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Oil Price Fuels Fresh Look at Coal

January 8, 2008 at 17:04 by Mario

VAST coal reserves in Asia are gaining attention as major energy consumers such as China and India grapple with the reality of oil prices around $US100 a barrel and the risks they pose to their economies.
Multibillion-dollar facilities that convert coal to oil are being studied across Asia, while utilities are shelving plans to build power plants that use natural gas or fuel oil because prices of those fuels track the cost of crude.
Crude-oil futures on the New York Mercantile Exchange are more than 50 per cent higher than they were a year ago and are within sight of an inflation-adjusted peak of $US102.81 a barrel set in early 1980.
“The longer oil prices stay at these levels, then the more the incentives are going to be there for exploiting coal reserves,” said Cambridge Energy Research Associates coal expert Jim Brock.
Coal prices would have to rise nearly fivefold to match current oil prices on a unit-of-energy basis, he said, and the difference between the cost of the commodities “is actually widening”, he said.
Sharp increases in oil prices in recent years have already encouraged China to substitute coal for oil. Morgan Stanley said China’s oil-dependency ratio fell to 20 per cent in 2006 from 23per cent in 2002, while its reliance on coal had risen.
Asian energy consumers are attracted to coal because it is less vulnerable than oil to the geopolitical upheaval that can cause price volatility. Asia has a third of the world’s coal reserves, which stood at 909.06 billion metric tons at the end of 2006, according to BP PLC’s most recent statistical review of world energy. Most of Asia’s reserves are shared by three countries: China, India and Australia.
But greater coal use in Asia risks harming the region’s environment, especially in developing economies that can’t afford expensive technologies that capture greenhouse gases.
The International Energy Agency recently forecast that China would be the main contributor to incremental emissions through 2030. Output of greenhouse gases in India is rising faster than in almost any other country. China and India, which account for 45 per cent of world coal use, will account for more than four-fifths of the increase in global consumption over the next two decades, the IEA said.
Unsettled by a rising bill for crude imports, which is only partly mitigated by a weakening dollar, Asian energy consumers are examining the feasibility of building coal-to-liquids (CTL) plants to make gasoline and diesel. Creating such synthetic fuels from coal is attractive to China because of its dependency on crude imports, which run close to 50 per cent of its oil needs. The technology also offers cleaner fuels than those produced from oil.
Shenhua Group Corp will this year start China’s first large-scale CTL plant, in the coal-rich region of Inner Mongolia. The plant will have a daily output of 20,000 barrels before raising output to 100,000 barrels a day in future years.
Other CTL plants in the works involve foreign investors, such as Sasol and Royal Dutch Shell. By 2030, the IEA said, China’s non-conventional oil supply from CTL plants will reach 750,000 barrels a day.
India also is preparing to get in on the act. Coal India, a mining company, is in talks with several CTL-technology companies, including Sasol, about setting up a joint venture, an executive said last month. Check out our commodity prices section for daily detailed commodity pricing.

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