[R-G] [BillTottenWeblog] Coal in China

[Bill Totten]

by Richard Heinberg

MuseLetter #195 (July 2008)

Note: This version contains only text; it omits a map and several
figures contained in the original version at
http://globalpublicmedia.com/museletter_coal_in_china

China is the world's foremost coal producer and consumer, surpassing the
United States by a factor of two on both scores and accounting for forty
percent of total world production. y  (which translates to a doubling of
demand every seven years). While China is a significant producer of oil
and natural gas, coal dominates the nation's fossil-fuel reserve base.
About seventy percent of China's total energy is derived from coal, and
about eighty percent of its electricity. The country has recently become
the world's foremost greenhouse gas emitter due to its growing, coal-fed
energy appetite.

Note: Mr Heinberg misuses the words "producer" and "production" here.
China is merely "mining" some of the coal and other fossil fuels that
were "produced" by nature under unique environmental conditions millions
of years ago. Bill Totten


This nation's coal-mining history is probably the world's longest,
dating back up to two millennia - though modern mining methods were not
introduced until the late 19th Century by European, and later by
Japanese companies. Production achieved one million tons per year in
1903, growing at an average annual rate of over ten percent. Growth
slowed during the civil wars of the 1920s, but resumed strongly in the
mid-1930s. After the establishment of the People's Republic in 1949,
coal production again slumped, then quickly increased to over 400
million tons per year by 1960, only to fall again during the turbulent
years of the Cultural Revolution. Production accelerated from the 1970s
on, achieving one billion tons per year in 1989. In 1996, China began
addressing problems of mine safety and low productivity by closing its
smallest and least efficient mines. This led to a temporary decline in
production lasting until 2000; since then, production has grown with
astonishing rapidity to the present annual output of roughly 2.5 billion
metric tons (tonnes) or 2.7 billion US short tons.

China's coal consumption in 2000 was thirty times its volume a
half-century earlier, at the time of the establishment of the People's
Republic. And just since 2000, consumption has more than doubled.

China currently has roughly 25,000 coal mines, with 3.4 million
registered employees. Many of these mines are small, private, local -
and even illegal - operations that can respond quickly to the market;
but they are less efficient than larger, centralized mines and tend to
have more environmental and safety problems.

The productivity of China's coal mining is low: in 1999, 289 tons of
coal were produced per miner averaged across all the nation's mines,
versus almost 12,000 tons per miner in the US. This productivity rate
resulted from still-low levels of mechanization within the mining
industry. However, the strong trend during the past decade has been
toward greater mechanization.

Thin overburden allows surface mining in some areas, but only four to
seven percent of China's reserves are suitable for surface mining, and
of these most consist of lignite. Today the average mining depth in
China is 400 meters, a figure that is slowly increasing, and 95 percent
of mines are shaft mines (compared to 48 percent in the US).

Uncontrolled underground coal fires, some of which will burn for
decades, have become an enormous environmental problem in China,
consuming an estimated 200 million tons of coal annually - an amount
equal to about ten percent of the nation's coal production. These
ultra-hot fires can occur naturally, but most are caused by sparks from
cutting and welding, electrical work, explosives, or cigarette smoking.
Across the northern region of Xinjiang, fires at small illegal mines
have resulted from miners using abandoned mines for shelter, and burning
coal within the shafts for heat. China's underground coal fires make an
enormous, hidden contribution to global warming, annually releasing 360
million tons of carbon dioxide - as much as all the cars and light
trucks in the United States.

The pace of China's headlong dash toward increased coal consumption is
legendary: in recent years an average of one new coal-fed power plant
has fired up every week. The resulting annual capacity addition is
comparable to the size of Britain's entire power grid. The price being
paid in environmental quality and human health for this coal bonanza is
likewise well known - to citizens and visitors alike: coal power plants
emit deadly clouds of soot, sulfur dioxide, and other toxic pollutants,
as well as millions of tons of carbon dioxide. As a consequence, areas
in southern China such as Sichuan, Guangxi, Hunan, Jiangxi, and
Guangdong have increasing problems with acid rain; many of China's
cities are shrouded in a continual pall of smoke reminiscent of London
or Pittsburgh in 1900; and respiratory ailments now account for 26
percent of all deaths.

China's coal is used not only for electricity generation, but also for
the production of iron, steel, and building materials (primarily
cement), and as fertilizer feedstock. These main drivers of increased
demand are themselves powered by heavy industrial growth, infrastructure
development, urbanization (roughly 300 million additional people will
live in Chinese cities by 2020), and rising per-capita GDP.

All of these trends in turn emerge from China's recent history. At the
end of the Communist revolution in 1949, the country was impoverished
and war-ravaged; the overwhelming majority of its people consisted of
rural peasants. Communist Party chairman Mao Zedong's stated goal was to
bring prosperity to his populous, resource-rich nation. A period of
economic growth and infrastructure development ensued, lasting until the
mid-1960s. At this point, Mao appears to have had second thoughts:
concerned that further industrialization would create or deepen class
divisions, he unleashed the Cultural Revolution, lasting from 1966 to
the mid-1970s, during which industrial and agricultural output fell. As
Mao's health declined, a vicious power struggle ensued, from which
emerged the reforms of Deng Xiaoping. Economic growth became a higher
priority than ever before, and it followed in spectacular fashion from
widespread privatization and the application of market principles. "To
get rich is glorious", Communist officials now proclaimed.

During the 1950s, 1960s, and 1970s, the populace worked hard,
sacrificed, and endured grinding poverty for the good of the nation. Now
a small segment of that populace - mostly in the coastal cities - is
enjoying a middle-class existence, and in some cases spectacular riches.
This wealth disparity is bearable only as long as the middle class
continues to expand in numbers, offering the promise of economic
opportunity to hundreds of millions of poor peasants in the interior of
the country.

In effect, rapid economic expansion and increasing prosperity (for a
small, influential portion of the population) are being used to divert
domestic attention from frustrated democratic political aspirations and
regional rivalries. But China's central government has unleashed a
firestorm of entrepreneurial, profit-driven economic activity, which it
cannot effectively contain. China's central government and its legal
institutions are relatively weak; meanwhile the uncontrollably dynamic
economy is export-dependent and ill-suited to meeting domestic needs.

In short, China has encouraged rapid export-led economic growth as a way
of putting off dealing with its internal political and social problems.
Economic growth requires energy, and China's energy comes overwhelmingly
from coal. The nation's short-term survival strategy thus centers on
producing enormous quantities of coal today, and far more in the future.

However, there are signs that China's domestic coal production growth
may not be able to keep up with rising demand for much longer.

As in the US, coal transport bottlenecks raise production costs and
inhibit growth. Most coal transport is by rail, which has grown faster
than road and water transport. But only half of China's coal production
is from rail-connected mines. Lack of rail capacity is leading to
increased demand for diesel fuel for coal trucks, and thus to higher
diesel prices (and increasingly frequent shortages), and these in turn
result in more coal delivery problems.

The lack of diesel fuel for coal transport could potentially be solved
by turning coal into a liquid fuel (a process discussed in more detail
in Chapter 6). China's largest coal firm, the Shenhua Group, recently
opened the country's first coal-to-liquids (CTL) plant, and it plans to
start seven more by 2020. Other CTL plants are also in the works -
including several in Northern China that Shenhua will construct with
partners Shell and Sasol, slated to open in 2012; and one being planned
by the Yankuang coal group, the second-largest coal producer in China,
near Erdos.

If only a few of these proposed CTL plants are constructed, China will
lead the world in production of synthetic liquid fuels from coal. But
even if all of them come on line, this will offset only a small portion
of China's oil imports (the current goal is to produce 286,000 barrels
per day by 2020, while the nation currently imports over three million
barrels of petroleum per day, with that amount growing rapidly). In any
case, CTL will entail substantial new coal demand as well as severe
environmental consequences. According to China's Coal Research
Institute, each barrel of synthetic oil produced from coal will consume
at least 360 gallons of fresh water. (For comparison: 360 gallons equals
roughly 8.5 barrels; thus at this ratio of CTL to water, 286,000 barrels
per day of CTL would require approximately 2.5 million barrels per day
of water.) And most areas of China are already experiencing water scarcity.

The irony inherent in China's grand experiment with CTL is that in order
to solve coal supply problems stemming from diesel shortages, the
country must produce even more coal.

Aside from transport bottlenecks, supply problems are also resulting
from crackdowns on mines that are unsafe, polluting, or wasteful of energy.

China is producing its best coal first. The country has yet to exploit
its reserves of lignite, which has high moisture and ash content and
entails much higher carbon dioxide emissions. A new technology
(Integrated Drying Gasification Combined Cycle, or IDGCC) developed in
Australia, and now being studied by the Chinese government, is capable
of burning this coal efficiently and reducing greenhouse gas emissions;
but if lignite grows as a share of total coal production, this will
exacerbate transport problems, because much more material will have to
be mined and moved in order to deliver the same amount of energy.

All of these difficulties with producing and delivering sufficient coal
are leading to increased imports. China has been an international coal
supplier since the early 20th century, when nearly all its exports went
to Japan. In 2001, China's coal exports amounted to ninety million tons
- a quantity equal to the total production of Indonesia. But Chinese
coal imports doubled between 2005 and 2007, making the nation a net
importer of the resource. This trend toward increasing coal imports,
which is driving up international coal prices and impacting the
economies of other coal importers such as India and Japan, seems almost
certain to accelerate.

China's electric power generation is becoming more efficient, but even
an extensive rollout of the highest-efficiency plants could only dent
growth in coal consumption before 2020. Meanwhile, these new power
plants will impose greater up-front costs.

In sum, continually increasing coal consumption is central to China's
economic existence; however there are signs that the country is already
experiencing difficulty in maintaining its furious growth pace in
producing the resource. The amount of coal available in the future will
crucially determine the direction of the nation's economy and likely its
internal social and political stability as well.

Resource Characteristics and History of Reserves Estimates

China's coal resources are concentrated mainly in the northern half of
the country, with fully half of all reserves located within the three
provinces of Inner Mongolia, Shanxi, and Shaanxi. Reserves comprise the
complete range of coals, from lignite to anthracite, with bituminous the
most abundant (according to the 1992 BP proven reserves estimate, 13.5
percent of China's coal reserves consist of lignite, 24 percent
non-coking bituminous coal, 28 percent coking bituminous coal, and 18.5
percent anthracite). Locally, seam quality is highly variable, although
sulfur levels are in most cases low.

While recoverable reserves are a matter for debate, China's total coal
resources are clearly vast, with government figures listing a resource
base of about a trillion tons. As always, location, seam thickness,
quality, and depth determine how much of the resource will ever be
mined. China's coal reserves to a depth of 150 meters are relatively
small, with resources at depths of 300 to 600 meters forming the
majority of the future reserve base.

Early reserves estimates of China's coal were imprecise, because
thorough surveys were impeded by the turbulence of the nation's
political history during the last century. In the 1930s, reserves were
estimated at somewhat over 200 billion tons, sufficient for over 5,000
years of production at then-current levels of output.

In 1987, BP Statistical Review of World Energy listed reserves of 156.4
billion tons. In 1990, BP reported Chinese coal reserves as 152.8
billion tons. By 1992, the amount had fallen to 114.5 billion tons.
Oddly, that official number has not changed in the succeeding sixteen
years, during which the nation has produced over twenty billion tons of
coal.

There are differing opinions on this anomaly: World Energy Council
politely notes that it "indicates a degree of continuity in the official
assessments of China's coal reserves". However, Energy Watch Group calls
that reasoning "strange", since Chinese coal reserves had been
downgraded two times since 1987, evidently at least partly due to the
subtraction of produced quantities.

Reserves were thrown further into question in 2002, when the Chinese
Ministry of Land and Natural Resources declared that the country's
proven recoverable coal reserves amounted to 186.6 billion tons.
However, this large number has not been adopted by the World Energy
Council, the International Energy Agency, or BP Statistical Review.

Within China, Mongolia is something of a wild card, with undoubtedly
large resources but poor transport facilities and incomplete geological
surveys. It is as yet unclear how much of its coal resources should be
listed as reserves.

Recent Studies

1. Coal: Resources and Future Production (Werner Zittel and Jörg
Schindler, Energy Watch Group [EWG], March 2007, www.energywatchgroup.org).

As noted above, the EWG authors question World Energy Council figures
for China's reserves, pointing out that these evidently do not account
for amounts produced since 1992, nor for amounts lost to coal fires (EWG
does not discuss the much larger reserves number published by the
Chinese government). The report's authors write:

"China's reported coal reserves are 62.2 billion tons of bituminous
coal, 33.7 billion tons of sub-bituminous coal and 18.6 billion tons of
lignite. Subtracting the produced quantities since 1992 (the latest data
update) results in remaining reserves of about 44 billion tons of
bituminous coal, 33.7 billion tons of sub-bituminous coal and 17.8
billion tons of lignite."

This indicates total remaining recoverable reserves of about 96 billion
tons. EWG uses this updated reserves figure (which still does not
account for amounts lost to uncontrolled underground coal fires) to plot
a possible future production profile, using a logistic curve. Their results:

"This scenario demonstrates that the high growth rates of the last years
must decrease over the next few years and that China will reach maximum
production within the next five to fifteen years, probably around 2015.
The already produced quantities of about 35 billion tons will rise to
113 billion tons (+ eleven billion tons of lignite) until 2050 and
finally end at about 120 billion tons (+ nineteen billion tons of
lignite) around 2100. The steep rise in production of the past years
must be followed by a steep decline after 2020."


The EWG authors restate their conclusion several times: "either the
reported coal reserves are highly unreliable and much larger in reality
than reported, or the Chinese coal production will reach its peak very
soon and start to decline rapidly".

In addition to near-term peaking in quantities of coal produced,
declining coal quality is also a problem: "projected produced quantities
of coal will show a steadily declining energy content". Currently, China
produces very little of its lignite. This is likely to change as
higher-quality coals are exhausted. But the nation's lignite reserves
are too small to have much influence on total coal production, and
lignite's energy content is only about one-quarter that of high-quality
bituminous coal.

The EWG report discusses China's plans for CTL development, suggesting
that this will hike coal demand by "several hundred million tons per
year", pushing the nation's production capacity "very fast to its limits".


2. "What is the limit of Chinese coal supplies - A STELLA model of
Hubbert Peak" by Zaipu Tao and Mingyu Li, Energy Policy Volume 35, Issue
6, June 2007.

These two authors, from the Northeastern University PRC School of
Business and Administration, apply Hubbert analysis (linearization and
peaking) to Chinese coal production, basing their analysis on the
official Chinese government proven recoverable reserves figure of 186.6
billion tons. In doing so, they use STELLA, a software platform for
modeling the behavior of complex, dynamic systems.

Tao and Li write that Hubbert linearization indicates yet-to-produce
reserves of 71.73 billion tons, with a maximum production rate of 1.41
billion tons/year and the all-time production peak in 2006. But this
cannot be correct, as in fact the current production rate is much higher
and production continues to increase. The problem, the authors suggest,
is that linearization in this instance gives a false result for
yet-to-produce reserves: "We know", they write, that the number should
be the official government figure of 186.6 billion tons. Therefore they
substitute that amount in the equations, with the result that,
"According to the standard run, the Hubbert Peak for China's raw coal
production appears to be in 2029 with a value of 37.84 hundred million
tonnes".

The STELLA software allows for the addition of various parameters (such
as annual reserves additions, growth rates, and carbon dioxide
emissions), and results in differing decline curves. Tao and Li conclude:

"According to this simulation ... the peak in China comes between 2025
and 2032 with peak production about 3339 to 4452 million tons. Chinese
raw coal output will grow by about three to four percent annually before
the peak, which probably is a good chance for the development of China's
coal industry. However, the corresponding amount of greenhouse gases
produced may act as an enormous obstacle to increasing the coal
production ... To meet the increasing demand, China should consider new
energy development policies related to supply diversification before the
peak comes."


3. Lignite and Hard Coal: Energy Suppliers for World Needs until the
Year 2100 - An Outlook (Thomas Thielemann, Sandro Schmidt, and J Peter
Gerling, German Federal Institute for Geosciences and Natural Resources
[BGR], International Journal of Coal Geology, Volume 72, Issue 1, 3
September 2007, www.sciencedirect.com).

The BGR report concludes that, "from a raw-material angle in this
scenario there will be no bottleneck in coal supplies until 2100".
However, the assumptions and reasoning that lead to this judgment are
questionable in light of considerations brought up by EWG. The BGR
authors write:

"Should the annual rise in output be greater than one percent, Asia will
have to convert resources into reserves on a much larger scale than
presumed here".

But as noted above, China's rate of growth in coal consumption has in
fact recently been closer to ten percent per year. The BGR authors do
not explain how or why that rate will slow so much. Also, the conversion
of resources to reserves that the authors assume will occur in the
future is not explained adequately. The historic trend has been in the
opposite direction - that is, for booked reserves to be downgraded to
mere resources - and it is unclear why that trend should reverse itself.

The BGR authors do note that "Since it will certainly be possible to
cover some needs on the world market, the pressure of Asia, specifically
China and India, on world coal supplies and world market prices will be
much higher than today".


4. A Supply-Driven Forecast for the Future of Global Coal Production
(Höök, Zittel, Schindler, and Aleklett; Energy Policy, in press, The
Svedberg Laboratory.

As in its other country analyses, this paper's discussion of China's
future coal production expands on the reasoning and conclusions of the
EWG report. It concludes:

"The forecast estimates that Chinese coal production will reach a peak
in 2020, perhaps even earlier if the reserves are backdated to 1992,
when the last actual update took place, and corrected for cumulative
production. So China might be very close to its maximum coal production
unless the reserves are larger than reported or a significant amount of
resources can be transformed into produced volumes in the near future.
Unless something dramatic happens to the Chinese reserves the future
production will very soon end up under reserve constraints."

The authors offer two new charts, one based on reported reserves, the
other based on reported reserves minus amounts produced since 1992.


5. Other Hubbert linearization and curve fitting (David Rutledge and
Jean Laherrère).

In applying the Hubbert linearization method, David Rutledge of Caltech
(http://rutledge.caltech.edu/) finds the trend-line for China's total
ultimate production to be 115 billion tons, with 45 billion tons
produced so far and seventy billion tons remaining. This agrees well
with the result obtained by Tao and Li. Like them, he questions this
result. He notes that while the trend line that now shows seventy
billion tons left-to-produce has been steady for forty years,

"... in the last three years, production has gone through the roof.
There may be a move to a new trend line underway. It is also possible
that production will come back to the original trend line. During the
Great Leap Forward from 1958 to 1960, reported production soared for a
few years, but returned afterwards to previous rates."

Veteran petroleum geologist Jean Laherrère has charted a Hubbert curve
for future Chinese coal production ("Combustibles fossiles: quel avenir
pour quel monde?" aspofrance.viabloga.com), assuming an ultimate
production of 150 billion tons, a figure similar to those used by the
Energy Information Administration of the US Department of Energy and the
BGR. This assumes 110 billion tons of remaining reserves, an amount
somewhat higher than EWG but slightly lower than the World Energy
Council number and much smaller than the official Chinese government's
186.6 billion tons. Nevertheless, in this model, production peaks at
about the same time as suggested by EWG and Höök et al - that is, in 2020.


Implications

Demand for coal in China is growing so quickly that even if the high
reserves estimate from the Chinese government of 186.6 billion tons
proves to be accurate (as opposed to EWG's much lower estimate of 96
billion tons), this may shift the date of peak production by only about
five to seventeen years - from the years 2015-2020 (EWG) to 2025-2032
(Tao and Li). This further calls into question the BRG conclusion that
"there will be no bottleneck in [China's] coal supplies until 2100", as
a delay of the peak to that extent - by more than 65 years beyond the
Tao and Li forecast range - would require a conversion of resources to
reserves on a truly monumental scale. Such a conversion is impossible to
justify by precedent, and so BRG's conclusion can only be considered
realistic if China's coal demand is assumed to level off soon and
perhaps fall in coming decades - in which case a production peak will
have occurred in effect.

But such demand reduction is currently difficult to envision. China's
economy has been, is, and will continue to be coal-powered - as long as
sufficient supplies are available - since few options exist to
substantially reduce its coal dependency. Offsetting one year of recent
coal demand growth would require over 100 billion cubic meters of new
natural gas production capacity (current total capacity is 76 billion
cubic meters), 85 billion watts of hydropower capacity (current total
capacity: 83 billion watts), or nearly fifty billion watts of nuclear
power (expected total capacity by 2020: forty billion watts). It must be
emphasized that these offsetting amounts are required yearly additions.
Even if the amount needed to offset coal growth were spread among these
and other alternatives such as wind and solar, the required additions
would be economically daunting if not physically impossible to achieve.

As a result, China's practical ability to make serious carbon dioxide
emissions reductions in years ahead is very low, unless energy demand
and production decline sharply.

China's demand for coal will grow even faster than it has recently if
CTL technologies are implemented at the scale and speed now proposed.
Coal-to-chemicals plants, now being considered, would have a smaller
impact, but in the same direction. Coal-to-liquids and coal-to-chemicals
are projected to add 450 million tons of annual new coal demand by 2025.
In this case, total demand could exceed 4.7 billion tons by 2020.

The studies cited here (with the exception of BGR) suggest that China's
domestic coal production growth cannot be sustained much beyond 2020;
indeed, in the most constrained case (that is, if the EWG forecast is
correct) demand will outstrip domestic supply dramatically during the
next ten years.

China's demand for coal imports will therefore almost certainly top 200
million tons per year by 2020, and could exceed that figure by a wide
margin. This will significantly impact regional markets, leading to
increased competition with other coal-importing countries (Japan, South
Korea, Taiwan, and India), and to much higher prices for internationally
traded coal. (Currently, the total annual volume of internationally
traded coal is just over 800 million tons.)

The supply problems discussed here appear already to be manifesting.
During the winter of 2007-2008, power plants in many parts of the
country ran short of coal due to soaring prices and transport
bottlenecks, while snow and ice storms disrupted power transmission. A
People's Daily article, quoting Zhang Guobao, deputy head of the
National Development and Reform Commission, noted that only a "fragile
balance" existed in the thermal coal market despite huge and growing
coal output. During that same winter, prices for internationally traded
coal climbed substantially.

China's furious pace of economic growth, which is often touted as a sign
of success, may turn out to be a fatal liability. Simply put, the nation
appears to have no Plan B. No fossil fuel other than coal will be able
to provide sufficient energy to sustain current economic growth rates in
the years ahead, and non-fossil sources will require unprecedented and
perhaps unachievable levels of investment just to make up for declines
in coal production - never mind providing enough to fuel continued
annual energy growth of seven to ten percent per year.

If and when China ceases to have enough new energy to support continued
economic growth, there are likely to be unpleasant consequences for the
nation's stability. If such consequences are to be averted, the
country's leadership must find ways to rein in economic growth while
reducing internal social and political tensions, meanwhile investing
enormous sums in non-fossil energy sources. A serious attempt to reduce
greenhouse gas emissions would entail an identical prescription. It is a
tall order by any standard, but serious contemplation of the alternative
- which, in the worst instance, could amount to social, economic, and
environmental collapse - should be bracing enough to motivate heroic
efforts.

(c) 2004, 2005, 2006, 2007, 2008 Post Carbon Institute

Post Carbon Institute is a 501(c)3 non-profit organization incorporated
in the United States.

http://globalpublicmedia.com/museletter_coal_in_china


TO POST A COMMENT, OR TO READ COMMENTS POSTED BY OTHERS, please click
on the word "comment" highlighted at the end of the version of this
essay posted at http://billtotten.blogspot.com/