* Highest quality coal mines with low costs have been
* Environmental regulation will require expensive
* Gas to catch up with coal by 2030
By Henning Gloystein and John McGarrity
LONDON, Nov 23 The quality of thermal coal for
exports is dropping, prompting concern among utilities and
mining companies that coal-fired power plants will become more
expensive to run and will fall foul of stricter environmental
Coal has been the dominant fuel for electricity generation
in developed countries since the 19th century, and emerging
economies such as China and India have in recent decades ramped
up coal use to account for more than half of global demand.
Some investment analysts argue that this "golden age" of
coal may be coming to an end, as large coal fields discovered in
the last two decades, such as in Indonesia or Colombia, were
easy to develop and the most economical reserves of the fossil
fuel are fast being depleted, leading to a drop in the quality
of what remains.
"High-quality and cheap coal supply is under serious threat
... (and) we believe the 'golden age' of coal will end sooner
than expected," Axa Investment Managers said in a report.
Energy research and consultancy Wood Mackenzie says the
quality of coal from Indonesia, the world's biggest exporter, is
already low and will deteriorate further.
This means that to get new supplies out of the ground could
become increasingly uneconomical and many new projects may be
The drop in coal quality also clashes with tighter
environmental regulation regarding coal mining and coal-fired
power generation in both developed and emerging economies, which
could dim investment opportunities.
In developed economies, coal power stations that have
already been built may require expensive upgrades to meet
tightening regulation and cope with lower coal quality.
"The high age of installed capacity in industrialised
countries implies that retrofitting an aging fleet of plants
will incur major costs," Axa said.
"Moreover, the typical size of these plants, which were
built in a time of abundant, high quality coal, makes them
particularly costly to retrofit ... but efficiency will not be
enough to recoup investments when supplies decrease in quality."
In emerging markets, analysts think coal might not be king
for as long as initially expected as the high degree of
pollution from coal-fired electricity generation will result in
public anger and lead to tighter regulation, making it
increasingly difficult to justify use of the fuel.
"For the next round of rapidly growing economies, coal will
be shorter lived than expected," Axa said.
COAL STILL GROWS BUT GAS CATCHES UP
Despite the pollution, analysts say that developing
countries will push ahead with coal build because alternative
forms of energy might not be readily available or affordable.
In China, planners are locating new coal-fired power
stations close to the country's coal reserves in northern
provinces, where the impact of pollution and land issues are
less of a challenge, said Miswin Masweh, a commodities analyst
"Locating power plants close to mines and transporting the
electricity over vast distances using efficient power lines will
mean they can burn dirtier types of coal and reduce congestion
on China's road and rail network," he said.
New coal plants in Africa will be able to burn dirtier, less
efficient forms of coal without much regard to the environmental
consequences, as government policy was heavily skewed towards
fast economic growth, Masweh added.
The World Resources Institute said that 1,199 new coal-fired
plants with a total installed capacity of 1.4 million megawatts
(MW) are being proposed globally, most of which are in China and
India but sub-Saharan Africa and Latin America may also see a
Despite this expected growth, coal is expected to be
challenged by gas as the dominant fuel for power generation.
Current annual global coal burn is 3.6 billion tonnes of oil
equivalent, compared with 2.7 billion tonnes of gas and 4
billion tonnes for oil, but the International Energy Agency
(IEA) says that gas could catch up with coal by 2030.
(Editing by Keiron Henderson)