The end of coal's '1000 year Reich'?

*ROMAN GRYNBERG | Friday November 25, 2011 00:00

Whether it was the US in 1904 or Britain in 1861 it was predicted that coal deposits would, like Hitler's Reich, last 1,000 years and the children had little to fear for the great machines that produced the prosperity and the war ships that defended it, would continue to churn on.

In 1972  as a result of the now infamous 'Club of Rome' -Limits to Growth report where it was predicted that oil would only last 20 years and hence stifle growth,  predicting the decline of oil and other natural resources  has fallen into disrepute. 

As a result, resource economists have generally shied away from making any such predictions about when any energy resource will come to an end for fear of being labeled 'Club of Rome dinosaurs'. The three great powers that once fuelled their industrialisation through coal have already run out of coal and 150 years later Britain basically  stopped mining coal.

Germany, like Britain also fuelled its industrialisation with coal and still continues to mine some extremely deep, low quality  and marginal deposits with some of the highest costs in the world (upwards of Euro 200/tonne).

Japan, another coal school graduate,  is now the world's largest coal importer and may well continue to be there, given the reluctance of its citizens to become even more dependent upon nuclear power following the disaster at Fukushima following Japan's tsunami.

Economists, ever fearful for their next consultancy, have started  to meekly return to analyze of what is 'peak oil' and 'peak coal' ie when will coal and oil production will start to run out. Despite the embarrassment of previous mistakes,  countries and even planets run out of particular resources that can be extracted at anything like a commercially feasible prices.

Even the US which has long been considered 'the Saudi Arabia of coal' is beginning to see the eventual demise of its coal mining industry.At the moment the consistently fastest growing economies on the planet are China and India  and are experiencing a huge growth in demand for imported coal for electricity.

As a result of their demand coal prices rebounded quickly after the initial shock of the global recession and the demand growth from India and China has been so rapid that it allowed, Australia the world's largest coal exporter, to be the only OECD country that avoided a recession following the 2008 financial crisis.

China, because of its massive coal reserves, used to be a major coal exporter in 2005  but is now the world's second largest importer.

Its academics are predicting that given the rate at which it is using coal to feed its appetite for electricity it will reach 'peak coal' production as early 2025  and at latest 2032.

India is expected to rapidly become a major market for coal from Africa as, unlike China does not have the reserves to feed its development. India will almost certainly become heavily dependent upon exports from Africa.

For South Africa, Botswana, Zimbabwe and Mozambique which hold some the region's richest coal reserves the surge in world demand for coal that will continue for at least the next 20 -30 years (power stations being built today will last to at least 2040).

These countries are the only ones with significant unexploited resources which Asian companies will certainly be hoping to snap up to assure continuing supply to their power generators. Botswana regularly suggests it has over 200 billion tonnes of  coal. Most is not proven and is in the hypothetical and speculative category and will almost certainly not eventuate. However based on known reserves Botswana alone can export at least 40 million tons per annum should a low cost and  effective railway to the coast ever be built.

A much larger volume may be possible once more exploration occurs following the commencement of railway construction.

So when will coal peak globally? If resource economists are to believed then peak coal will occur globally between 2030-2050. Some serious economists are predicting that 90% of global coal deposits will be exploited by 2070. So where will humanity get its electricity?

The only fuel sources that are large enough and able to sustainably fuel humanity's ever rising desire  for more people and more goods to keep them happy is solar photovoltaics and price are starting to stack up. German projections suggest that some 70 percent of global energy supply by the end of the century will come from solar power. This change to solar will come in large measure because of the cost and absence of any obvious alternative  and not because energy companies, despite their advertising,  have become greenies there has been a surge in renewable energy technology throughout this decade.

While coal will become even more important globally in terms of  fuel to generate electricity rising from 41 percent now to 44 percent by 2030 it is expected to sharply decline thereafter. The most recent estimates from the IEA put the cost of solar power at over twice that of coal but the price is decreasing rapidly because of continuing technological change and the effect of economies of scale.

The US government is predicting that by 2020 photovoltaic prices will halve from USD0.20 kWh to USD0.10 kWh and be close to current prices of electricity generated by coal. However,  coal prices are almost certainly set to rise in this period.

Once that tipping point comes and renewables become cheaper those countries like Australia that have 'ridden the coal train to the coast' and increased their wealth by simply exporting coal to China and India will no longer be able to do so. This strategy of exporting coal to Asia has a window of 20-30 years but as relative prices change what remains of thermal coal will stay in the ground.

*These are the views of Professor Roman Grynberg and not necessarily those of the Botswana Institute for Development Policy analysis.