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Case 1: According to the British Petroleum Statistical Review

of World Energy, 2013, global coal reserves declined in the


decade ending 2012. Provide an explanation. Conclude with a
forecast of coal market conditions over the subsequent 5 to
10 years.
_________________________________________________________

According the British Petroleum Statistical Review of World Energy, 2013
global coal reserves1 have fallen 984,453 million tonnes in 2002 to 860,938
million tonnes in 2012. This represents a decrease in coal preserves of
some 12.5% over that ten-year time period.

New fuel supplies and superior technologies will continue to displace
coal from the market place. While coal will never disappear from the
global fuel scene, its importance will diminish over the decades to come.

This is largely a story about electrical generation, in that coal remains a
significant player in the production of electricity in most countries around
the world.

Causes for Decrease of Coal Reserves
Estimating the total world proven reserves (860,938mt), and knowing the
total annual global consumption, (something in the order of 3,730mt in
2012,) simple arithmetic suggests that we have some 230 years worth of
coal in the ground, given current consumption levels. (860,938/3700 =
230) Of course if we imagine a scenario where global coal consumption
increases at a rate of 3% per year, then the reserves will be depleted
quicker, unless more reserves are proven.

Exploration for new coal seems unnecessary at this
Natural gas production continues to
grow year-over-year
time, as such a large quantity exists for our needs. Of
Despite lower prices and reduced drilling
course without continued exploration for coal, the
compared with a year ago, natural gas
production in the United States is running
reserves will continue to fall.
nearly 7% higher in 2015 than it was for

the same period in 2014. Total U.S. production growth continues to be driven by
Another reason coal reserves have declined is the
regional shale production, concentrated
nature of competing products, especially in the
in the Marcellus area in Pennsylvania,
West Virginia, and Ohio.
generation of electricity. Large quantities of natural
gas have come into the market, largely from
horizontal drilling and hydraulic fracturing of tight
gas (and oil) supplies found in oil shale.

1 Coal reserves defined as commercially extractable coal, from known [or high
confidence estimates of reserves] using current market conditions and current
technologies)
Ed Horner Decreasing Coal Reserves Analysis July, 2015


This natural gas, being cleaner to burn and price competitive, has found its
way to gas-fired electrical generation plants all over the world, but
especially in the US where conditions2 have made its extraction favorable.
The oil shales are found in abundance in areas not typically associated with
hydrocarbon production.

Examples include the Bakken shales in North Dakota or the Antrim in
Michigan. Countries like Mexico and Pakistan have technically
recoverable oil shales, but are hampered by high base water stress3
levels, which make them unlikely for resource extraction given
current market and technology conditions.

Natural gas reserves have been increasing globally over the same ten-year
period from 154.9 trillion cubic meters to 187.3 trillion and increase of
some 17.3%. If we look back to 1992, we see global gas reserves having
risen from 119 trillion cubic meters to todays levels of 187.3 trillion cubic

meters something like a 55% increase.



2 Environmental Protection Agency and the Clean Air Act have been putting the coal-

fired generation of electricity under ever grater regulation, as will be noted on page 2.

3 Base level water stress can be defined as any region where water is physically scarce

or economically scarce or both. Physical scarcity is the result of a lack of available


water to meet the needs of the local population. Economic scarcity is perhaps best
defined as a poor water management and distribution program for any given region
the water may be available, but at a price that makes it too dear for anything but
subsistence use.
Ed Horner Decreasing Coal Reserves Analysis July, 2015


Natural Gas Pricing
As can be seen in Figure 3 above, relative to coal, natural gas has had greater
volatility since at least 1994. However, in January of 2012, the price of NG
met or fell below the same $/MMBtu as coal, making it very price
competitive4 for electricity generation while providing a net decrease in the
CO2 emissions that the US Clean Air Act has been tightening up on.

Politics and Policies - Regulation and the US Clean Air Act (CAA)
In the United States, The Clean Air Act or CAA and its various amendments
since 1970 have been putting regulations and restrictions in place on
stationary CO2 emitters. As these emitters are identified (in this
discussion were talking about fossil fuel fired electrical generation plants)
the Environmental Protection Agency (acting under the CAA) develops New
Source Performance Standards or NSPSs. The long and short of it is that
coal-fired electrical generation plants especially new ones being built or
planned will be held to a higher standard for CO2 emissions than
previously constructed plants and this means that the dirty coal will be
displaced by cleaner natural gas.

In the US, this means that there will be (or already is) a good and steady
market demand for natural gas for these plants which will provide
confidence for investors in natural gas resource exploration and extraction,
especially tight gas, which the US seems to have in abundance.

China
At present, China is the largest
single user of coal for
electrical generation in the
world consuming about 50%
of global production and
most projections suggest that
this isnt going to stop any
time soon. Chinas installed
electrical generating capacity
has increased from some
806gW in 2008 to 1,174gW in
2012. Most of that has been
coal-fired plants.

While coal consumption and
coal-fired electricity generation are not exactly equivalent measure, they are
close enough for the purposes of comparison. Below, we see that US coal
consumption has leveled off and even begun to fall, while the Chinese

4 In 2010$
Ed Horner Decreasing Coal Reserves Analysis July, 2015

numbers continue to rise. This is increase is largely due to increasing


numbers of coal-fired electricity plants being built in China.

But even with this dramatic increase in Chinese coal consumption (largely
for electrical generation) we saw a 2.9% decrease from 2013 to 2014. This
is likely explained by a general economic slow-down of the region. But,
weve also seen a net increase in the percentage of electric generation via
other methods especially
wind and, of course, nuclear.
As China looks ahead to the
year 2030, their mix of
electricity generation
continues to favor coal, but
we see an increase in both
renewables and nuclear
which result in a decrease of
coal use from 79% in 2006 to
75% in 2030.

Forecast and Conclusions

Barring some major
catastrophe around human
health and population, its
pretty much a given that
world population is going to increase from the current 7 billion to some 8
billion by 20305, with most of that increase coming from developing
countries. Each of those people will want and need access to affordable and
reliable power for their home, businesses and personal electronics.

As we have seen, a 230-year supply of coal reserves and historically,
relatively stable prices, ensures that coal will remain an important
component of the global electricity generation mix for years to come. Still,
as competitive forms of energy come into the market, such as natural gas
from horizontal drilling and hydraulic fracturing, wind and solar power,
global coal reserves will continue to decrease over the next five to ten years,
while reserves of natural gas especially tight gas will continue to
increase.


United Nations Department of Economic and Social Affairs/Population Division 1
World Population to 2300

Ed Horner Decreasing Coal Reserves Analysis July, 2015

Add to this, the concerns about green house gas emissions from coal-fired
electric generation plants (and the as yet unproven technology of deep
ground CO2 injection for carbon sequestering)6 and we are left to conclude
that coal reserves will continue to decline while reserves of natural gas and
the use of renewables will continue to rise.


6 Carbon sequestration describes long-term storage of carbon dioxide or other forms of
carbon to either mitigate or defer global warming and avoid dangerous climate change.
It has been proposed as a way to slow the atmospheric and marine accumulation of
greenhouse gases, which are released by burning fossil fuels Wickipedia. While a
handful of carbon sequestration facilities exist notably Norways Sleipner saline
aquifer and North Dakotas Weyburn-Midale Carbon Dioxide Project there is no wide
spread, commercially viable technologies presently being undertaken.

Ed Horner Decreasing Coal Reserves Analysis July, 2015