Wednesday, September 5, 2012

Coal - Chinese Checkers

China is the largest producer and consumer of coal in the world, and accounts for almost half of the world's coal consumption.
According to the World Energy Council, China held an estimated 128 billion short tons of recoverable coal reserves in 2011, the third-largest in the world behind the United States and Russia, and equivalent to about 13 percent of the world's total coal reserves. Coal production rose 9 percent from 3.5 billion short tons in 2010 to over 3.8 billion short tons in 2011, making China the largest coal producer in the world. There are 27 provinces in China that produce coal, and northern China, especially the provinces of Shanxi and Inner Mongolia, contains most of China's easily-accessible coal and virtually all of the large state-owned mines.
Coal comprises about 70 percent of China's total primary energy consumption. In 2011, China consumed an estimated 4 billion short tons of coal, representing about half of the world total. Coal consumption is about 3 times higher than it was in 2000, reversing the decline seen from 1996 to 2000. More than half of China's coal is used for power and heat generation; therefore, coal consumption generally tracks electricity demand and industrial growth. Industries such as steel and construction accounted for 30 percent of coal use in 2011.
China, typically a net coal exporter, became a net coal importer in 2009 for the first time in over two decades. Total imports, rose to 240 million short tons in 2011, about 18 percent higher than 2010 levels, according to FACTS Global Energy. China sources coal from regional suppliers within Asia. Indonesia and Australia are the largest coal exporters to China with over 50 percent of the market share of imports in 2011. Despite abundant domestic coal, several factors contribute to the sudden rise in imports, including the higher cost of domestic coal, bottlenecks in transporting domestic coal to power plants, coking coal resource restraints, environmental and safety concerns, and greater efficiencies in the industry.
China's coal industry has traditionally been fragmented among large state-owned coal mines, local state-owned coal mines, and thousands of town and village coal mines. The top ten coal companies produced less than 30 percent of the domestic coal. Shenhua Coal, the world's largest coal company, holds 10 percent of the domestic market in China.
China has tens of thousands of small local coal mines where insufficient investment, outdated equipment, and poor safety practices prevent the full utilization of coal resources. Though the smaller coal mines currently hold a sizeable portion of the market, they are inefficient and are ineffective in responding to market demand. The goal of consolidating the industry is to attract greater investment in new coal technologies and improve the safety and environmental record of coal mines. The government's 12th Five-Year Plan calls for a production ceiling of 4.4 billion short tons (3.9 billion metric tons) and capacity ceiling of 4.6 billion short tons (4.1 billion metric tons) by 2015 in an attempt to control the production growth. The NEA also plans to form 10 large and 10 medium-sized coal companies that will account for over 60 percent of the country's total coal production and cap the number of coal entities to 4,000 through mergers and acquisitions.
In contrast to the past, China is becoming increasingly open to foreign investment in the coal sector in an effort to modernize existing large-scale mines and introduce new technologies into the coal industry. The China National Coal Import and Export Corporation is the primary Chinese partner for foreign investors in the coal sector. Areas of interest in foreign investment include coal liquefaction, CBM production, coal-to-gas and slurry pipeline transportation projects. The Chinese government is actively promoting the development of a large coal-to-liquids industry. A Shenhua Group subsidiary commissioned the country's first coal-to-liquids plant in 2009. The facility is located in the Inner Mongolia Autonomous Region and has an initial capacity of approximately 24,000 bbl/d of diesel, ramping up to 240,000 bbl/d by 2015.
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