Have we hit peak coal?

Trent Ernst, Editor

 

An analyst with Timetric, a business information service in Australia, is predicting the world may have hit peak metallurgical coal production.

In a recent article on the state of coal mining in Canada, Clifford Smee, Lead Mining analyst for Timetric, says “Unfortunately, more signs point to the Chinese steel industry peaking, which likely coincides with peak metallurgical coal consumption. Meanwhile, Japan, historically Canada’s largest consumer of export coal, has a declining steel industry.”

Hubbert peak theory is best known for the concept of peak oil. However, peak coal is the point in time at which the maximum global coal production rate is reached, after which the rate of production will enter a terminal decline.

Like oil, coal is a fossil fuel formed from plant matter over the course of millions of years. It is a finite and non-renewable energy source.

The estimates for global peak coal extraction vary wildly. Many coal associations suggest the peak could occur in 200 years or more, while some scholarly estimates predict the peak to occur as soon as the immediate future.

In 2009, a paper coming out of the University of Newcastle in Australia concluded that coal production could peak as early as 2010, or as late as 2048.

Others predict that global peak coal extraction may occur sometime around 2025.

Of course, the idea of peak coal is often in reference to its use as an energy source, while the coal produced in Tumbler Ridge is used in steelmaking.

Still, this, too may be on the decline. A recent story by Reuters says top steelmaker Baoshan Iron and Steel Group expects crude steel production to peak in 2018 at around 850 million tonnes and then taper off to around 700-800 million tonnes.

According to the World Coal Institute, about 15 percent, or around 1.2 billion tonnes of total coal production is currently used by the steel industry and roughly 70 percent of total global steel production is dependent on coal.

Wait, 70 percent of steel production is dependent on coal? I thought all steel needed met coal?

While that used to be true, that’s changing. Almost 70 percent of global steel is produced in Basic Oxygen Furnaces (BOF). This is what you think of when you think of steel production. Coking coal is converted to coke, which is then used in the blast furnace to smelt iron ore. The resulting molten iron is then taken to the BOF, where steel scrap and limestone are added. A stream of high purity oxygen is blown through the molten bath to remove impurities, leaving almost pure liquid steel.

About 770 kg of coal is required to produce 1 tonne of steel in BOF.

28 percent of steel is produced in Electric Arc Furnaces (EAF). Steel produced this way is primarily recycled from scrap (old cars, etc). Since this steel is already purified, met coal is not needed for this type of steel. As more steel is recycled, the need for met coal also decreases.

And, with potentially new methods coming down the pipe to replace the BOF (electrolysis; biomass), the world’s reliance on coal may be coming to an end.

In order to stimulate demand for seaborne metallurgical coal and increase prices, writes Smee, Canada’s export coal industry will need India’s economy – and its steel industry in particular – to undergo significant development. Currently, India’s steelmaking relies on EAF technology, though that has been changing.

But even if India does become the new steelmaking centre of the world, don’t expect it to replace China’s demand for met coal.

Smee estimates seaborne metallurgical prices need to increase to US$160/t before any further production capacity is added. This is in line with Teck’s Ian Kilgour’s figure of US $150/t. But with coal prices sitting at US$110/t, recovery to this level would seem unlikely in the short term, especially with new supplies of metallurgical coal being brought online from Australia.

The good news, says Smee, is that Canada has the potential to deliver up to 50 million tonnes per year from the three coal ports at Westshore, Neptune and Ridley Terminals. This does give Canada a leg up on developing coal regions, such as Mozambique and Mongolia, which currently have no access to the seaborne market.

Of course, there’s peak coal and there’s Peak Coal. In the past, worldwide coal production has appeared to have peaked in 1918, 1947 and 2008, experiencing significant drop-off after each peak, but returning stronger than ever, though sometimes taking up to 30 years to experience such a recovery.