Emerging Economies Drive Coal Markets

By James Wellstead - Exclusive to Coal Investing News

As the fast-rising titans of the global economy, emerging markets rely on coal to fuel their growth. The cheap source of reliable base load electricity has become ubiquitous in transitioning economies primarily because of the fuel's low cost and relatively abundant supply.

Often seen as a 'dirty' energy source high in greenhouse gas emissions, coal's consumption has been on a downward slide in many advanced industrialized countries over the past three decades. The story in emerging economies, however, could not be more different.

Worldwide, as the world's number one source of electricity production, thermal coal now accounts for about 30 percent of global energy use, the highest level since 1970. With over 3.55 billion tonnes oil equivalent (BOE) consumed in 2010, world coal consumption has grown by over three percent annually since 2002.

This reality can almost solely be attributed to the massive industrial and economic growth witnessed in the Asia Pacific region.

China's coal consumption growth alone, the driver of world coal consumption trends, has increased by more than 180 percent since 2000. And with 1.713 billion tonnes oil equivalent consumed in 2010, China represents 46 percent of total world consumption.

India has also seen rapid increase in consumption as demand growing by 10 percent annually in recent years buoyed by an economic growth rate averaging 7.45 percent between 2000 and 2011. And South Africa and Indonesia continue to post significant consumption numbers, due in part to their large domestic supplies.

Currently, China and India rely on coal-fired power plants for more than 80 percent of the electricity production - more than 90 percent in South Africa - a statistic unlikely to change as these countries continue to build out coal-burning capacity with an average plant life of 40 years.

Hurdles to growth

Despite persistent demand, barriers to growth appear to be presenting themselves. Both China and India are finding it harder to pass higher coal prices on to utilities as political and social priorities take precedence power suppliers' bottom line.