Peak Coal, Too?

Todd Shriber
 
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Last week, Jim offered up a great commentary on some goings on in the coal sector, which in case you missed it, can be found (HERE). Today, I want to build on the coal theme by addressing an issue that some may not even realize exists: Peak coal. Obviously, the word ''peak'' as it relates to commodities is most often applied to oil.

Add to that, coal is often viewed as the cheaper, easier to access and more abundant resource. Given those factors, certainly there can be no such thing as peak coal, right? Wrong. Just as it is all but a certainty that we are living in times of peak oil, the same probably goes for coal. And if it is ''probably'' today, peak coal will be a foregone conclusion sometime in the very near future.

If one is going to point fingers at the rise of emerging markets, namely China and India, as contributing to soaring global oil demand, leading the world down Peak Oil Boulevard, the same can be said of coal. Read any coal news story here on OilSlick and it is nearly impossible to find one that does not mention metallurgical coal. Also known as coking coal, this is the stuff that Chinese and Indian steelmakers are addicted to, much the same way the U.S. is addicted to foreign oil. That scenario helps explain the sharp run-up in metallurgical coal prices, as detailed by the chart below.

Coal Prices Chart

Other factoids speak to the peak coal scenario. China mines more coal than any other country in the world, but finds itself a net coal importer. This is akin to Saudi Arabia importing oil. India is diligently trying to get its hands on any reasonable coal asset it can find, but still faces massive shortages of the fuel. Let me put peak coal in perspective, courtesy of the New York Times: U.S. consumers use slightly less than 1 billion tons of coal annually, the Chinese use an estimated 3.5 billion tons, and emerging energy giants like India and Indonesia are hungry for more.

Late last year, The Times ran a piece on an interesting study done by a professor from the University of Texas-Austin and a professor from St. Mary's College in California. The professors concluded that the roughly 7 billion tons of coal the world is currently producing on annual basis is as good as it is going to get. Tadeusz Patzek, the UT professor, called global coal production of 8 billion tons per year ''a dream.''

Adding to the coal conundrum is a familiar plight from the oil arena: Lack of accessibility. It can be argued that there is actually plenty of oil left in the world. The problem is recovering it in an economically viable way. The same can be said of coal. As The Times notes, there is believed to be enough to coal in Alaska's North Slope to rival the combined reserves of the continental U.S., but Patzek said it would be nearly impossible to recover those reserves. Sound familiar?

The U.S. is not the only country facing an access issue when it comes to coal. China, Russia and others sit on top of bountiful, yet costly-to-get-to coal reserves. And as is the case with oil, new coal discoveries are not expected to be enough to keep pace with soaring demand and dwindling supply from other mines. Put another way: Brazil's pre-salt oilfields will not solve peak oil and a mine like Mongolia's Tavan Tolgoi will not solve peak coal.

That said, peak coal could be more easily solved than peak oil. Oil prices could decline far enough to make oil a more viable alternative to coal and developed nations such as the U.S. could significantly cut coal consumption in favor of natural gas. If recent history is any guide, neither scenario will materialize.

Todd Shriber

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