remainder is sold on the domestic market. Production,
exports and domestic sales are estimated to increase by at least an
annual ten percent over the next five years.
| 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | |
| Production | 194 | 217 | 240 | 256 | 275 | 353 | 383 | 400¹ |
| Export | 144 | 163 | 191 | 198 | 208 | 272 | 304 | |
| Domestic | 49 | 61 | 49 | 56 | 67 | 80 | 79 |
¹ indicates a forecast of the Indonesian Coal Mining Association
Source: Ministry of Energy and Mineral Resources
What drives this increase in Indonesian coal production and export?
-
Coal is the dominating force in power generation. At least 27 percent of the world's total energy output and more than 39 percent of all electricity is produced by coal-fired power plants due to coal's abundance, its relatively easy and low-cost extraction, and less expensive infrastructure requirements compared to other energy resources.
-
Indonesia contains abundant reserves in medium and low-quality coal. These types of coal are competitively priced on the international market (partly due to Indonesia's low labor wages).
-
Indonesia's strategic geographical position towards the giant emerging markets of China and India. Demand for low quality coal from these two countries is skyrocketing as they open many new coal-fired power plants to supply electricity to their immense populations. Global coal demand is in fact estimated to exceed global coal production over the next five years, implying rising coal prices.
-
Domestic coal consumption in Indonesia is relatively low. Increased national production and international demand therefore results in higher exports.
Future Prospects of the Indonesian Coal Mining Sector
The commodities boom of the 2000s
generated significant profits for companies engaged in the export of
coal. The rise in commodity prices was - to a large extent - triggered
by accelerated economic growth in emerging and developing economies. But
this profitable situation changed with the outbreak of the global
financial crisis in 2008 when commodity prices went down fast. Indonesia
was affected by these external factors as export of commodities (in
particular coal and palm oil) accounts for around 50 percent of total Indonesian exports, thus limiting the country's GDP growth
in 2009 to 4.6 percent (which still represents an impressive number,
largely supported by domestic consumption). From the latter half of 2009
until the beginning of 2011 a sharp rebounce in global coal prices
occurred. However, reduced global economic activity has lessened demand
for coal, thus resulting in a downward trend of coal prices starting
from early 2011.
This means that - generally - profits in
the coal industry will be limited in the near future. However, if we
take the longer term into consideration - when global economic activity
is back on track - demand from China and India is forecast to make the
coal business very profitable again (China’s demand is in fact expected
to double between 2011 and 2016 to 6 billion tonnes). These promising
future perspectives are the main reason that in recent years many
Indonesian companies have started - or are planning to start - expanding
into the nation's coal mining industry, sometimes even resulting in a
shift of their core business. Considering the rising energy prices and
growing scarcity of energy sources, it will become more expensive to buy
coal on the market in the future. For many Indonesian companies this is
an incentive to start securing coal reserves now. A number of large
companies such as Astra International, Semen Gresik
(cement industry) and Perusahaan Listrik Negara (electricity) - last
two of which are highly dependent on the supply of coal - are investing
in coal mining in order to establish an entire value chain in mining and
energy businesses while also securing future supplies, and thus
guarding it against fluctuations in global coal prices. Currently,
owning a coal mine has become a trend for the richer families and
companies in Indonesia.
Despite global awareness to reduce
dependency on fossil fuels, developments in renewable energy resources
do not show an indication that dependency on fossil fuels (especially
coal) will be reduced significantly in the foreseeable future, thus coal
remains a vital energy resource. Clean coal technologies in coal
mining, however, will gain significance in the future (partly due to
commercial relevance) and Indonesia is expected to become heavily
involved in that process being a major player in the coal mining sector.
These clean coal technologies focus on the reduction of emissions
produced by coal-fired power generation but lack sustained progress yet.
Upstream activities connected to coal mining, such as the development
of coalbed methane (CBM) reservoirs of which Indonesia contains great potential, has begun to receive attention recently.
Indonesian Government policy will affect
the nation's coal mining industry. To secure domestic supplies, the
Indonesian Ministry of Energy and Mineral Resources orders coal
producers to reserve a specific amount of their production for domestic
consumption. Moreover, the government can use export tax to discourage
coal exports. The government aims for more domestic consumption of coal
as it wants coal to supply around 30 percent of the country's energy mix
by 2025:
| Energy Mix 2011 |
Energy Mix 2025 |
|
| Oil | 50% | 23% |
| Coal | 24% | 30% |
| Gas | 20% | 20% |
| Renewable Energy | 6% | 26% |
Another recent development is that the
Indonesian government intends to curb shipments of all raw materials
(except for coal), instead requiring the mining sector to add value to
the products before export takes place. Initially, the plan was to ban
raw mineral exports from 2014 onwards. Recently, however, the government
has stated that it will be more flexible towards this ban and expressed
that some exports can continue under certain conditions. Coal will not
be affected by this ban according to government statements made in 2012,
thus can continue to be exported without being processed first.
Sources : http://www.indonesia-investments.com/doing-business/commodities/coal/item236
