While demand growth over 2008-2010 is expected to be robust, it is not expected to be as strong as the growth over the previous four years. Global import demand is projected to increase at a compound annual growth
rate “CAGR” of 4.5 between 2007 and 2010F. This compares with a 5.8 CAGR from 2004 to 2007. Globally, thermal coal demand is driven primarily by coal-fired power generation demand. Coal is the major fuel
source for power generation and in 2007 accounted for approximately 43 of total power generation. Regionally, the independent power projects “IPP” are a priority for governments and deregulation is continuing throughout
the Asian market. IPPs in countries such as India, Malaysia, the Philippines, and Thailand contribute significantly to thermal coal demand.
On a delivered basis, coal has consistently been a lower cost fuel for power generation than either gas or oil. The risk of fuel substitution from coal to gas, oil, hydro, nuclear or renewable power generation is expected
to be limited in the short-term given the significant capital investment required to change fuel sources for power generation infrastructure. Furthermore, coal prices historically have been less volatile than petroleum-based fuels
and hence the cost of coal-fired power generation has provided greater certainty for energy planners.
2005 World Electricity Generation by Fuel
1,954
909 721
379 298
500 1,000
1,500 2,000
2,500
Mtoe
Data Sources: International Energy Agency and AME Nuclear
Oil Renewables
Gas Coal
Import thermal coal demand has been dominated by the three major North Asian economies — Japan, South Korea and Taiwan. These markets have been the driving force behind the growth in international thermal
coal trade in the last 10 to 15 years, currently accounting for more than 65.6 of Asian demand and 37.8 of the world’s thermal coal imports in 2007. Between 2001 and 2004, it is estimated that Japan added almost 9.5
gigawatts “GW” of coal-fired generation capacity. Japan is forecast to remain the largest importer of thermal coal until 2010F. South Korea is expected to increase annual thermal coal imports to 72.1 million tonnes in
2008F from 67.8 million tonnes in 2007 with four new coal-fired power stations, which were commissioned in 2007, and at least another two scheduled to come on-line in 2008F. Taiwan’s Ministry of Economic Affairs
Bureau of Energy plans to lift electricity generation capacity by approximately 8.6GW over the period 2005 to 2012F, with coal and gas accounting for approximately 5GW of the incremental increase.
The highest rates of import demand growth in the Asian region are expected to come from China, Malaysia, the Philippines, Thailand and India. Malaysia intends to add additional coal-fired capacity from
3.7GW in 2003 to 7.9GW by 2009F, India has improved access to imported coal under a lower tariff structure and Thailand is moving to decrease its reliance on gas as fuel for electricity generation.
India faced a power deficit of around 9 in total energy terms and a 13 capacity deficit under peak load conditions in 2006 resulting in widespread interruptions to electricity supply. India’s Ministry of Power’s
10th and 11th Plans intend for Indian power generation capacity to increase from the 2007 level of 137GW to 206GW by 2012F. In late 2007, 34.4GW of thermal generation capacity was under construction under the 10th
and 11th Plans. This is forecasted to increase coal’s share of domestic power generation in India to approximately 57 by 2012F from approximately 54 in 2007 and lead to annual coal imports increasing to
approximately 45.0 million tonnes by 2010F. Coal imports are expected to increase because domestic coal supply is largely unsuitable for power generation uses due to domestic coal supplies having low energy content, high ash
content and long transportation distances up to 1,800 km to coastal power generation centers.
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China is the major swing factor in the global coal demand and supply balance as it has the critical mass to influence coal fundamentals with its significant coal production and increasing domestic demand. China is
estimated to have consumed over 2.5 billion tonnes of coal in 2007 but became a net importer for the first time in January 2007 with thermal coal imports delivered to regional ports increasingly cost competitive due to inland
infrastructure constraints. However, it re-entered the market as a net exporter from 2007, and there is uncertainty as to whether it will continue in 2008 as a net exporter or importer. China installed capacity growth and
expansions peaked in 2006 when 60GW of coal-fired power generation capacity was added, taking total coal- fired capacity to approximately 396GW. Coal-fired power generation capacity grew by 45GW in 2007 and is
expected to increase by an additional 45GW in 2008F. Coal-fired power generation capacity is projected to increase by 25GW in 2009F and a further 8GW of projected capacity in 2010F.
Chinese demand is expected to continue to drive growth in the size of the international thermal coal market. Chinese import demand between 2004 and 2007 grew by an estimated 56.0 CAGR to approximately
44.8 million tonnes. China’s thermal coal imports for 2008F are forecast to be at similar levels as 2007 at approximately 51.3 million tonnes.
Imports to the United States and Mexico are forecast to increase moderately through 2010F and European import demand, which currently accounts for slightly less than one-third of the global thermal coal
trade, are projected to remain relatively static during the balance of the decade. Carbon pricing is one of the greatest uncertainties facing the coal industry today. The effect of
regulation on carbon dioxide CO
2
emissions and the management of CO
2
could have impact on the use of coal where such is legislated or otherwise embraced.
Thermal Coal Supply Overview and outlook
After two years of strong growth that saw the internationally traded thermal coal trade expand by over 70.0 million tonnes, it is estimated that thermal coal exports in 2007 grew by approximately 27.4 million tonnes
to approximately 656.6 million tonnes, a 4.4 increase compared to 2006. Internationally traded thermal coal is forecast to grow to approximately 749.9 million tonnes in 2010F. In 2007, thermal coal export growth was driven
mainly by exports from Indonesia, Russia and Colombia. Thermal coal exports from China are projected to decrease while Australian, Polish and Canadian thermal coal exports are expected to remain relatively static out
through 2010F.
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Estimated Internationally Traded Thermal Coal Supply million tonnes
2002 2003
2004 2005
2006 2007
2008F 2009F
2010F
Canada . . . . . . . . . . . . . . . . . . . . . 2.1
1.3 1.9
1.5 2.8
4.2 4.8
5.5 6.0
North America . . . . . . . . . . . . . . 18.4
20.1 20.9
20.6 22.7
27.2 38.8
37.5 34.0
Colombia . . . . . . . . . . . . . . . . . . . 33.9
44.4 49.7
53.5 57.8
63.0 69.0
76.0 82.0
Central South America . . . . 39.5
49.6 55.3
58.8 63.0
68.6 76.3
85.3 92.0
EU-15 . . . . . . . . . . . . . . . . . . . . . 0.5
0.5 0.5
0.6 0.3
0.0 0.0
0.0 0.0
Poland . . . . . . . . . . . . . . . . . . . . . 19.1
17.4 16.6
17.6 16.6
10.5 9.5
9.0 8.5
EU-10 . . . . . . . . . . . . . . . . . . . . . 21.4
19.4 19.0
19.7 18.7
12.5 11.0
10.5 10.0
Russia . . . . . . . . . . . . . . . . . . . . . 33.9
46.9 60.0
63.6 78.5
84.5 88.0
90.0 92.0
CIS . . . . . . . . . . . . . . . . . . . . . . . 59.1
76.2 89.6
93.6 107.5
110.7 114.5
117.0 119.5
South Africa . . . . . . . . . . . . . . . . 67.3
67.1 63.6
72.8 65.4
63.2 63.0
70.0 73.0
Africa . . . . . . . . . . . . . . . . . . . . . 67.3
67.1 63.6
72.8 65.4
63.2 63.0
70.0 73.8
China . . . . . . . . . . . . . . . . . . . . . . 67.5
77.9 74.0
61.5 55.0
49.0 38.0
38.0 38.5
Indonesia . . . . . . . . . . . . . . . . . . . 70.2
87.8 103.0
123.8 154.7
174.4 190.8
202.8 215.3
Other Asia . . . . . . . . . . . . . . . . . . 17.7
14.1 20.5
19.4 28.9
37.8 32.8
30.5 29.5
Asia . . . . . . . . . . . . . . . . . . . . . . . 155.4
179.8 197.5
204.7 238.6
261.2 261.6
271.3 283.3
Australia . . . . . . . . . . . . . . . . . . . 99.5
104.0 107.9
108.8 112.8
112.9 118.0
126.0 136.9
New Zealand . . . . . . . . . . . . . . . . 0.2
0.3 0.3
0.4 0.3
0.3 0.3
0.3 0.4
Oceania . . . . . . . . . . . . . . . . . . . . 99.8
104.3 108.2
109.2 113.1
113.2 118.3
126.3 137.3
World Total . . . . . . . . . . . . . . . . 461.3
516.9 554.7
580.0 629.2
656.6 683.5
717.9 749.9
Change . . . . . . . . . . . . . . . . . .
1.9 12.1 7.3
4.6 8.5
4.4 4.1
5.0 4.5
Data Sources: IEA, EIA UN, Country Stats, AME estimates
Indonesia became the world’s leading thermal coal exporter, overtaking Australia in 2005. Indonesia’s thermal coal exports of approximately 174.4 million tonnes in 2007 represented a 12.7 increase over its 2006
exports of approximately 154.7 million tonnes and a 40.9 increase over its 2005 exports of approximately 123.8 million tonnes and accounted for almost two thirds of the growth in the global thermal coal trade in 2007.
The major Indonesian coal producing groups are outlined below:
Indonesia—Largest Thermal Coal Export Producers
Production Volume million tonnes
2007 Ranking CompanyGroup
2007
1 Bumi Resources Group1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53.8 2
PT Adaro Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.0
3 PT Kideco Jaya Agung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18.9 4
Indo Tambangraya Megah Group2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.6
5 PT Berau Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.8 6
PT Anugerah Bara Kaltim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.53
7 PT Tambang Batubara Bukit Asam Group4 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.1 8
Bayan Group5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7
9 PT Baramarta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.7 10
PT Bahari Cakrawala Sebuku . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4
1 Comprises PT Kaltim Prima Coal and PT Arutmin Indonesia. 2 Comprises PT Indominco Mandiri, PT Trubaindo Coal Mining and PT Jorong Barutama Greston.
3 Based on saleable production as estimated by AME. 4 Comprises Bukit Asam and Bukit Asam — Ombilin.
5 Data from Bayan Resources.
Data Sources: Ministry of Energy and Mineral Resources and AME except in respect to the Bayan Group, which is provided by Bayan Resources
Indonesian thermal coal exports possess several key advantages to the exports of its primary competitors from Australia and South Africa. Due to the nature of its open cut, low strip ratio, thermal reserves, Indonesian
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thermal coal supply has amongst the lowest cash mining costs in Asia Pacific. In addition, significant freight advantages exist due to the geographic proximity of Indonesia to China, India and other key Asian importers,
especially when compared to Australia and South Africa. Furthermore, the reliance on Indonesian thermal coal exports continues to increase as accessible bituminous reserves are becoming exhausted globally. According to a
2006 study by the Ministry of Energy and Mineral Resources, Indonesia had economic coal reserves of over 6.75 billion tonnes. The average export mine FOB cash cost of production in Indonesia increased to
approximately US33.37 per tonne by the end of 2007, but was still less than that of its main competitor Australia at US38.32 per tonne.
Indonesia is expected to remain as the largest thermal coal exporting nation through 2010F with thermal exports expected to grow to approximately 215.3 million tonnes annually by 2010F 7.3 CAGR between 2007
and 2010F. The slowing in export growth from the start of the decade is expected to be offset by significant increases in domestic demand. The Indonesian Government has set a policy in place to increase coal’s share of
the energy mix from approximately 11 in 2007 to 33 in 2025F. The increase is expected to be primarily driven by increased coal-fired power generation for electricity and expansion of coal usage in other industries,
including cement and paper. Indonesia’s state electricity company, PT PLN Persero “PLN”, is expected to install 9GW of coal-fired generating capacity under its Electricity Crash Program with an estimated further 1GW
of new generation capacity coming from IPPs. As of the first quarter of 2007, this would result in coal fired capacity increasing from 10.4GW in 2007 to 18.0GW by 2010F. Using current coal-fired coal consumption
trends, this capacity increase would lift related domestic coal consumption from approximately 31 million tonnes in 2007 to approximately 54 million tonnes by 2010F.
Indonesia—2007 Thermal Coal Export Destinations
Others Philippines
Malaysia Thailand
Hong Kong
EU-15 China
India Taiwan
South Korea Japan
17
15
14 13
8 7
6 5
4
3 8
Data Sources: AME estimates
In 2007, Australia struggled to maintain the 2006 level of thermal coal exports, mainly due to competition from higher quality coal exports and limited rail and port capacity. In 2007, Australian thermal coal
exports increased marginally from 2006 levels to approximately 112.9 million tonnes. Infrastructure constraints limited Australia’s 2007 thermal coal exports and are expected continue to constrain exports in 2008F, with
exports estimated to increase to approximately 118.0 million tonnes. However, Australia’s total export thermal coal production capacity has the potential to increase by up to 65 million tonnes per year in the period 2007 to
2010F. This capacity is in excess of forecast demand growth of 24 million tonnes over the 2007 to 2010F period, and also in excess of infrastructure capacity prior to 2010. However, port capacity is projected to rise from
301 million tonnes per annum at the start of 2007 to 429 million tonnes by the end of 2010F, while corresponding rail capacity is also targeted to rise from approximately 272 million tonnes per annum to around 404 million
tonnes by the end of 2010F.
South Africa is the world’s fourth largest thermal coal exporter in 2007 behind Australia, Indonesia and Russia. South Africa is the major exporter to Europe, where it competes mainly with Russia, Poland and
Colombia. South Africa’s export production has been constrained in recent years by capacity limitations at the Richards Bay Coal Terminal “RBCT” and the rail line connecting the major coalfields to that terminal. As a
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